Latvia & Fiscal Austerity

Leftist blogger Matthew Yglesias express horror at the fact that Klaus Regling, chief executive of the European Financial Stability Facility, held up Latvia as a positive exampel, by pointng out that Latvia has gone through a severe depression.

Now, quite clearly, Latvia's performance during the latest 3 years is a dissster. Neither me or Klaus Regling denies that.

The point of Regling's statement was instead that Latvia first of all proved all of the people who now considers a massive Greek and Irish (and others) debt writedown inevitable, as those same people usually regarded a Lavian devaluation as inevitable, something which clearly won't happen.

And secondly, while Latvia due to its previous sins has gone through a depression, it is now clearly in a recovery path, "despite" the fact that it hasn't debased the value of its currency and "despite" the fact that it has pushed through a fiscal austerity program more radical than anywhere elsewhere. In fact, recovery began in the very same quarter that it's nearly 5% of GDP austerity program began to be implemented (much more than in any other country), which is to say the first quarter of 2010.

After having fallen for seven straight quarters, GDP has increased 3.1% in the first 3 quarters of 2010.