InfoAnda - Insight: Baltic countries' austerity lesson for Europe

Pakistanis angry over detentions in Times Sq. case
Monday, May 24, 2010
ISLAMABAD – Relatives of three men detained by Pakistan for alleged links to the suspect in the attempted Times Square bombing say the men are innocent.
They

Taiwan denies boycotting Australian film festival
Thursday, August 6, 2009

AFP - Thursday, August 6TAIPEI (AFP) - - Taiwan's Beijing-friendly government on Wednesday denied boycotting an Australian film festival amid a row over the e

Merkel's support dips, regional ally resigns International
Thursday, September 3, 2009

By Sarah Marsh and Noah Barkin

BERLIN (Reuters) - Chancellor Angela Merkel suffered a double blow on Thursday as a senior party ally in east German

Minister seeks closure of anti-Berlusconi websites
Wednesday, December 16, 2009
ROME (AFP) - – The Italian government moved Tuesday to close down Internet sites encouraging further violence against Prime Minister Silvio Berlusconi, who

Asian markets mixed after Wall Street rally
Wednesday, March 18, 2009

By ELAINE KURTENBACH,AP Business Writer AP - Wednesday, March 18SHANGHAI - Asia's stock market rally seemed to be running out of steam Wednesday, despite an

Coldplay taps Pete Yorn for tour opener | Entertainment | | 4 April 2009
Myanmar court hands comedian 45-year prison term | 21 November 2008
Europe could face hundreds of Iranian missiles -Gates | | 18 June 2010

Bangladesh parties begin election campaign | 12 December 2008

Forum Views () Forum Replies ()

Read more with google mobile : Insight: Baltic countries' austerity lesson for Europe - Just do it |

