According to an article in LETA today, 27 October 2011 (“Klementjevs: Grieķijas parādu samazināšana pierāda ES pastāvošu dubultmorāli”), parliamentarian Andrejs Klementjevs of Harmony Center (SC) argues that it displays double standards that a debt reduction has been agreed for Greece but not for Latvia.
Hereby Mr. Klementjevs seriously misunderstands what has been agreed. Furthermore, he does not seem to appreciate the huge difference between Greece and Latvia.
Mr. Klementjevs is conflating the issues, seemingly oblivious to the fact of which type of debt has been reduced.
Latvia’s international lenders, mainly the IMF and EU, have NOT seen the value of their loans to Greece reduced. Reduction of Greek debt (the oft-mentioned “haircuts”) comes solely from private bondholders, mainly commercial banks in France and Germany.
It would also be entirely hypocritical for Latvia to claim debt relief. As I have argued on an earlier occasion Latvia is not at all unable to repay its loans from the international lenders; rather the burden of doing so will be relatively small. Latvia is in no way or form comparable to Greece, which the following graph demonstrates.
Gross government debt as a per cent of GDP, 2010
Debt-to-GDP is very moderate by EU standards, it is easily sustainable and is less than a third of the Greek level. Asking for debt relief in such a case is hypocritical beyond belief! Should e.g. Finland (slightly higher debt-to-GDP than Latvia) also have its debt reduced?
Much more interesting and relevant would be a discussion of whether Latvia did the right thing when it nationalized Parex without imposing haircuts on the bondholders of that bank. Some 775 mill. EUR of syndicated loans and 200 mill. of Eurobonds saw no haircuts, letting, eventually, Latvian tax payers fund the bill. Similarly with Hipoteku banka. Reasonable and fair? I am not so sure; just look at the debt burden Ireland accepted when bailing out its banking system.
But back to Mr. Klementjevs: His point is a complete non-starter.
Morten Hansen is Head of Economics Department, Stockholm School of Economics in Riga