Yesterday’s election in Latvia is more than a curiosity for two reasons; firstly that Latvia has been the poster-child state for austerity, with political claims made that the Latvian population have supported huge spending cuts; and secondly that Latvia is one of the few parts of the former USSR to now be part of the EU.
Given the use of rhetoric about human rights by Western governments, the unconditional acceptance of Estonia and Latvia into the EU, despite the legal discrimination in those states against Russians, (and other ethnic minorities who use Russian as a lingua franca) is extraordinary. A full 16% of people domiciled in Latvia are denied a vote in elections, including many who were born there, and whose parents were born there.
In response to the 2008 recession, Latvia’s government made the decision to assume responsibility not only for the state’s sovereign debt, but also for the private sector debt of the banking institutions; and to protect the banks they launched extraordinary cuts in public spending. As Daniel McConnell in the Irish Independent reports:
A third of teachers in Latvia were laid off; the rest have endured savage salary cuts of up to 40 per cent, leaving them barely above the minimum wage.
Many have seen their pension entitlements slashed by 70 per cent; doctors and police officers face sacrificing a fifth of their pay. Many other key state services were severely curtailed including the cancellation of medical surgeries and closure of hospital wards in order to bring the cost of running the state into line.
According to an excellent study by Fine Gael TD Paschal Donohoe, which compares Ireland’s economy to other similar-sized European and Scandinavian countries, living standards in Latvia are well below those of Ireland and the EU average.
Despite the strong growth this year, unemployment remains high at 18 per cent but is falling.
The article in the Irish Independent quoted above is flawed by accepting the conventional but preposterous narrative that Latvia has somehow benefitted by these austerity measures. based upon the flimsy evidence that since its economy fell by a full 25% since 2008, and unemployment reached 22%, Latvia has more recently experienced a limited dead-cat bounce.
Robert J. Samuelson in the Washington Post had boasted that this limited recovery is linked to mass political support for what is euphemistically called “internal devaluation”, i.e. massive deflation of Latvia’s domestic economy and devastation of its civic institutions in the short term interests of servicing the debt:
What distinguished Latvia’s experience from our own is that, once people recognized the gravity of the crisis, they came together to support the necessary, if harsh, policies to stop the free-fall and restore stability. The economy is now growing again, and although joblessness remains horrific (16.6 percent), it is gradually declining. There is renewed hope. The government that presided over the punishing measures that brought about recovery was reelected last October with an expanded majority.
Yesterday’s election which reverses the 2010 result both burst the bubble of the myth that Latvians support austerity, but also reveals starkly the ethnic and linguistic divide in Latvian society which produced last year’s anomalous election result.
With regard to the economy, Samuelson is simply wrong. As Professor Michael Hudson argues:
The modest uptick in growth is primarily a consequence of Swedish demand for Latvian timber. Long-term economic prospects in the country, however, remain grim. … … let’s interrogate what Latvia’s “success” means? First, the banks are being paid. There has been no debt write-down. That would be an answer to the question previously raised of cui bono. Latvians are paying their private debts (largely to the Swedes, … helping to ensure that Sweden has faced no economic crisis). The cost, however, came at 25% GDP contraction of Latvia’s economy and public-sector salaries to driven down 30%, with unemployment from public spending cutbacks driving down private sector salaries.
Meanwhile, the Latvian public will have to bear the cost of this programme through the future debt payments required on the more than €4.4bn borrowed from the EU and IMF, which was required to keep its government running on life support during the crisis.
The Latvian solution’s defenders, however, argued that the economic contraction has ended and that modest growth has returned, with unemployment finally below 15%. But emigration has been part of the reason for the fall in unemployment, while investment in manufacturing and savings are far too low to return the country to robust growth. Unlike, say, Argentina, which rejected austerity, and saw its economy grow at 6% annually for six of the seven years following its crisis, Latvia shows no signs of posting such numbers.
… So, is Latvia on the way to recovery? Only time will tell, but the initial signs look very bad. Demographically, the country’s very survival looks in doubt. Economically, according the internal devaluation proponents, the country will have to export its way back to health. Yet, as the economist Edward Hugh has shown, only 10% of Latvia’s economy is from manufacturing, as opposed to roughly 40% for an industrialised economy like Germany’s.
Effectively, Latvia has become a colony for the EU, with the population toiling to service debt, but their real economy and social infrastructure disintegrating. Let us be clear, Latvians now have a standard of living (as measured by Parity Purchasing Power (PPP)) roughly half that of Greece, and only slightly higher than Belarus; and a large proportion of Latvians are now economically worse off than when they were part of the USSR.
This is the context where the 28% vote for the centre-left “Harmony Centre” party (Saskanas Centrs) must be understood.
Harmony have opposed austerity, and strategically opposes the discrimination which denies citizenship to almost half the Russian speaking population. Russians make up a majority of the population of Daugavpils, the second city, and over 40% of population of the capital, Riga; but many Russian speakers are not accepted as citizens in Latvia’s racist constitution. Remember that almost half of Latvia’s Russian population are denied a vote.
Latvian government statistics show that 630,380 ethnic Russians live in the Baltic state. Some 367,662 are Latvian citizens, and around 22,000 hold Russian passports. Another 235,908 people are neither Russian nor Latvian and are classed as “non-citizens.”
For example, Tatjana Zdanoka, the only Russian out of Latvia’s nine MEPs, (despite one in four Latvians being Russian). She gained citizenship in 1996, but only after a court battle, and the original rejection of her citizenship was on political grounds, because she had opposed independence in 1991.
The centre-left Harmony party now has 31 seats in the 100 seat parliament (Saeima), and to have acheived that they must have attracted votes from left inclined ethnic Latvians. But a pro-austerity coalition seems to have been swiftly stitched together between the so-called Reform Party, and the Unity bloc, the parties which came second and third in the election; they can probably also count on the support of the Latvian ultra-nationalists.
This is an extraordinarily volatile situation. In particular, the apparent electoral support for pro-austerity parties is a reflection of the racialised politics in Latvia; where support for Keynesian economic intervention has become associated with the Russian minority; and austerity is trumpeted by Latvian nationalists.