Edition: U.S. Africa Arabic Argentina Brazil Canada China France Germany India Italy Japan Latin America Mexico Russia Spain United Kingdom Home Business Business Home Economy Technology Media Small Business Legal Deals Earnings Social Pulse Business Video The Freeland File Markets Markets Home U.S. Markets European Markets Asian Markets Global Market Data Indices M&A Stocks Bonds Currencies Commodities Futures Funds peHUB World World Home U.S. Brazil China Euro Zone Japan Mexico Russia India Insight World Video Reuters Investigates Decoder Politics Politics Home Election 2012 Campaign Polling Tales from the Trail Political Punchlines Supreme Court Politics Video Tech Technology Home MediaFile Science Tech Video Tech Tonic Social Pulse Opinion Opinion Home Chrystia Freeland John Lloyd Felix Salmon Jack Shafer David Rohde Bernd Debusmann Nader Mousavizadeh Lucy P. Marcus David Cay Johnston Bethany McLean Anatole Kaletsky Edward Hadas Hugo Dixon Ian Bremmer Lawrence Summers Susan Glasser The Great Debate Steven Brill Jack & Suzy Welch Frederick Kempe Christopher Papagianis Mark Leonard Breakingviews Equities Credit Private Equity M&A Macro & Markets Politics Breakingviews Video Money Money Home Tax Break Lipper Awards 2012 Global Investing MuniLand Unstructured Finance Linda Stern Mark Miller John Wasik James Saft Analyst Research Alerts Watchlist Portfolio Stock Screener Fund Screener Personal Finance Video Money Clip Investing 201 Life Health Sports Arts Faithworld Business Traveler Entertainment Oddly Enough Lifestyle Video Pictures Pictures Home Reuters Photographers Full Focus Video Reuters TV Reuters News Article Comments (4) Slideshow Full Focus Editor's choice A selection of our best photos from the past 24 hours. See more Images of May Follow Reuters Facebook Twitter RSS YouTube Read Sandusky lawyers may use NBC tape error in appeal 24 Jun 2012 High Court upholds key part of Arizona immigration law 12:21pm EDT Syria warns NATO against action over Turkish plane | 12:29pm EDT Egypt's Islamist president takes revolution to palace | 12:34pm EDT Wall Street falls further, Nasdaq drops 2 percent | 11:50am EDT Discussed 127 Obama campaign requests outside Republican group disclose donors 119 House panel to vote on Holder contempt charge: aide 89 California tobacco tax hike narrowly defeated at polls Watched Samsung says Q2 mobile profit higher than Q1 Sun, Jun 24 2012 U.S. Morning Call: Stock futures lower, RIM considers split Sun, Jun 24 2012 Market Pulse: Spanish bank aid leaves investors in limbo 7:00am EDT Pictures Reuters Photojournalism Our day's top images, in-depth photo essays and offbeat slices of life. See the best of Reuters photography. See more | Photo caption Hunting hogs in Alabama The wild boar was once the most prized catch in ancient Greece. Slideshow Rise of the megacities Cities of over 10 million are growing fast. Slideshow Insight: Baltic countries' austerity lesson for Europe - Just do it Tweet Share this Email Print Related News Special Report: New EU states struggle to spend Brussels billions Thu, Jun 21 2012 Relieved Europe hints at more time for Greece Mon, Jun 18 2012 Italy's Monti urges political backing in euro crisis Wed, Jun 13 2012 Market euphoria over Spanish bank bailout fizzles Mon, Jun 11 2012 Merkel says EU ready to act as Spain downgraded Thu, Jun 7 2012 Analysis & Opinion How 50 bln euros might save the euro A practical way to save Europe Related Topics World » 1 of 10. A combination picture shows a woman in front of a closed fashion shop in a February 17, 2009 picture (L) and a man walking pass a newly-opened flower shop at the same venue June 25, 2012. Three small states, Latvia, Lithuania and Estonia, were known as ''Baltic tigers'' in the boom years before 2007. But housing bubbles and excessive spending saw economic collapse. Latvia's economy plummeted 18 percent in 2009. But there was little talk here of these countries, with their currencies pegged to the euro, devaluing out of the crisis. Latvia and Lithuania kept their pegs. Estonia joined the euro in 2011, when others questioned the value of the common currency. Latvia wants to join in 2014. Picture (L) taken February 17, 2009. Credit: Reuters/Ints Kalnins By Alistair Scrutton RIGA | Mon Jun 25, 2012 8:34am EDT RIGA (Reuters) - Near a former Soviet naval base and dilapidated Cold War-era housing estate, this 84-year-old Latvian plywood factory is the kind of success story of which EU policymakers dream as they struggle with economic meltdown in southern Europe. Workers in yellow and blue uniforms eye digital camera readings of an endless stream of plywood on conveyers, new automation that has helped this firm survive what many describe as the world's deepest recession. Steam hisses nearby, part of a novel water recycling scheme that has cut energy costs. Some 15 percent of workers were fired after sales in 2009 plummeted a third. The remainder saw wages cut and four day weeks. But now production of the company, with more than 2,000 workers, exceeds pre-crisis levels, part of a cog in a Baltic economy that is now Europe's fastest growing. "Things were very difficult here," said Latvijas Finieris manager Arvis Svanks over the din of hot, humming machines in a factory the size of several football pitches. "But you can say with some reason that the crisis made us stronger." Three small states, Latvia, Lithuania and Estonia, were known as "Baltic tigers" in the boom years before 2007. But housing bubbles and excessive spending saw economic collapse. Latvia's economy plummeted 18 percent in 2009. But there was little talk here of these countries, with their currencies pegged to the euro, devaluing out of the crisis. Latvia and Lithuania kept their pegs. Estonia joined the euro in 2011, when others questioned the value of the common currency. Latvia wants to join in 2014. Instead, some of Europe's harshest austerity programs were an act of faith in the idea of "internal devaluation" - those countries could boost growth by cutting wages and increasing productivity rather than allowing their currencies to fall. It is a policy that the European Union sees as the only way out for countries like Greece and Spain. It was no foregone conclusion. Some IMF officials had urged devaluation in Latvia. But with pressure from an EU worried about contagion, Swedish banks concerned about exposure and a central bank wanting euro membership, austerity was chosen. Latvia's economy grew 5.5 percent in 2011, and 6.9 percent in the first quarter of the year. Unemployment, which reached more than 20 percent, has fallen to around 16 percent. It is a similar trend across the Baltics. "There is this debate about growth versus austerity," Latvian Prime Minister Valdis Dombrovskis said at his government palace. "Latvia is a country in the EU 27 that has done most about austerity and is currently the fastest growing EU economy. There is probably not so much a contradiction between these terms." The other side of the story is not far away from the factory in the housing estate surrounded by overgrown vegetation, in hospitals and schools falling apart, and a fall in wages that has had thousands, including middle class professionals, receiving food parcels from the Samaritans. The Baltics have some of the highest income inequalities