Forbes commends Baltic response to crisis

  • 2010-06-10
  • From wire reports

VILNIUS - The Baltic States and Ireland are unsung heroes of Europe, as despite being severely recession-hit countries, they refrained from behaving like wayward Greece, Portugal and Spain, says Steve Forbes, the editor-in-chief, in Forbes Magazine in its June 7 edition. Recently Prime Minister Andrius Kubilius of Lithuania stopped in at the Forbes offices to discuss his country’s economic prospects. Unlike Greece, which has garnered headlines for its economic woes and public reaction to them,

Lithuania more than a year ago firmly faced up to the economic crisis and took stern measures.
Government spending was slashed by 30 percent. Public-sector salaries were cut 20 percent to 30 percent. Pensions were knocked down an average of five percent. The prime minister himself took a pay cut of 45 percent. Yes, some taxes were raised, and the corporate rate was hiked from 15 percent to 20 percent. But then it was knocked back to 15 percent in January. And Lithuania’s flat tax - also 15 percent - was left alone.

“Amazingly, Lithuanian unions went along with the government’s policies. There were no street riots a la Greece,” stressed Forbes. Lithuania’s economy is now showing positive growth again. In the years ahead its recovery should outpace that of most members of the EU because Lithuania isn’t wedded to slow-growth policies, as are most Western European states. In fact, before the crisis the Lithuanian economy had been on fire. Lithuania was one of the pioneers of the flat tax, and it had also instituted a currency board to fight inflation. Today its currency is fixed to the euro, and the country hopes to formally adopt the euro in 2014, the article writes.

Latvia also doesn’t carry a Greece-style mentality. It couldn’t escape the clutches of the IMF, but it did stoutly and successfully resist intense pressure to ditch its flat tax, recognizing that its low-tax regime was the best way to ensure real recovery and greater prosperity in the future.

Neighboring Estonia has also tightened its belt. It was in a better position because, during the boom years, it had shown amazing spending restraint, so much so that in a few months it will likely win formal approval from the EU to join the eurozone. That’s sure proof that talk of the euro’s demise is much exaggerated.

The prospect of joining the euro bloc spurred these three small countries to pursue tough policies during the economic crisis. They know that being linked westward, to the European economies, is a ticket to greater prosperity.
Ireland is another nation that has taken stiff economic medicine. Like the Baltic States, it had become an economic miracle, with its business-friendly tax regime and enthusiastic welcome for foreign investment.

And, as were Lithuania and Latvia, Ireland was hit hard by the global recession. But unlike Greece, Spain and Portugal, it didn’t wait for a collapse before taking tough structural measures, including public-sector pay cuts. Ireland also had to fight back efforts by the tax-loving EU bureaucrats in Brussels to sharply boost its corporate tax rate of 12.5 percent.