Locking Latvia into austerity

Over the next few days Europe will become a little more undemocratic than it already is.

Latvia's application to join the euro is about to be formally approved by the Brussels bureaucracy. Most people in that Baltic state are opposed to the move, according to opinion polls. Yet they are not being given any say in the matter. More than likely, Latvia will be ushered into the single currency in 2014 without a referendum being called.

Don't expect this virtual coup to elicit much reaction in the mainstream press. We, journalists, are supposed to be in awe of how Latvia has undergone a rapid recovery.

The New York Times has hailed Valdis Dombrovskis, the country's prime minister, as "something of a star pupil." Riga has won similar praise from the International Monetary Fund. Christine Lagarde, the IMF's chief, regards Latvia as a "success story." The fund's top economist Olivier Blanchard has argued that "Latvians could take the pain" of austerity and that they enjoyed "ownership" of an "adjustment" programme.

Blanchard was not the first IMF representative to adopt a patronising tone towards people who were suffering. Nor was he the first to spread a falsehood.

In December 2008, Latvia accepted a loan of 7.5 billion euros, most of it from the EU and IMF, because of a crisis in its banking sector (not profligacy in public spending, as Blanchard wants us to believe). Far from granting Latvia "ownership" of this money, the creditors released it with sadistic conditions attached.

Brutal transformation

Latvia's government was ordered to make savings that amounted to 17% of gross domestic product within a short period. More than half of the savings were to come from slashing expenditure on the public sector, especially health and education. Pension cutbacks were found to violate the right to social security by the country's constitutional court.

The latest statistics from the European Commission indicate that Latvia dramatically reduced its budget deficit between 2009 and 2012. This "progress" apparently makes Latvia eligible for euro membership.

But the deficit data does not capture the brutal transformation that has occurred. Mass unemployment pushed one-tenth of Latvia's workforce to emigrate over the same few years. Latvia's population today is at the same level it was in 1957. Latvia has the second lowest rate of life expectancy and the second highest rate of income inequality in the EU.

The lack of consultation with ordinary Latvians over their fate fits into a broader picture.

To date, only two referendums have been held in which EU voters have been directly asked if they wished to join the single currency. Those polls were conducted in Denmark and Sweden. In both cases, a majority rejected the euro. History has shown they were right to do so.

"Like a dictator"

In April, the transcript of an interview that Helmut Kohl gave in 2002 was finally published. Kohl admitted that he had behaved "like a dictator" when the single currency was being introduced. As German chancellor, he deliberately didn't call a referendum on the euro because he knew it would be lost. The same rationale was employed by his acolyte Angela Merkel in 2011 when she forced George Papandreou, then the Greek prime minister, to scrap a planned vote on the terms of a "bail-out."

Kohl tried to justify his drift towards authoritarianism by claiming that a common currency would prevent another war in Europe. If that was really his game-plan, then he has failed dismally. The entire euro project has exacerbated tensions between the countries and peoples on this continent. Far-right parties - most notably Golden Dawn in Greece - are exploiting the opportunities presented by the crisis to advance their hate-filled agenda.

Racist demagogues are a visible threat. But there is another threat to social harmony that comes from men who crave respectability. Look carefully and you will see these men shuttling between "think tank" receptions and the headquarters of government ministries.

The Brussels-based "research" outfit Bruegel typifies this "revolving door" phenomenon. Bruegel's current chairman, Jean-Claude Trichet, has also behaved like a dictator. As European Central Bank chief, Trichet insisted that a number of countries demolish their welfare states and privatize their state-own industries. His diktats can be found in a letter he sent to Silvio Berlusconi two years ago.

It is no accident that the post Trichet holds at Bruegel used to be occupied by Mario Monti, the man who replaced Berlusconi as Italy's prime minister (without an election). Monti arguably did more harm to labour laws during his 18 months in office than his lecherous predecessor did during his three terms.

Until recently, the director of Bruegel was Jean Pisani-Ferry. He has now been hired as an adviser to François Hollande.

Working for a supposedly centre-left president hasn't deterred Pisani-Ferry from continuing to advocate that the poor be punished for the crimes of the rich. In one of his latest opinion pieces, he warned of the "danger" in "discrediting hasty austerity." His case rested on the fear of how financial markets could react if economic policies change.

Grudgingly, I will give him credit for reminding us about some other dictators: the alchemists of modern finance. Governments must not do anything to incur the wrath of the mighty markets, he maintains. The whims of stock brokers and hedge fund managers must be indulged.

Such intellectual chicanery fills quite a few column inches in our newspapers. That doesn't mean we should swallow it.

•First published by New Europe, 2-9 June 2013.