8. Trade Policy Challenges from the Perspective of Small and Open Economy: The Cases of Latvia and Iceland During 2008/2009 Financial and Economic Crises

Trade challenges arising from international markets can affect all countries differently, even if they are similar in size and face similar or equal challenges—small states in particular. Because no two small states are the same, their responses to such economic challenges may differ. Domestic conditions and reform have always relied on effective democratic consensus and social coherence to address such challenges. Since the nature of economic challenges is unknown, this social consensus may be the only trade policy that any small state should strive for. This paper aims to look at how Iceland and Latvia coped with the common 2008 and 2009 economic and financial crises. Both experienced similar severe financial market challenges, resulting in an economic downturn. Nonetheless, their perspectives on the crises, international institutions, and actors from the standpoint of domestic responses differed. The outcomes of these responses and decisions in Iceland and Latvia had an impact on democratic consensus and social coherence in both cases. Furthermore, these responses and decisions had long-term consequences for Iceland’s and Latvia's prospects for social coherence and democratic consensus in dealing with future trade challenges.