Discussions in economics about rules versus discretion have gone on for a long time and will continue to do so but perhaps such a discussion might be fruitful in a Latvian context? Just a little quip about that.
Here monetary policy is highly rules-based: There is a fixed exchange rate, it is supposed to remain fixed at the current parity of 0.702804 LVL/EUR until euro adoption which is envisaged for 2014 and to ensure this rules-based monetary policy Latvia has a highly independent central bank, see e.g. article 22 in the Law on the Bank of Latvia.
Fiscal policy, on the other hand, is highly discretionary: There is no specific target for the budget deficit (except, one should expect, somewhere the 3% deficit criterion stipulated by Maastricht) and Latvia certainly never adhered to the recommendations from the ECB of aiming at a budget surplus during the economic cycle ? when overheating was at its height there was still a budget deficit here.
