| Summary: | Iceland and Latvia were hard hit by the 2008 global economic and financial crisis. Iceland was the first country hit and Latvia was the hardest hit country. In Iceland the national currency depreciated sharply while Latvia’s national currency remained pegged with the Euro. Both countries cut their fiscal budgets. Latvia implemented a severe austerity program while Iceland’s priority was to protect its welfare system. The reactions of these two small countries has received international attention and continues to be cited among scholars when debating how best to manage such devastating events. After more than five years since the crisis hit policy outcomes are emerging. Both economies now enjoy healthy GDP growth. Latvia’s policy during the crisis was costly in human terms and Latvia still suffers from high rate of unemployment, poverty, social exclusion and high income inequality. In Iceland unemployment is low and the welfare system appears to have protected the most vulnerable relatively well compared with other countries in the European Economic Area. Small states, Latvia and Iceland, global crisis, economic policy, privatization.
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