Latvia is used by the ‘austerians’ as a case showing that hard and painful austerity can get an economy out of recession. This policy brief argues the opposite and shows that what actually happened in Latvia is that policymakers decided not to continue but to break with the policy of austerity. This made it possible for Latvia to get out of a vicious spiral of austerity causing a depression and thereby leading to even more austerity.
After having looked in greater detail at what really happened in Latvia, in terms of both the policy that was actually implemented and the results it generated, the author pleads that Europe should urgently apply a moratorium on new fiscal austerity measures so as to avoid deepening the recession many of its member states are already suffering. Restoring growth dynamics needs to come first and consolidation of public finances can only follow afterwards.