
Foto: Latvijas Bankas arhīvs.
Lessons for Latvia - prudent fiscal policy and strange definition of realism
It is no secret that I am in favour of Latvia joining the Eurozone. It is no secret either that at times I find that very zone rather delusional. Here one example of such delusion and what it should imply for Latvian economic policy.
Greece's adjustment programme with the Eurozone and the IMF envisages a fall in Greece's government debt-to-GDP ratio from 176% to 124%, i.e. some 50 percentage points, in the seven-year period of 2013 - 2020, see e.g. the EU Commission report or this latest news from Bloomberg. That is a massive decrease in the debt burden but not unprecedented - Ireland reduced its debt-to-GDP ratio by a similar size (from some 80% to around 30%) in the period 1995 to 2003 and by even more if one takes a longer time period but this was at a time of 8.8% annual average growth in Ireland.