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Call that a cut? Check out Latvia.


stopdoingstuff

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Joined
Feb 26, 2011
Messages
22,883
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?
 


Grey Area

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Joined
Aug 15, 2011
Messages
4,855
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!
 

momentimori

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Joined
Jan 29, 2011
Messages
614
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.
 

Davidoff

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Oct 4, 2010
Messages
1,485
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.
 
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stopdoingstuff

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Joined
Feb 26, 2011
Messages
22,883
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.
 

cabledude

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Jan 23, 2011
Messages
6,362
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.
 
R

Ramps

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?
 
Joined
Feb 19, 2009
Messages
67
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 !
 

Burnout

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Joined
Oct 7, 2009
Messages
7,272
Twitter
I have a life.
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.
 

Mad as Fish

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Dec 6, 2012
Messages
24,449
Stopdoingstuff

So you have happily taken a 35% cut in income, vowed never to darken a hospital's doors again and celebrate the fact that your children will go uneducated?

Oh well done!
 

Franker65

Active member
Joined
Jun 7, 2012
Messages
206
When you talk about cuts of this magnitude, its important to remember that Latvia is out of the USSR just over 20 years. A large proportion of the population are probably used to the concept of hardship without complaint. I'm sure they're equally keen to keep foreign financial assistance as far away as possible, so as not to impinge on their relatively new sovereignty.
 

Disillusioned democrat

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Mar 16, 2010
Messages
15,736
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.
Irish leaders are re-election sluts - basically most couldn't do anywhere nearly as well individually without €bs of other peoples money to buy them influence and affluence, so they will do the least possible to impact their re-election prospects.
 

Howya

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Joined
Feb 29, 2012
Messages
1,690
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.
Actually at 5% per year it will only take 6 years for Latvia to get recover to the pre-crises level of GDP

But for Ireland, our GDP fell by less than 15% between 2007 and 2010 but our growth rates have been anemic and at 1% (or 2% if you believe the forecasts) we'll be still trudging along for years longer than Latvia. (And no, I don't want to see hospitals and schools closed).
 

Con Gallagher

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Joined
May 25, 2010
Messages
2,413
When you talk about cuts of this magnitude, its important to remember that Latvia is out of the USSR just over 20 years. A large proportion of the population are probably used to the concept of hardship without complaint. I'm sure they're equally keen to keep foreign financial assistance as far away as possible, so as not to impinge on their relatively new sovereignty.
Ok.
Ireland 1982-1986: deficit 7.9% of GNP plus
1987: deficit reduced to -6.2% of GNP
1988: deficit reduced to -1.6% GNP
http://www.irishtimes.com/focus/2010/bailoutgraphic/index.pdf

Ireland 2012/13: deficit of 8.2% GDP being reduced to deficit of 7.5% GDP (after 5 "austerity" budgets).

Brian Cowen should have front loaded real and substantial cuts in spending in 2008, to avoid dependency of foreign borrowing. Ditto, FG/Lab on their election in Spring 2011 - they have wasted the last hope of recovery. We will have years of austerity-lite* budgets.

*I don't mean to minimize the impact on real people eg carers but cuts and taxes are Ineffective economically unless they actually reduce the deficit rapidly
 
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stopdoingstuff

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Feb 26, 2011
Messages
22,883
Stopdoingstuff

So you have happily taken a 35% cut in income, vowed never to darken a hospital's doors again and celebrate the fact that your children will go uneducated?

Oh well done!
I don't think anyone would happily endure that, but the government who did it was re-elected because they had broad support for those measures. Though if it was me, I would have insisted on debt restructuring too. I wonder why that didn't happen.......might it have anything to do with a certain large Union perhaps?
 

Spanner Island

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Feb 22, 2011
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24,199
Gutless self serving government elected by a large proportion of immature voters is why Ireland is where it is.

In addition, when your gut instinct is to head off into negotiations with unions and produce a dogs dinner like the CPA while also allowing the non-compulsory redundancy bullsh!t to continue... well... sadly it's as clear as day why Ireland is nowhere near bouncing back...

Because not only was that an infuriating event... (I remember being astounded as Cowen & Co. spent days in Croke Park while the country crumbled)... but then to have Labour cling on to it for all it's worth has only exacerbated the damage...

We are currently governed by fear... fear that the gobsh!te riddled unions will bring the country down if things like the 'inability to pay' clause are activated... (it should have been done years ago)...

Living in fear of what unions may or may not do is no way to run a country.
 

Cassandra Syndrome

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Aug 23, 2009
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16,908
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?
Best to have a deep quick depression and purge the malinvestments, get rid of the rottenness, and allow the market to readjust to a more natural and dynamic equilibrium and allow the country have a gradual, savings induced growth. Booms are bad news.

Its a bit like if you take food that is poisoned, better to puke it all out. Or to cure a flu, you need to suffer a fever as the immune system rids the rotten viruses. Or in Psychoanalysis the patience needs a flow blown catharsis to rid the psyche of rottenness such as painful childhood memories, to cure behavioural problems. And so on...
 

Cassandra Syndrome

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