Lessons Of Austerity Measures In Latvia

Latvia, a small country of more Baltic Sea known for its breakaway from the Soviet Union in 1991 that to be a global economic model, is hailed as such by suggesting some of the austerity measures is just the elixir needed to stimulate 'US economy is still bad. In a recent article, Daniel Foster suggests that "Latvia has shown that the austerity measures in a population with an incredibly strong work ethic and a great capacity for sacrifice, can work." Specifically, he noted the recent growth experienced by Latvia following extreme austerity measures as evidence.

During the economic crisis 2008-2009 the Latvian economy was devastated. GDP fell by 10.5% compared to Q4 2007 Q4 2008, with its peak in the loss dips to almost 25%, and unemployment exceeds 20%, the real unemployment rate broaching 30%, although 10 % of its workforce to emigrate. In response to the economic crisis and with an eye to joining the euro area, the Latvian government adopted harsh austerity measures in 2009, when he "fired 30% of public sector employees and reducing salaries 40%. The two new taxes introduced and raised existing ones. "

In 2010, the economy began to recover than the rate of economic contraction slowed to 0.3% before turning positive. In 2011, the economy of Latvia increased by 5.5% and about 4.4% in 2012, and the Latvian Ministry of Finance forecasts a 2013 growth rate of 3.7%. However, unemployment remains high and many Latvians are not convinced that the economic crisis is over, but Mr. Foster and others remain convinced of its measures were a success and a model for the rest of Europe and the world.

Paul Krugman was one of the most ardent opponents of austerity, arguing that a failure at every turn. Similarly, a convincing analysis of the issue of Latvian austerity indicates the complexity of the situation:

In the absence of the debt crisis and banks, two of the most aggressive elements of the eurozone crisis are not present in Latvia. The country also experienced the largest decline of all countries, and is still favored by wage flexibility and political cohesion that is unlikely to be adapted throughout the euro area.

As shown below, almost as impressive as the rapid collapse of Latvia was its massive growth.

From 2002 to 2006, GDP in Latvia increased by 6.5%, 7.2%, 8.7%, 10.6% and 11.9%, respectively. On one hand, we can not really boast of economic growth after the massive collapse, but at the same time, it is impossible to expect the economy to return to economic level followed by a massive growth.

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