by JEFFREY SOMMERS and MICHAEL HUDSON
Austerity’s advocates are declaring victory with Latvia’s battle against the European economic crisis and advocating it as the model for Greece & Spain to emulate. Curiously, Latvians have been declaring this “win” by exiting their country.
The “austerians” are celebrating Latvia as the plucky country that through hard work and discipline showed the way out of the financial crisis plaguing so many countries. For austerians, Latvia represents a veritable Protestant morality play demonstrating that austerity works. Indeed, they hope the Latvian example will retread Margaret Thatcher’s “there is no alternative” tire for a European-wide scale austerity tour. Few writing on the subject unfortunately have the time on the ground to evaluate the economic and social costs of the Latvian model. While the Latvian government chose austerity, most of its people have not. Feeling there is no acceptable political alternative available, many elect to emigrate.
The European Commission and the IMF declared this victory with a public event in Riga on June 5th celebrating the Latvian model. The IMF head, Christine Lagarde, proclaimed Latvia “could serve as an inspiration for European leaders grappling with the euro crisis.” The IMF’s chief economist, Olivier Blanchard, followed with a mea culpa admitting initially he thought the Latvian peg and internal devaluation program a “disaster,” but now sees success. To better appreciate Blanchard’s remarks one must bear in mind Latvia is one of the few countries following the 2008 crisis that actually attacked the IMF from the right on economic and social policy. In effect, Blanchard and the IMF are declaring, “our policies were too cautious on austerity, long live austerity!” For the IMF it reprises a familiar chorus harkening back to their greatest hits of the 1980’s and 1990’s glory days of structural adjustment.
A seat at the table of power routinely flatters pundits invited to these affairs. They dutifully report, rather than investigate, what they are told. On Latvia, The Economist, to paraphrase Paul Krugman’s characterization of US Congressman Paul Ryan, increasingly “looks like stupid person’s idea of what a smart magazine looks like.” It provides its customary breezy reporting that gets anything of importance wrong. Meanwhile, big names (one is reluctant to say heavyweights) on the circuit, such as Chrystia Freeland of Reuters, embarrassingly, for anyone that might have bothered to query the hotel bartender or taxi driver of their views on Latvia, allege, “the harsh Latvian plan worked because the whole country was committed to it.” This reminds one of the Red Cross inspections of the Theresienstadt showcase concentration camp, who shown orchestras and clean conditions announced, “everything in order here!” Of course, Latvia is no concentration camp and its people not fascists. Indeed, Riga, its capital, is among Europe’s most beautiful, and if you have a bit of money, livable, cities. Meanwhile, others report the country feels like a prison. The reality is that there are several realities depending on one’s social class and income. To declare the “whole country” is “committed” to anything in this society deeply divided by class and ethnicity is lazy reporting at best.
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