At anniversaries like this – 20 years since Latvia joined the European Union on May 1st, 2004 – it is common to do some stock-taking of what has been achieved and what has not.
Ārpus ētera
Latvian exports had a very bad 2023 with double-digit declines that were almost as big as during the financial crisis, as shown in the graph below.
A recent report titled “Increasing investments and competitiveness for Latvia’s economic security” from the influential American Chamber of Commerce in Latvia (AmCham) calls, on page 3, for a “transition to a high value-added economy”.
Are Latvians heavily taxed? Ask ten Latvians this question and eleven of them will answer yes… At least, joke aside, that is my feeling after living many years in Latvia. The truth, however, is different.
If you feel a bit lost in terms of how interest rate decisions are made in the European Central Bank (ECB), I'll try to sum it up below.
Are interest rates really that high? The usual answer from an economist is: yes... and no. I shall try to argue for both answers below.
Having lived in Latvia for almost 30 years and having witnessed the country’s remarkable transformation towards a market economy that is highly integrated within the European Union, I am saddened by the current political debate regarding the banking system, in particular the idea of capping the interest rates that banks can charge. Allow me to argue – and warn – against this suggestion.