Do EU leaders understand why Latvians protest?


Today´s European Council will discuss the serious economic situation in Eastern Europe. Latvia is one of the countries most affected by the financial crisis.

I wrote about Latvia and the Swedish banks in one of my first posts here.

Yesterday, the resigning Prime Minister was interviewed by Sveriges radio. Ivars Godmanis told interviewer Tomas Ramberg that Swedbank and SEB have made both positive and negative contributions to Latvia´s economy. They supplied credits necessary for the country´s development. But they also fuelled a boom in property prices that was detrimental to the economy.

Ivars Godmanis argued against a devaluation of the lat, but I did not find him very convincing. And what Prime Minister – resigning or not – would not rule out devaluation as long as his country is defending its currency?

I am not an economist, but I find the arguments in a paper by Torbjörn Becker rather strong. Becker is Director of the Stockholm Institute of Transition Economics. He claims that the current policy could be disastrous for Latvia´s industry:

“not adressing the overvaluation will most certainly make sure that little is left of the export sector a few years from now”

Torbjörn Becker argues against the IMF package and advocates instead that Latvia should either devaluate and adopt the euro, or widen the band for the exhange rate, allowing a depreciation of 15 percent.

What worries me is not only the economic arguments by Torbjörn Becker, Paul Krugman and others, but also the lack of democratic deliberation in the implementation of Latvia´s reforms.

The IMF package was negotiated without any significant consultations with social partners, such as trade unions. It follows a period of tax cuts, with benefits for people with high incomes.

In the interview with Sveriges radio, Ivars Godmanis did not dwell much on the need for reform packages to be socially fair.

No real consultation, no emphasis on social justice. Who should be surprised about the public protests?

I hope EU leaders are not. Their discussion today should not only be about economic scenarios, but also about public participation in solving the crisis.

Other blogs on Latvia and the IMF package: Fistful of euros, Spectrezine, Latvia Economy Watch, Baltic Economy Watch, IMF´s Christoph Rosenberg on RGE Monitor