Latvia: on the brink of collapse (The Torygraph)

Wookster

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6263039/Banks-brace-for-Latvias-collapse.html

Banks brace for Latvia's collapse

The Baltic states are once again in the eye of the storm after leaked reports that Sweden is bracing for a full-blown economic and political "breakdown" in Latvia.

The Svenska Dagbladet newspaper said Sweden's finance minister Anders Borg had told banks secretly that Latvia's political order was unravelling, advising them to prepare for the collapse of Latvia's rescue talks.
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.

The People's Party, the largest group in the coalition, voted against austerity measures last month, raising concerns that the country is ungovernable.
Mr Borg said the world's patience is running out. "It will be very hard to continue with these international programmes if they don't fulfill the spirit and the content in the agreements they have signed."
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."

The article continues.

Sounds absolutely awful out there. They are going to have a very cold winter.

Generali

The same fate would await any country that is a net borrow that refuses to do what is required of it by its lenders, especially those with a trade deficit and thus unable to trade to bring the the 'hard currency' they need to continue spending.

Just to make the point, the UK has a large trade deficit so if put in a position of foreigners no longer being willing to support her, she would be forced to roll over.

Sir_Humphrey

Generali wrote: »

The same fate would await any country that is a net borrow that refuses to do what is required of it by its lenders, especially those with a trade deficit and thus unable to trade to bring the the 'hard currency' they need to continue spending.

Just to make the point, the UK has a large trade deficit so if put in a position of foreigners no longer being willing to support her, she would be forced to roll over.

To do the cuts that Latvia were asked to do is simply impossible in a democracy.

The only countries that have been shown to be capable of doing structural adjustment style policies are dictatorships such as Ghana under Flight Lieutenant Rawlings.

bendix

Buried deep in the bureacracy of the civil service, you've probably not caught up with the latest news of the last 20 years or so, Sir Humphrey.

Latvia is, in fact, a democracy. Has been for a while.

And Elvis is dead too.

Generali

Sir_Humphrey wrote: »

To do the cuts that Latvia were asked to do is simply impossible in a democracy.

The only countries that have been shown to be capable of doing structural adjustment style policies are dictatorships such as Ghana under Flight Lieutenant Rawlings.

Ok, so Latvia can't live beyond her means any more and it is impossible to make the cuts required within a democracy for her to continue so what are the alternatives do you think?

Sir_Humphrey

bendix wrote: »

Buried deep in the bureacracy of the civil service, you've probably not caught up with the latest news of the last 20 years or so, Sir Humphrey.

Latvia is, in fact, a democracy. Has been for a while.

And Elvis is dead too.

Which is why they have been unable to force through the necessary cuts! That is exactly my point! Jesus Christ, are you completely unable to follow an argument?!?

Sir_Humphrey

Generali wrote: »

Ok, so Latvia can't live beyond her means any more and it is impossible to make the cuts required within a democracy for her to continue so what are the alternatives do you think?

Looks like they will have to default and serve as a warning to countries who think that neo-Liberalism, flat taxes and other cranky policies are a good thing.

bendix

Sir_Humphrey wrote: »

Which is why they have been unable to force through the necessary cuts! That is exactly my point! Jesus Christ, are you completely unable to follow an argument?!?

Ahhhhhhhh .. well, you replied to Generali's comments which finished on a reference to the UK, so I assumed you were talking about such changes not being able to be reinforced in a democracy like the UK.

Generali

Sir_Humphrey wrote: »

Looks like they will to default and serve as a warning to countries who think that neo-Liberalism, flat taxes and other cranky policies are a good thing.

Let's take a list of countries:

USA
UK
France
China
Singapore
North Korea
South Korea
Peru
Cuba
New Zealand
Fiji
South Africa
Zimbabwe
Mongolia

Now let's play a game. Firstly divide them into 2 categories:

1. Liberal democracies (or there abouts)
2. Not Liberal democracies (or there abouts)

Then divide into a separate set of categories:

1. Rich
2. Poor

Then look at the correlation between the 2 sub sets of countries.

Generally speaking, the freer (more libertarian) a country is, the higher the GDP per head (the richer the average person).

purch

Jesus Christ, are you completely unable to follow an argument?!?

I dunno, but he can certainly start a few

P.S. Don't ask if you can cash in a pension !!!!

Sir_Humphrey

Generali wrote: »

Generally speaking, the freer (more libertarian) a country is, the higher the GDP per head (the richer the average person).

I am not arguing against democracy.

I would counter that the it is the most neo-Liberal countries that have suffered most in the current crisis. They are the USA, UK, Ireland, Iceland and Latvia. A bit more than a co-incidence I think.

http://en.wikipedia.org/wiki/Democracy_index#2008_ranking

1Sweden9.88Full democracy
2Norway9.68Full democracy
3Iceland9.65Full democracy
4Netherlands9.53Full democracy
5Denmark9.52Full democracy
6Finland9.25Full democracy
7New Zealand9.19Full democracy
8Switzerland9.15Full democracy
9Luxembourg9.10Full democracy
10Australia9.09Full democracy

...

158Guinea2.09Authoritarian regime
159Libya2.00Authoritarian regime
160Guinea-Bissau1.99Authoritarian regime
161Saudi Arabia1.90Authoritarian regime
162Central African Republic1.86Authoritarian regime
163Myanmar1.77Authoritarian regime
164Uzbekistan1.74Authoritarian regime
165Turkmenistan1.72Authoritarian regime
166Chad1.52Authoritarian regime
167North Korea0.86Authoritarian regime

This the Economists ranking of democracy. There appears to be little corellation between democracy and whether you follow neo-Liberal or Social Democratic policies. The latter are what I favour before you try to pretend I am some sort of Trot.