INTERNATIONAL POLICY ANALYSIS Austerity Policy in Latvia and Its Consequences INNA DOVLADBEKOVA September 2012 n Latvia witnessed rapid, but unbalanced economic growth after it joined the Euro­pean Union. During the global financial and economic crisis, the country witnessed severe economic decline. In 2009, GDP shrank by 17.7 per cent. n Until 2007 Latvia’s debt level was one of the lowest among EU member states. From 2008 until 2010 Central government debt rose sharply from 19.8 per cent to 43.9 per cent of GDP. n From 2008, restrictive fiscal policies were implemented which were among the most severe in Europe. Six consolidation packages were adopted from 2009 until 2012. Wage cuts in the public sector accounted for almost half of all spending cuts from 2009 until 2011, with wages falling by an average of 30 per cent. n GDP grew again by 5.5 per cent in 2011, the highest growth rates among the EU member states. However, GDP is still only at the level of 2005. n Unemployment is now a serious problem in Latvia. In May 2012, it stood at 15.3 per cent. During the past three years more than 100,000 inhabitants have left Latvia in search of work in other countries. Unemployment has changed from a cyclical to a structural phenomenon. n Public opinion research shows that more than half of Latvia’s inhabitants consider that the measures for overcoming the crisis are incorrect and even devastating.