It is a myth that Latvia is a poor country, such assessment was expressed on Tuesday by the professor of the University of Latvia (LU), director of the “LV Peak” think tank Inna Šteinbuka, presenting the study “Latvia in the European Union – 20 years”.
In Šteinbuka’s view, Latvia’s development over the past twenty years can be divided into stages. She called the first a “phase of euphoria”, when after joining the European Union (EU) growth rates were high, up to 10% per year. According to Šteinbukas, it seemed that Latvia would immediately succeed in reaching the level of prosperity that it has, for example, in Germany, but it turned out that such a development was unhealthy.
“Despite warnings from both the European Commission (EC), the International Monetary Fund and other allies, the politicians decided otherwise. If the global financial crisis had not occurred, perhaps nothing tragic would have happened, but this crisis had a profound impact on Latvia,” concluded LU professor.
According to her, Latvia’s level of backwardness compared to neighboring countries can be traced directly to the 2008 crisis. At that time, it was necessary to find a solution to save the situation. Steinbuka said that she well remembers the words of the then Prime Minister Valdas Dombrovskis (JV), namely that this will be a “government of suicides”. “The ‘suicide government’ has actually done the impossible. It doesn’t happen often when the case of Latvia is described in textbooks, in which way tightening the belt or a drastic reduction of budget expenses allowed the country to enter the Eurozone after a few years,” said the professor of the University of Latvia.
She pointed out that, according to the conducted survey, Latvian residents consider joining the eurozone and the introduction of the euro as the fifth main achievement of being in the EU.
Steinbuka emphasized that Latvia was more competent when faced with future crises, such as the Covid-19 pandemic or the energy crisis.
“Latvia had macroeconomic stability, fiscal discipline and, most importantly, the euro, which increased the trust of potential lenders in the Latvian state and we were able to borrow cheaply, which was not possible at all in 2008. This is one of the important achievements and benefits of the introduction of the euro, which probably is not as obvious as, for example, going abroad and not changing the currency,” said the LU professor.
ES Šteinbuka called the next stage of Latvia’s development a stage of moderate growth. According to her, at that time all of Europe could not recover from the experienced global crisis. Investors were also cautious and for several years there was a gap between the necessary investments and the real investments in all EU member states, but in Latvia this gap was larger, thus the growth was more moderate.
“We thought again that we would be able to achieve a breakthrough, but then the capital overhaul of the financial system began. It was absolutely necessary for Latvia to maintain its reputation and image, but then the Covid-19 pandemic came, which no one expected. Strict regulation of the banking sector scared away investors a little , who chose to invest in our neighbors, not in Latvia. The starting position was not the best for us during the pandemic,” said Šteinbuka.
She explained that no growth could be promoted during the pandemic, but when the pandemic was over, the war in Ukraine and the energy crisis began. The LU professor emphasized that Latvia’s development went like waves, but the growth trend was upward.
“We say that we are lagging behind our neighbors. Yes, we are lagging behind, but we are not a poor country. This is another myth, along with the fact that Latvia has destroyed its industry. The share of industry, if we look at the added value, is 30%. Yes, There are more in Lithuania, but we cannot say that we have destroyed industry in Latvia,” said Šteinbuka.
She emphasized that the people of Latvia highly value not only the introduction of the euro, but also the security promoted by both NATO and the EU. The second benefit appreciated by society is the opportunity to travel freely, the third achievement is the availability of European funds. The LU professor pointed out that there have been good and not so good projects to learn EU funding, but if there were no European funds, the growth of the gross domestic product would be 8% lower on average per year.
