Baltic convergence: steep and yet stable?

The Baltic states (Estonia, Latvia and Lithuania) have made remarkable progress in aligning their institutional and economic features with the longer-standing members of the EU. They have embarked on a steeper real and financial convergence path than the other countries that have recently acceded to the EU. Nevertheless, the potential for further catching-up remains high and it is important to keep the process stable. Ensuring sound private investment and sustainable consumption as counterparts to the high current account deficits will be particularly crucial for the realisation of a virtuous convergence scenario and the avoidance of boom-bust cycles.