Saplosīts Grieķijas karogs. Foto: AFP/LETA
This column is the second part of a series of three with ten observations on the Latvian and Greek economies to determine similarities and differences and to see who - if any - can learn from whom.
The first part is available here. This part mainly discusses fiscal issues and I allow myself to continue numbering from the first part; this makes it easier to refer to previous graphs if necessary.
4) Greece is by many accused of fiscal incontinence and that is also true, see Figure 6, which displays actual budget balances as a share of GDP. Even in decent times before the financial crisis Greece ran substantial budget deficits and the 2014 deficit of 2.7% of GDP is the lowest deficit since 1980(!). The seemingly good budget balances for Latvia in the run-up to the financial crisis masks the fact that the economy was overheating and that tax revenues were thus unsustainably high - but nevertheless were spent, i.e. also reckless fiscal policy (see e.g. a previous article on this topic here). This makes it worthwhile to look at the structural budget balance, see Figure 7.
