Latvia – a role model for the euro crisis states?

Latvia has had the euro since the turn of the year. In 2009 the country was still in a deep crisis. Thanks to a rigid austerity course, it now has the highest growth rate in the EU. As a role model for Greece and Co. it is still rather unsuitable.

Latvia is a case for the Guinness Book of Records – when it comes to economic roller coaster rides: "For five years we were the fastest growing European economy," said the chief economist of the Riga DNB Bank, Peteris Strautins. "Then the one that plunged the deepest, and now the fastest growing again."

"We were in a deep mess"

In the crisis years of 20, the economy shrank by more than a fifth, wages fell by a third, and unemployment tripled. "The situation was worse than it is today in Greece, Portugal or Cyprus," says Latvian Finance Minister Andris Vilks. "We were really deep in the mess."

The government had to take out a loan from the International Monetary Fund, and it resorted to extremely tough austerity measures, including severe wage cuts for state employees and pension cuts. And now the Latvian economy is growing again by four to five percent – while the eurozone is still unable to choose between reverse gear, stagnation and a tired upswing.

Flexible economy, flexible labor market

Why did Latvia turn around so quickly while Greece, Portugal or Cyprus simply cannot get out of the crisis? The business journalist Paul Raudseps first mentions the decidedly liberal economic policy. "Everyone said it couldn’t be done: cut down government spending and at the same time find our way back to growth. But we did it. First and foremost, because we have a very flexible economy, with a very flexible labor market and export companies that also cater to difficult ones Adapt situations. "

Remembering even worse times

But success, Paul Raudseps continues, is based on another factor as well. "Of course, the people here weren’t happy about the cuts, but they can remember worse times. When Latvia left the Soviet Union, our economy shrank in half. And at that time we had no idea how the market economy worked, and no help from the west. And there are still people who can remember the mass deportations in the 1940s. Compared to what we were through then, it’s not that difficult now. "

"It’s not that easy in wealthier countries"

Against this background, the bitter message from the government was accepted by the Latvians, albeit grudgingly. And the government was even re-elected. A model for other crisis states? Finance Minister Vilks does not believe that the Latvian recipe can be easily transferred to others. "Deep structural reforms were necessary, otherwise the markets would have killed us. It was a matter of survival, and so we told the people, there will be a few very tough years. In more affluent countries it is not so easy, people have to address them Accustomed to privileges and strong networks defending those privileges. But we, after all the shocks of the past, we could do that. " But Andris Vilks admits that a very high price had to be paid for this.

Every tenth Latvian has left the country

Igor Pimenov even thinks that the price is too high. Pimenov sits in parliament for the Harmoniezentrum, the party of the large Russian-speaking minority: "The result of this policy was a dramatic deterioration in living standards, high unemployment and, as a result, a dramatic wave of emigration, especially of young people, to the West," says he.

One in ten of the two million Latvians has left their country since the crisis began. Another crisis and another anti-crisis formula and there are no more people in Latvia, says eurosceptic entrepreneur Jan Oslejs. 

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