ABSTRACT

When the Baltic States re-established their independence in 1991, they had to make decisions on their own future economic policies, including both fiscal and monetary policies. This included future exchange- rate regimes. The Baltic States were all European Union (EU) member states when the 2008/2009 crisis occurred, but, unlike the PIIGS they did not adopt the euro until after the crisis. Nevertheless, their governments did maintain a fixed exchange-rate policy throughout the crisis to enable euro adoption as soon as possible post-crisis, since such a policy was a firm condition from the EU for euro adoption and was also strongly favoured by the owners of foreign banks operating in the Baltic’s and by their home governments. As regards the crisis experience of Eastern European economies, those with floating exchange rates received foreign direct investment inflows, mainly in the manufacturing sector, while those with fixed rates had a higher concentration in the financial and housing sector.