Latvia collapsed like Ireland -- but now it's recovering
It is a small peripheral European country. Three years ago, one of its major banks failed. It ended up under the control of the IMF, but now has one of the strongest growing economies in Europe after sweeping cuts to its public sector.
No, of course it is not Ireland. It's Latvia.
Its population of less than two-and-a-half million has endured the harshest recessions in history, with the economy declining by one quarter and unemployment peaking at 22 per cent.
However, as a result of some fierce austerity measures and an opening up of its public service, as dictated by the IMF, Latvia in 2011 is growing in excess of four per cent, with some saying growth could top five per cent this year.
In a paper authored by Mark Weisbrot and Rebecca Ray, economists from the Centre for Economic and Policy Research based in Washington DC, it is argued the depth of the Latvian recession and the difficulty of recovery are attributable largely to the decision to maintain the country's overvalued currency.
The IMF, which lent Latvia €1.7bn as part of a €7.5bn programme, has forced Latvia to become more competitive by driving down wages and prices.
The loan was part of the €7.5bn package which includes cash from the European Union, World Bank and other countries, including Poland and the Nordic nations. But in human terms, the adjustment has been brutal.
A third of teachers in Latvia were laid off; the rest have endured savage salary cuts of up to 40 per cent, leaving them barely above the minimum wage.
Many have seen their pension entitlements slashed by 70 per cent; doctors and police officers face sacrificing a fifth of their pay. Many other key state services were severely curtailed including the cancellation of medical surgeries and closure of hospital wards in order to bring the cost of running the state into line.
According to an excellent study by Fine Gael TD Paschal Donohoe, which compares Ireland's economy to other similar-sized European and Scandinavian countries, living standards in Latvia are well below those of Ireland and the EU average.
Despite the strong growth this year, unemployment remains high at 18 per cent but is falling.
After its economy shrinking by 18 per cent in 2009 alone, last year Latvia recovered amazingly and all but stopped the decline.
Pre-tax profits at Rietumu Banka, a Latvian bank backed by Irish businessman Dermot Desmond, rose 15 per cent in the first half of this year to €4.65m.
According to his study, Ireland and the New National Question, Mr Donohoe concludes that Ireland performs poorly across a whole host of areas compared to other similar sized countries.
"The magnitude of Irish under-performance versus peer states is simply shocking," he writes.
In comparison to other countries of similar size like Denmark and Finland, in 2010 in areas like unemployment, budget deficit/surplus and debt levels, Ireland was by far the worst performer. Our unemployment rate was almost double all others and our deficit was over 10 times than the both countries.