afterwards ”. this saying, often referred to as “ juncker ’ s curse ”, unfortunately seems to be confirmed by the crisis in vast segments of the euro area. italy, greece, ireland, portugal : in all of these countries the government fell directly as a result of its handling of the economic crisis. latvia seems to be the exception to the rule. despite harsh austerity measures the prime minister managed to get re - elected twice. many ruling politicians in europe these days may look upon this with incredulous admiration. why was the internal devaluation strategy effective in latvia and the baltics, while other countries are still struggling with a deep economic and political crisis? it is worth drawing lessons from the baltic experience for euro area member countries. bis central bankers ’ speeches ii. lessons for euro area member countries let me start with fiscal consolidation. the baltic experience shows clearly that speed is of the essence. in all three baltic countries, the government reacted swiftly to the deterioration of public finances and frontloaded fiscal adjustment. with a budget consolidation of around 9 % of gdp in 2009 alone, latvia ’ s effort is unparalleled in europe. undertaking the necessary austerity measures at an early stage had a triple beneficial effect. first, it allowed the baltics to benefit from positive confidence effects. second, it allowed latvia to return to the financial markets well ahead of schedule. third, it allowed growth to bounce back after exceptionally severe output contractions. in 2011 the baltic countries were the three best performers in the eu in terms of gdp growth. at a time when all euro area policy - makers urgently seek ways to relaunch growth, this is a remarkable achievement. the concept of “ expansionary contraction ” has been used and criticised in the ongoing debate about growth and austerity. the baltic experience provides an indication that this need not be an oxymoron : even if fiscal consolidation weighs on the growth prospects in the short term, it has sizeable positive effects in the medium to long term. but this frontloading approach also proved effective from a political perspective. by acting with speed and determination, the latvian government was able to capture the sense of urgency prevailing among the population and mobilise it to support adjustment. this way, most of the required painful budgetary decisions could be passed before the so - called “ adjustment fatigue ” kicked in. the bottom line is this : when adjustment is inevitable, it is better to take the medicine right away than to let the fever

me state very clearly that the euro area is not a closed club. it is open to any eu member state that fulfils the convergence criteria on a sustainable basis. iv. conclusion the baltic experience demonstrates that euro membership is not just about economics. the economics alone make only for a partial analysis of the failure or success of an adjustment bis central bankers ’ speeches programme. the political motivations – such as the determination to join the euro area or to safeguard the political capital invested in emu – have often been underestimated by markets during the crisis. i firmly believe that both economic and political arguments will ultimately also prevail in countries currently in the middle of an adjustment process that is similarly painful to latvia ’ s experience. thank you very much for your attention. bis central bankers ’ speeches