Latvian PM Valdis Dombrovskis was roundly praised this week at the Peterson Institute for International Economics in Washington. (If the global army of economic policymakers has an elite special forces unit, it is Peterson.) Leading a coalition government, Mr Dombrovskis has elected to plough on with implementing the cuts required under an IMF-EU programme to make a fiscal adjustment of more than 10 per cent of GDP.
The parallels with Greece are obvious, including the problem of inflicting huge damage by choosing the devaluation route. Latvia has a pegged currency rather than actually being in the euro, but such a large proportion of mortgages and other consumer loans are denominated in euros that Mr Dombrovskis says a devaluation wouldn’t help much anyway. Continue reading »
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