Stimulus >< austerity

The internal vs external devaluation has been going on for a long time and I am quite sure that it will still be discussed, say, in five years from now, i.e. what would have been the least costly way out of the recession.

Bet kā tad ar EUR/USD valūtas maiņas kursu? Tas taču nokrita un diezgan pamatīgi.. Tātad Latvijai attiecībā pret jebkuru valsti izņemot ES dalībvalstis bija un vēljoprojām ir priekšrocība.

There is one more factor in play here – government debt is typically not repaid in full, but it is constantly refinanced, by issuing government bonds etc. If the population and government revenues are expanding, this is not a big problem – because the debt burden (per capita, or as proportion of annual GDP) will shrink by itself.

In Latvia working age population will decline even further (due to low birthrates and emigration) – so it does not seem sustainable that ever smaller number of workers are burdened with ever growing social obligations and external debt. This is something similar to the scenario of General Motors (where the number of workers was decreasing, but payments to private pension plans and other liabilities were growing) – it was not good for competitiveness of Detroit car makers, and GM was eventually declared bankrupt.

Some other countries in Europe have immigration option – but in Latvia less than 60% of population are ethnic Latvians – in the post-war years about 900 thousand Soviet immigrants arrived – so further mass immigration is not likely to be popular or to improve integration and solidarity in our society.