Pegged to the Euro, Latvia is teetering. 

Questions:

1) Without any knowledge of the Latvian economy, give two reasons why the country may have to devalue.

2) Relate the analyst's quote that "expectations of a devaluation can sometimes be self-fulfilling" to Krugman's model of speculative attacks (Chapter 23)

3) Explain the relationship between "look-alike issues" and "contagion".  

Here are two additional pieces to provide additional background information for those interested in the Baltic Blues.