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).
From Bill Mitchell’s blog.
On Finland I want to highlight this quote, because I think this is very much what is happening in Finland, both at the political and at the public discussion level (because nearly all ‘economic wise men’ aka economists come from the same universities. Beyond that, Keynes has never gotten a foothold in Finland, I understand from all this.)
Finland, one of the fiercest supporters of austerity entered official recession. The Finnish response was they had to cut public spending harder because they would be in breach of the Stability and Growth Pact rules relating to size of the deficit and the volume outstanding public debt. These nations are so caught up in neo-liberal Groupthink that they cannot see how ridiculous their policies and supporting dialogue has become.
On his blog. Here, I’d like to share the conclusion (my bold). The whole text is quite dense and in places technical, but worth a read, especially now when in Finland all the major political parties compete over how large budget cuts they intend to make after the elections.
The reason that unemployment rose so sharply in the Euro countries between 2008 and 2014 has nothing much to do so-called trade imbalances or differential ULCs.
Those imbalances (as they call them) and different ULCs are not new. What happened in 2008 was a major aggregate spending collapse which was then reinforced by the imposition of austerity.
If I graphed the change in fiscal position (as measured by the differential austerity imposed) and the change in the unemployment rate I would get a very strong positive relationship (more austerity, higher the rise in unemployment rates) which would have some meaning.
That should be the starting point for the European Council – but then that would require them to ask questions about their patently dysfunctional fiscal rules.
On Naked Capitalism.
For the sake of argument, while I think that Black is essentially correct, the issue actually goes deeper as Edward Hugh points out.
I have a guest post on the EUROPP-blog of the London School of Economics. You can read it here.
‘It’s Time To Stand Up To Troika Austerity (Part I)’
At some point I referred to the ‘austerity is illegal’ -argument. Well, it now has been thoroughly researched (see link in text) and even the Council of Europe found many violations of the European Social Charter. Also the ILO -report on austerity in the context of working life should be a heavyweight rebuke of current policies.
Jörg Bibow: “Are German Savers Expropriated?”
Once more the reasons why it is totally unwise to try to follow Germany’s blueprint.