Frances Coppola on Latvia – lessons for Finland as well!

Also in Finland Latvia is seen as an example, why a nation should implement harsh austerity (like the new Finnish government is going to). But Frances Coppola explains:

To me, Latvia resembles a puppet whose strings are controlled by large Scandinavian banks. The 2004-8 boom was caused by excessive lending by Scandinavian banks: the “sudden stop” in 2009 was caused by the failure of Scandinavian banks:the short-lived recovery was driven by Scandinavian bank lending: and the present stagnation is due to credit rationing by Scandinavian banks. Latvia is not going to experience any further recovery while its financial sector remains dominated by foreign banks who don’t want to lend cross-border. The Balkanisation of the European banking system has severe consequences for the Baltic states.

Latvia has little or no control of its monetary conditions, and now it has joined the Euro it doesn’t have much control of fiscal policy either. Its prosperity is entirely determined by the commercial interests of foreign banks and the attitude of their regulators. Is this really what the people of Latvia want?

I am really dumbfounded by the stupidity of the political class, and the apparent influence of the banks on economic policy. I will return to the lessons for Finland in more detail later, but this article on the Irish economic recovery holds some information. To wit – the choice is either to let (foreign) banks run the economy (like in Latvia) or big MNC’s (like in Ireland).

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