Tyler Cowen recently linked to an article comparing the recoveries (or not) in Latvia and Greece.
I think the debate over “austerity” is the wrong debate. The demand-siders are right that many countries need more demand. But if the central bank won’t allow more demand, then the best option might be to boost AS by making your economy as lean and mean as possible. That might involve shrinking the government.
Poland reacted to the global demand shock by devaluing. It did far better than Latvia, which stayed fixed to the euro. And Latvia bit the bullet with austerity before Greece, and it’s doing far better than Greece. These sorts of comparisons are full of lots of complications, ceteris is never paribus. So maybe it doesn’t show much. Let me just say that, given their policies, the relative performance of these three countries doesn’t surprise me.