Consolidation for dummies

  • Morten Hansen
  • 17.02.2011
Government debt as a share of GDP, 2009. /Eurostat

Government debt as a share of GDP, 2009. /Eurostat.

Latvia is well underway to stabilizing its public finances, but ...

It really shouldn't be necessary to address, once again, the necessity for and strategy behind the consolidation efforts of the government but, given a continuing torrent of weird comment, it appears to be so. So here we go again....

1) It was upon Latvia's request that a loan package of 7.5 bill. EUR was put together at the end of 2008. It was not imposed on Latvia.

2) The main lender is the EU, followed by the IMF. Involved as lenders are also Sweden, Denmark, Poland, Estonia and the Czech Republic plus the World Bank and the European Bank for Reconstruction and Development.

3) The main points of the package were to recapitalize Parex, support the banking system in general and allow the government to run a budget deficit. Without the package Latvia would have had to balance its government budget i.e. it would have had to impose even more draconian austerity as was done.

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