in Europe. The "Baltic model" has become part of a debate about how Europe can survive. It has spilled over into social media. When Nobel laureate Paul Krugman questioned Estonia's model this month, President Toomas Hendrik Ilves called the economist "smug, overbearing and patronizing." Back on the ground, Latvijas Finieris corporate development manager Gatis Kepitis poured over data showing the turnaround. He appeared uneasy mentioning 15 percent job cuts, struggling to find a polite phrase to describe them. He preferred to discuss a 60 percent rise in productivity between 2007 and 2011. This is the kind of export-dependent company that in theory would have benefited from devaluation. Kepitis is not convinced. "Exports would have gained something from devaluation but it would have been short term gains," he said. "The basic issue remains unsolved. You have to get more competitive. You have to be ready to adapt to new conditions. You get none of this with devaluation." That experience was echoed across Latvia. Unit labor costs - a rough guide to a country's staff costs per unit of production - fell 27 points from 2008-2011 (with a base year of 2005), according to Eurostat. That compares to a fall of four points for Spain, and a rise of seven points for Greece. Policy makers say, diplomatically, they hold no lessons for the rest of Europe. But the temptation is occasionally too much. "As prime minister I don't want to use other examples," Estonian Prime Minister Andrus Ansip told Reuters. "But let's say - Spain for example. They started to stimulate their economy knowing the structure of the economy was not sustainable. Now despite all those stimulus packages their unemployment rate is 25 percent." Policymakers concede there were many special cases in the Baltics that set it apart. Public debt was far lower and there was a degree of political consensus. Latvia needed a 7.5 billion euro bailout, around a third of its GDP. The equivalent would be unaffordable for southern Europe. Economic statistics were accurate from the start, meaning the full extent of the crisis was evident, unlike Greece. "Greeks can learn a lot from Latvians and from Baltic countries" said Martins Kazaks, Swedbank's chief economist in Latvia. "But that doesn't mean it can be repeated." Nor is it the only path. Iceland, another small economy, chosen devaluation after the 2008 banking collapse. While Greeks are in their fifth year of a recession, Iceland has bounced back to growth after just two years with capital controls and making foreign creditors rather than domestic ones take the biggest hit. FRONT LOADING AUSTERITY But if there is one lesson for the Baltics, officials drill in the need of quick cuts and reforms - such as freeing up the labor market - before voter and market fatigue sets in. "It's a very pro austerity message," said Estonia's new central bank head and ECB member Ardo Hansson. "Get ahead of the curve, and try and do it rather resolutely. The key is to reach bottom rather quickly. Yet in some other countries it is stretched out so long people are a bit exhausted. Maybe some don't believe that a bottom exists." For countries where public civil servants suffered up to 30 percent wage cuts, the Baltics offer a degree of political consensus unseen in much of southern Europe. Dombrovskis and Ansip even got reelected in 2011. One international official arriving in Riga in 2009 said he was surprised by how quiet the streets were. He had expected protests, even riots. In Estonia, the biggest protests were not against austerity, but from ethnic Russians over the removal of a Soviet-era Bronze Soldier victory statue in 2007. Some of this was due to ethnic politics - in Estonia and Latvia the opposition, mainly parties rooted in the ethnic Russian minority, found it hard to widen its reach to protest austerity packages. "The issue of the social cost has been hidden through the Russian lens," said Rainer Kattel, professor of public administration and European studies at Tallinn Technical University in Estonia. The Baltics were also mindful of the days of Soviet rule. "Yes, there is high unemployment," said Daiga Auzina-Melalksne, chairman of the Nasdaq exchange in Riga. "But people remember here the Soviet times, when you plotted potatoes in you back garden to survive." SIGNS OF LIFE AFTER AUSTERITY The Latvijas Finieris factory, with sales of 169 million euros in 2011, is now looking at new export markets to make up for potential lost sales in southern European markets. Unemployment is still high in Latvia, at around 16 percent. But while at the height of the crisis, the Good Samaritans in Latvia distributed food to 100,000 people, around five percent of the population, that is down to 16,000 parcels. Dombrovskis expects economic growth to be around 4 percent this year. But there are concerns about the impact of an extended euro zone crisis on exports. By 2014, his government will face payments on Latvia's public debt, which increased from 10 percent of GDP to more than 40 percent during the crisis. This could act as a drag on growth. His government is now pushing for five percentage point cuts in income tax, a move that has international officials worried that Latvia is spending more than it should. The recent resignation of his justice minister to protest moves to repay Jewish organizations from the Second World War has raised some concern that the coalition could split apart. But overall there is a cautious mood of optimism. Kaspars Kasparsons was one of the thousands of Latvians who left Latvia, and his family. He is back in a warehouse after a year as a carpenter in Norway. His wage is 10 percent down on pre-crisis salary. But his wife has found work in a bar. After years they can afford the occasional visit to the cinema, to take their two daughters out for ice-cream. "Not everyone is happy. Many friends are very bitter and angry at what happened. Some had 50 percent cuts in wages," Kasparsons said, while his young daughters played nearby in a quiet shopping mall. "But things are getting a better for me. "Well," he said, thinking as he sipped a coffee. "A little better." (This story corrects atttribution in paragraph 36) (Added reporting by David Mardiste in Tallin; editing by Janet McBride) World Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (4) TheUSofA wrote: Edition: U.S. Africa Arabic Argentina Brazil Canada China France Germany India Italy Japan Latin America Mexico Russia Spain United Kingdom Back to top Reuters.com Business Markets World Politics Technology Opinion Money Pictures Videos Site Index Legal Bankruptcy Law California Legal New York Legal Securities Law Support & Contact Support Corrections Connect with Reuters Twitter Facebook LinkedIn RSS Podcast Newsletters Mobile About Privacy Policy Terms of Use AdChoices Copyright Our Flagship financial information platform incorporating Reuters Insider An ultra-low latency infrastructure for electronic trading and data distribution A connected approach to governance, risk and compliance Our next generation legal research platform Our global tax workstation Thomsonreuters.com About Thomson Reuters Investor Relations Careers Contact Us Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests. NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.

