Warning To Greece: Look What Happened When Latvia Took EU Aid Rather Than Quit The Currency

Greece should think twice before accepting aid from the EU and the IMF.

The last country to take the EU bailout was Latvia in 2007. Although Latvia received support amounting to 43% of GDP, they were not able to recover from the recession, and still face increasing unemployment and declining GDP, according to the Carnegie Endowment.

On the other hand, Greece could screw the international community and take control of the local currency. It worked for Argentina, says Uri Dadush at the Carnegie Endowment:

Though Argentina paid a heavy price for devaluing and defaulting, its competitiveness was quickly restored and a rapid recovery—helped by favourable global conditions—ensued. Its exports grew by 15 per cent in 2003 and 17 per cent in 2004, while its GDP grew 8.8 per cent in 2003 and 9.0 per cent in 2004, regaining its pre-crisis peak within about 10 quarters.

In contrast, though Latvia’s current account balance has swung to surplus, this has come on the back of demand containment rather than export growth: since the end of 2007, imports have fallen 41 per cent compared to a 14 per cent decline in exports. Latvia remains mired in recession, with the IMF forecasting that GDP will contract by 4 per cent in 2010, followed by anemic growth of 1.5 per cent in 2011. In addition to its large outstanding private debt, it now has a large foreign public debt burden to repay to the IMF and the EU.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.