As access to international capital markets was impaired, countries that were most in need of external financing experienced larger welfare losses. A number of economies in central and eastern Europe were affected less seriously, but recessionary forces were stronger in the Baltics and south-eastern Europe, suggesting that it was the countries with the larger imbalances that were typically most affected.
In countries with fixed exchange rates with  2  2  See Gardo and Martin (2010). BIS Review 151/2010  limited room for manoeuvre through monetary policy, the adjustment process proved even more challenging. In the absence of nominal exchange rate flexibility, prices and, in particular, wages eventually had to be adjusted downward amid rapidly rising unemployment.