Industrial world's stock exchanges face remarkable slump this Friday. Pessimists might exclaim that it is the beggining of the end, while pragmatists would customarily utter - that we knew that this day would come one day. The reason for this whole talk is the cheap credit market the indutrially developed world (including the Baltic States) have enjoyed throughout the early 21th century. The fact that there is a global system of free trade, and, there are no restrictions for the free movement of capital made the whole present system running. But for truly free global economic system also such issues are essential - unrestricted movement of labour and transparency of the governance systems.
While there is free movement of labour in the Baltic States among majority of the EU member countries there are restrictions for outside-EU workers coming in. If one speaks about transparency on the way governments in Tallinn, Riga and Vilnius are running then Riga has the hardest burden to bear. In my previous bliog entries I assumed that the summer vacation time would most definitely influence the relative inactivity of the governing coalition. Now, the interplay between internal developments and external pressure might foster the reshuffle of the Latvian government indeed.
These are postmen, nurses and doctors who are about to strike in Latvia. World stock markets are reflecting the bad health of the US housing/subprime market. Whenever the US market cathes bad health the rest of the world must feel it. The Economist wrote about the bad health of the subprime market and we shall see whether the bad health of the US market would make also the rest of the global markets contageous. Anyway, the housing market in the Scandinavian countries already experiences the slump and the Estonian and Latvian formerly booming housing markets shows first signs of the slowdown already.
The question now is whether governments are able to withstand the challenges posed by the possible global slump. Here we come back to the former discussion about the consequences of the irresponsible governance style in Latvia. While Estonian government has spared money with annual budget surpluses, it is Latvian government that still lives with the rozy shades and with the half baked anti-inflationary measures. The EU Commissioner of Finance Mr. Almunia, on his visit to Latvia in early July, warned Latvian PM about the excessive budget deficit. Nevertheless, the lack of fiscal discipline is endemic in this country and I wonder what the government shall do when in addition to postmen and doctors also other public sector workers would start reprimanding their due incomes? Latvian government faces serious challenges and there is still noone to face them seriously. Would the Summer vacation be cut short to someone among the governing circles, and government would start reshuffling already in August??