06 October 2009

Latvia: towards revolution

I haven't blogged anything about the Tory party conference yet as it's simply too duff to comment on. Maybe in a couple of day's time. In the meantime here's an interesting piece from Ambrose Evans-Pritchard in the Telegraph about possible collapse in Latvia, which has become an economic basketcase as a result of the implosion of the debt bubble coupled with bone-headed intervention by the IMF:

Latvia has failed to deliver draconian spending cuts agreed to secure the next tranche of its €7.5bn (£6.85bn) bail-out from the EU, the International Monetary Fund, and Sweden, balking at 20pc cuts in pensions and a further 15pc cut in public wages...

...Latvia's economy contracted by 18.2pc in the twelve months to June, trumped only by Lithuania at 20.4pc. "Latvia's currency peg is back on the agenda, " said Hans Redeker from BNP Paribas. "The government has to relax policy for social reasons. The hardship this winter is going to be unbelievable."

...Washington's Center for Economic and Policy Research said the IMF is enforcing a"pro-cyclical contractionary policy" in Latvia. Foreign banks (mostly Swedish) are being rescued at the cost of local taxpayers. The IMF deal equals 34pc of GDP. Latvia is piling up debt to defend its peg. The policy may backfire in any case. Fiscal contraction is causing tax revenues to implode, feeding a vicious circle.

Welcome to Keynesian economics, kids. If anyone at the IMF had half a clue about macroeconomics they wouldn't be enforcing this idiocy. As it is, it looks like the government could be about to collapse. With youth unemployment over 30%, there's gonna be plenty of kids willing to take to the streets... we could be looking at the EU's newest revolutionary state in a matter of weeks. You thought the far left was only doing its thing in Latin America? Wrong, it's gonna happen in the Baltic. And I fear things could get pretty messy.

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