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Thread: Call that a cut? Check out Latvia.

  1. #1
    Politics.ie Member stopdoingstuff's Avatar
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    Default Call that a cut? Check out Latvia.

    When some countries have problems, they moan like kids and think that the world owes them a living. The deficits persist, nothing gets done, and a lost decade or more of scraping along the bottom follows. Not Latvia- these are some serious people.
    RealTime Economic Issues Watch | Euro Countries (and the IMF) Can Learn from Latvia’s Economic Success

    Remember that in 2008–09, Latvia lost 24 percent of its GDP. It was heading toward a budget deficit of 19 percent of GDP in 2009 without a program of radical austerity................

    One-third of the civil servants were laid off; half the state agencies were closed, which prompted deregulation; the average public wage was cut by 26 percent in one year. But this was a socially considerate program. Top officials were hit more, with 35 percent in wage cuts, while in the end pensions were not cut. In particular, public servants were no longer allowed to sit on state corporate boards and earn more than from their salaries, a malpractice that is still common in many European countries. The government exposed high-level corruption. Yet, many schools and most of the hospitals were closed.

    This was a truly front-loaded program. Of a total fiscal adjustment of 17 percent of GDP, 9.5 percent of GDP was carried out in 2009. Two-thirds of the adjustment was expenditure cuts that are more easily executed in a crisis, and only one-third revenue increases, mainly through consumption taxes. The low corporate profit tax of 15 percent was maintained to stimulate business. Latvia needed international financial support, and fortunately the IMF, the European Union, and neighboring countries did both commit and deliver on time...............................
    Political suicide followed....oh no wait.......

    Despite all these huge sacrifices, the center-right coalition government of Prime Minister Valdis Dombrovskis, who took his country through this arduous crisis, was reelected twice in parliamentary elections in 2010 and 2011. The big losers were the oligarchic parties that had ruled Latvia on the way into the crisis and ignored massive overheating.
    But....but....but.....surely the economy is a total basket case.........
    Latvia’s economy continues to recover strongly. Following real GDP growth of 5.5 percent in 2011, growth is expected to exceed 5 percent again this year despite recession in the euro area. Labor market conditions are improving. The unemployment rate fell from 16.3 percent at the beginning of the year to 13.5 percent at the end of the third quarter, despite an increase in participation rates. Real wage growth remains restrained. Consumer price inflation has declined sharply, easing to 1.6 percent at end-October after peaking at 4¾ percent in mid-2011. Robust export growth is expected to keep the current account deficit at about 2 percent despite recovering import demand.
    So hang on.....they tackled the problem head on and are recovering? But.....but.......that's just not possible. Surely we are wiser. After all, we wouldn't want to end up like Iceland or Latvia, would we? Surely we are better off being like those titans of stability, Japan and France?

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    Ignoring issues rarely solves them. Canada and Sweden did similar to Latvia and they are doing very well now. Cut spending and cut the right taxes - simple!
    “That which can be asserted without evidence, can be dismissed without evidence.” - Christopher Hitchens

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    Politics.ie Member momentimori's Avatar
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    Losing 24% of GDP in a year is great depression drops in output. All that to protect the Swedish banks who issued loads of Euro loans to Latvians.

    Growing at 5% a year after a collapse like that means it will take almost a decade to get back to the pre-crisis GDP levels.

    That isn't a good economic outcome.
    These men had only learned how to act in the interest of their own...private monopolies which may be likened to totalitarian oligarchies within our democratic State.

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    I agree with the thrust of the OP.

    The core mistake in this country is the failure to act with any kind of urgency.

    There are entire areas of the economy that need action where nothing has happened.

    The public sector has been roped off. So has core social welfare.

    Even the property crisis (the whole cause of the mess) has just been pushed further down the pipe. For example, yesterday it was announced that action will be taken to repossess buy-to-lets where the martgage isn't being paid. Why does it take five years to move on something as elementary as that?

    Delays don't avoid pain. They prolong it.
    Last edited by Davidoff; 13th December 2012 at 07:38 AM.

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    Politics.ie Member stopdoingstuff's Avatar
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    Quote Originally Posted by momentimori View Post
    Losing 24% of GDP in a year is great depression drops in output. All that to protect the Swedish banks who issued loads of Euro loans to Latvians.

    Growing at 5% a year after a collapse like that means it will take almost a decade to get back to the pre-crisis GDP levels.

    That isn't a good economic outcome.
    So you favour a default? Me too, actually. But it is amazing that they have recovered so quickly. They lanced the boil and are now powering ahead, their economy is expanding rapidly, the debt is under control and they are masters of their own destiny again. We on the other hand will be in deficit for many years to come, we still have years of austerity, we will continue to add to our debt and we are growing at a tiny rate. They are basically fixed- we are basically Japan.

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    Politics.ie Member cabledude's Avatar
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    Irish leaders are consensus sluts. Thats the problem. They seek permission from unions to use the toilet. Ghe Latvians are lucky in that they elect leaders. We elect school teachers. Nothing against school teachers by the way.
    Stand there in silence, look up to the sky and remember how brave they were.

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    Politics.ie Member stopdoingstuff's Avatar
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    Quote Originally Posted by cabledude View Post
    Latvians are lucky in that they elect leaders.
    The amazing part is not that they elect leaders but that they re-elect them.

  8. #8
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    But what about all the money that was taken out of the economy?!!

    Surely you don't mean that, eh, pearl of economic wisdom is bunkum, do you?

  9. #9

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    Yes and where have some where in the region of 30,000 Latvians ended up ? Correct you got it Ireland while our own cannot get work . Bonkers !

  10. #10
    Politics.ie Member Burnout's Avatar
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    Is the Op trying to raise questions about the leadership of the Irish government? Talking down the country? Was'nt Enda220'000kpa the bestest little spineless euro leader, was not his smirky mug on the cover of TIME?

    Is the Op talking revolution? Are we annoyed that Big Phil is leaving for Brussels and an even bigger slice from the pot. This is a great little country to do business.

    Hopefully some of these Latvians will become politicians for us ...... quick.

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