foto: Raitis Plauks/f64
It is time for fiscal Russian roulette? I don't get it!
When I saw that the government plans a 2.9% of GDP budget deficit for 2012 for its negotiations with the international lenders I thought it was an April Fools stunt. I then realized that it was not but it is still a joke....
Sure, 2.9% is less than 3%, the Maastricht threshold for budget deficits, and thus complies with the letter of the law.
But not with the spirit of the law - 2.9% cannot be interpreted as a serious attempt to fulfil Maastricht. Frankfurt's Hard Money men in the European Central Bank will not be convinced that Latvia is serious enough about fiscal policy.
Did whoever came up with the 2.9% not have a statistics course to tell him/her/them that one thing is the target, another is the actual outcome? Targeting a 2.9% deficit is difficult - the deficit is partly influenced by shocks to the economy over which we have little control and even less knowledge since they haven't happened yet. Just a small adverse shock, say, a very likely devaluation in Belarus, could imply less exports going in that direction, thus less economic activity in Latvia, thus less tax revenue thus a bigger budget deficit, the 2.9% target is exceeded and the Hard Money men can justifiably keep Latvia out of the eurozone.
