Freezing Yourself Out In Latvia and Lithuania

This very short piece of news in Bloomberg this morning is straight to the point, how the hell are you going to export to countries (whenyou now need to live from exports) if those countries are having massive devaluations while you mark time. Oh, I know, the Ukraine and Russia represent only a small fraction of Baltica exports, but they aren’t the only ones falling, the Romanian Leu, the Polish Zloty, the Hungarian Forint, the Czech Koruna are all falling, and all these countries are direct rivals for market share in the rest of the EU.

AB Snaige, the only refrigerator maker in the Baltic states, will cut about 300 jobs in its Lithuanian factory, citing lower demand in Russia and Ukraine as both the ruble and hryvnia lose value against Lithuanian litas. Sales in Russia and Ukraine have “stopped” and “there is no evidence these markets will revive” during the first quarter, the Alytus, Lithuania-based company said in a statement to the Vilnius Stock Exchange today. The company employs “more than” 2,300 workers in its two factories in Lithuania and Kaliningrad, Russia, according to its Web page.

Basically as I say, it also matters which currency you are pegged to. One commenter has made this point.

Regarding Latvia, I’m working for industrial company in Latvia, with most customers from Sweden or Russia and latest SEK and ruble rate changes have really eaten up business both for export and import. From SEK/LVL we lose in funny sequence, more you sell – more you lose. Today, here are a lot and a lot of industries closed, closing or planning to close.

Evidently there is a lot of “restructuring” going on, but is it the kind of restructuring Latvia and Lthuania need, I ask you?

Euro To Swedish Krona

Here’s the chart of the Euro with the Swedish Krona.

Euro To Russian Ruble

Here’s the Euro/Ruble chart:

Euro To Polish Zloty

Finally, here’s Latvian industrial output for November, anyone spot the trend?

And incidentally, Latvian exports were down 19.7% between October and November 2008. Oh, I know, I know, not only doesn’t Latvia need exports, it doesn’t need industry either. Meanwhile, onwards and downwards we go.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

3 thoughts on “Freezing Yourself Out In Latvia and Lithuania

  1. > Oh, I know, I know, not only doesn’t Latvia need exports, it doesn’t need industry either.

    You might find the following excerpt from the torygraph interesting (
    “Leaked documents reveal – despite a blizzard of lies by EU and Latvian officials – that the International Monetary Fund called for devaluation as part of a €7.5bn joint rescue for Latvia”

  2. Hi Oliver,

    “Well, then whom would the members of the eurozone export to besides each other?”

    Well, obviously in the Latvian case countries like Ukraine, Russia, the UK, Sweden, Denmark – assuming that one day Latvia is a member that is. The issue is at what exchange rate the country enters the zone. I don’t know what E-P is going on about in terms of “leaked documents” – no one in Latvia seems to have heard of them, although they do sound good journalistically, they feed conspiracy theories.

    If you take the trouble – as I did – to read the IMF report it is plain that the IMF seriously considered a 15% trading band (which would have meant a 15% devaluation) but that it was the EU Commission who said no. This is there in black and white, and there is nothing secret about it. I will return to this when I reply to Christoph Rosenberg.

    As to exports outside the Eurozone, this is not a simple one for one game. Finaland and Germany, for example can export to China, and maybe India and Brazil in the future, and then the Baltics (eg) can export to Finland and Germany. It depends. What we now need – it is obvious really – is a much bigger external surplus (since internal demand is going to be weak for at least the next 5 years as we pay down the debts we rae now accumulating) – so that will put the eurozone among the strong external surplus regios that Brad Setser and Martin Wolf so strongly dissaprove of. We will just have to withstand their wrath I’m afraid, and look for CA deficit countries (like maybe India and Brazil etc) to help balance the global books.

    As Martin Wolf himself admits, all this is not a morality play, it is plain, technical macro economics.

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