Editing Economy of Latvia (section)

===Economic contraction in 2008–2010===
{{Main|2008 Latvian financial crisis|Baltic states housing bubble}}
The [[2008 financial crisis]] severely disrupted the Latvian economy, primarily as a result of the easy credit bubble that began building up during 2004. The bubble burst leading to a rapidly weakening economy, resulting in a budget, wage and unemployment crisis.<ref>{{cite news| url=http://news.bbc.co.uk/2/hi/8496925.stm| publisher=BBC | first=McGuinness | last=Damien | title=In Pictures: Latvia economy reels in recession | date=4 February 2010}}</ref> Latvia had the worst economic performance in 2009, with annual growth rate averaging −18%.

The Latvian economy entered a phase of fiscal contraction during the second half of 2008 after an extended period of credit-based speculation and unrealistic inflation of real estate values. The national account deficit for 2007, for example, represented more than 22% of the GDP for the year while inflation was running at 10%.<ref>{{cite web|url=https://www.cia.gov/the-world-factbook/countries/latvia/|title=Latvia |publisher=[[CIA]]|access-date=15 December 2008}}</ref>
By 2009 unemployment rose to 23% and was the highest in the EU.<ref>{{cite news| url=http://news.bbc.co.uk/1/hi/technology/8533641.stm | publisher=BBC News | title=Robin Hood hacker exposes bankers | date=24 February 2010 | access-date=1 May 2010}}</ref>

[[Paul Krugman]], the Nobel Laureate in economics for 2008, wrote in his ''[[The New York Times|New York Times]]'' Op-Ed column for 15 December 2008:

''"The acutest problems are on Europe's periphery, where many smaller economies are experiencing crises strongly reminiscent of past crises in Latin America and Asia: Latvia is the new Argentina".''<ref>{{cite news|url=https://www.nytimes.com/2008/12/15/opinion/15krugman.html |title=European Crass Warfare |work=[[The New York Times]]|access-date=15 December 2008 | first=Paul | last=Krugman | date=15 December 2008}}</ref>

By August 2009, Latvia's GDP had fallen by 20% year on year, with [[Standard & Poor's]] predicting a further 16% contraction to come. The [[International Monetary Fund]] suggested a [[devaluation]] of Latvia's currency, but the European Union objected to this, on the grounds that the majority of Latvia's debt was denominated in foreign currencies.<ref>{{cite news |url=https://www.telegraph.co.uk/finance/financetopics/financialcrisis/6006322/SandP-downgrades-Baltic-states-debt-ratings.html|archive-url=https://web.archive.org/web/20090813100421/http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6006322/SandP-downgrades-Baltic-states-debt-ratings.html|url-status=dead|archive-date=13 August 2009|title=S&P downgrades Baltic states' debt ratings |last=Evans-Pritchard|first=Ambrose |work=[[The Daily Telegraph]]|location=London |date=10 August 2009}}</ref> Financial economist [[Michael Hudson (economist)|Michael Hudson]] has advocated for redenominating foreign currency liabilities in Latvian lats before devaluing.

However, by 2010 there were indications that Latvia's policy of [[internal devaluation]] was successful.<ref>{{Cite web |url=http://www.bbn.ee/article/2010/02/08/Moody_s_Latvian_economy_is_stabilizing |title=Baltic Business News, 8 February 2010 |access-date=17 January 2012 |archive-date=6 March 2016 |archive-url=https://web.archive.org/web/20160306025950/http://bbn.ee/article/2010/02/08/moody_s_latvian_economy_is_stabilizing |url-status=dead }}</ref>