Other News on Monday, 25 June 2012
Sudan's Bashir defiant after Khartoum protests |
At least 32 killed in bus accident in Mexico |
Iraq's Sadr demands reforms for support of PM |
One killed in blast in Kenyan port of Mombasa |
Bolivia leader rules out troops as police rebel |
Jeopardy! host Alex Trebek suffers mild heart attack |
All is Well, Drought win top LA Film Fest honors |
Egypt's Islamist president begins building government |
Greek PM to miss EU summit; hopes fade of major action |
At least 32 killed in bus accident in Mexico |
Tunisia extradites former Gaddafi PM to Libya |
Turkey turns to NATO over Syrian attack |
Insight: Can Chavismo outlast Venezuela's Chavez? |
Nigeria says it needs new anti-terrorism tactics |
One killed in blast in Kenyan port of Mombasa |
Sony, Panasonic to cooperate on OLED televisions |
Lenovo shares hit over 4-month low on concern over PC outlook |
Samsung sees higher Q2 handset earnings; U.S. supply crunch to ease |
RIM considers splitting business in two: paper |
ABC the big winner with five Daytime Emmys |
Kuwait government submits resignation |
Netanyahu urges action on Iran after meeting Putin |
Pakistan army protests to NATO, Afghans over attack |
Iran envoy returns to Azerbaijan after Eurovision |
Ukraine trial put off until after Euro 2012 final |
Many feared dead in Uganda landslide on Mt. Elgon |
Insight: Baltic countries' austerity lesson for Europe
Exclusive: Dell bids $2.32 billion for Quest Software
T-Mobile ups U.S. smartphone service in Verizon deal |
GeoEye shares tumble on loss of government contract |
Rambus appoints new CEO |
Developers target Canadian fridges for carbon credits |
Jeopardy! host Alex Trebek suffers mild heart attack |
Amazon's LoveFilm, taking on Netflix, adds Fox in Britain |
Greece at new risk of being pushed off euro
Bodies of missing Tenn. mom, Jo Ann Bain, and daughter found
Female Breasts Are Bigger Than Ever
AMD Trinity Accelerated Processing Units Now in Volume Production
The Avengers (2012 film), made the second biggest opening- and single-day gross of all-time
AMD to Start Production of piledriver
Ivy Bridge Quad-Core, Four-Thread Desktop CPUs
Islamists Protest Lady Gaga's Concert in Indonesia
Japan Successfully Broadcasts an 8K Signal Over the Air
ECB boosts loans to 1 trillion Euro to stop credit crunch
Egypt : Mohammed Morsi won with 52 percent
What do you call 100,000 Frenchmen with their hands up
AMD Launches AMD Embedded R-Series APU Platform
Fed Should not Ignore Emerging Market Crisis
Fed casts shadow over India, emerging markets
Why are Chinese tourists so rude? A few insights

USD EUR - 1 year graph		BlogMeter 1.01