Austerity in Latvia: a warning to the international working class

[Hannah Bell]

The Latvian economy was hit hard by the economic crisis that erupted in the United States in 2008. The country was highly exposed to financial speculation... Latvia’s economy shrank by 18 percent last year and is expected to contract by a further 4 percent by the end of 2010.

To pay for this crisis, the government in Riga... has pushed through some of the sharpest spending cuts implemented anywhere in the world. Since 2008, public sector wages in Latvia have fallen by 25 percent, with further reductions to come. Wages in the private sector have declined by up to 30 percent. The official unemployment rate stands at 23 percent, the highest in the European Union. Retail sales shrunk by more than 30 percent in the final quarter of 2009... The combined 2009 and 2010 government budgets have reduced public spending by 9% of GDP...

The European Union (EU) and the International Monetary Fund (IMF) have dictated every step of the austerity measures in Latvia... Due to the brutal cutbacks, Latvia’s budget deficit has fallen from 12 percent of GDP in 2007-2008—the same fiscal deficit rate as Greece—to the current figure of 8 percent. However, the government and the international financial elite are demanding that figure drop to just 3 percent of GDP. This will be secured with further attacks on wages, benefits, pensions and public services.

In exchange for these measures, the EU, IMF, World Bank and neighbouring countries granted Latvia a combined €7.5 billion bailout — a vast amount relative to the size of the country, which has a population of just 2.2 million people...Much of the bailout money was directed straight to the banking sector, which is dominated by Scandinavian capital, especially from Sweden...

The anti-working class measures imposed in Latvia have, according to the Financial Times, been “hailed as a role model for Greece” and other European countries. The Greek government has just announced further austerity measures in order to receive a €110 billion EU-IMF bailout.

Only two years ago, Latvia, with the other Baltic States, was hailed as the role model not of austerity, but of prosperity in eastern Europe. Because of its high growth rates, Latvia was deemed one of the so-called “Baltic Tigers.” From 2006 to 2007, the country’s economy grew by more than 10 percent, largely fueled by speculation on the real estate market in Riga. Latvia, and the neighbouring Baltic states that witnessed similar growth, was presented as proof of the success of the “free market” and the expansion of the EU.

However, these high growth rates were accompanied by increasingly precarious conditions for most workers in the region. Public services such as health care and social security, as well as educational facilities that had been built up in the post-war Soviet period, were starved of funds. With wages a fraction of the level found in western Europe and pricing rising sharply after the country joined the EU, hundreds of thousands of workers, especially tradesmen, nurses and doctors, left Latvia to find jobs elsewhere...

The dire straits facing the working class in Latvia today prove that there was never any progressive content to the projects of national independence, capitalist restoration, or accession to the EU...

http://www.wsws.org/articles/2010/may2010/latv-m04.shtml