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Austerity drives are old news for EU's Baltic states

09 May 2010, 13:20 CET
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(RIGA) - Seen from the eastern rim of the European Union, the looming austerity drive in crisis-afflicted Greece reads like old news.

For almost two years, the Baltic states of Lithuania, Latvia and Estonia have brought in repeated draconian anti-crisis measures, slashing public spending and hiking taxes to try to dig themselves out of a hole.

"We learned the lessons very painfully, heavily and effectively, that you need to look after the fiscal situation very carefully," Lithuanian Prime Minister Andrius Kubilius told AFP in a recent interview.

"We understood very clearly that fiscal consolidation was the only way for us to survive," said Kubilius, a conservative who won power in October 2008 on an anti-crisis platform.

The picture is different in each of the Baltic trio, who joined the EU in 2004 and had a reputation for rapid economic growth until the crisis hit.

Latvia turned to the EU and International Monetary Fund for a 7.5-billion-euro (9.5-billion-dollar) rescue package, which set the terms for an austerity drive running from 2008 to 2012.

Among the measures have been average public-sector pay cuts of 28 percent.

Lithuania opted not a seek a bailout at all but unilaterally introduced similar measures. Estonia also chose to go it alone, dipping into its savings, and even managed to post a budget surplus last year.

"We can wish only strength and fortitude for the Greek government," Estonian Finance Minister Jurgen Ligi told AF.

"We also wish to say to ordinary Greeks, 'Have a lot of understanding and patience because there are no other choices left'," he added.

Latvia's first austerity package was approved by parliament in December 2008.

"The Greek situation is similar to Latvia's in the sense that there is no other choice but to downsize expenditures," Martins Gravitis, a spokesman for Latvia's central bank, told AFP.

On Wednesday, Latvian Prime Minister Valdis Dombrovskis said that a return to economic growth and corresponding rise in revenues could enable the government to rein in public spending cuts and tax rises in 2011 while still meeting the bailout criteria.

The austerity measures fed into simmering political discontent that fuelled a riot in Riga in January 2009 and helped bring down the country's fragile centre-right government.

Dombrovskis's own centre-right coalition, set up in March 2009, introduced further swingeing cuts, saying they were essential to stave off bankruptcy. A third round followed in the autumn.

The unrest in Latvia, and similar strife in Lithuania the same month, was rare -- and in stark contrast with the repeated, often violent protests in Greece.

"One explanation could be a growing understanding among the general public that alternatives to gradual stabilisation of economy would be financially even more painful," said Gravitis.

Nina Bazhenova -- an English teacher who gets as much money for 36 hours of teaching as she did for 21 hours before the cuts -- said she was simply fed up.

"What's the point of rioting? What benefit will it have? Everyone's completely disappointed in those who are in power. In this crisis, one can only rely on oneself," she told AFP.

For Juris Calitis, a professor at the University of Latvia whose own salary has been cut in half, the reasons are cultural too.

"Latvians are not an expressive culture. They're introverts," he told AFP.

"The other reason is the history of Latvia. There's no point in thinking you have an opportunity to object. You're constantly amidst forces that are going to run over you," he said.

"The tornado is coming down the road, you hide under the bush," he added.

The Baltic trio were seized by the Soviet Union during World War II and won freedom as the bloc crumbled in 1991.

They shifted rapidly from the communist command economy to the free market, but their credit, wage and real estate-fuelled booms went off the rails in 2008.

"When older people who were deported to Siberia after the Soviets came in in the 1940s speak very openly, saying 'Is this a crisis? The real crisis is what we saw in Siberia!'," said Kubilius.

"During the past 20 years we've gone through such big changes and such big challenges that people are not afraid to meet them," he added.


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