Teachers protesting cuts to the education budget gather outside Riga's prime ministry in September, carrying a sign that says "It's All Over!"
If you were in Latvia's capital earlier this month, you would have noticed the snow, waist-deep in some places. For days, even big streets in Riga remained unplowed -- impossible for anything other than an SUV to navigate. Still, parking inspectors walked through the city, coldly ticketing cars stuck at expired meters.
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Riga has had mild, rainy winters of late, and the snow caught the city by surprise. But the real reason for the wintry mess is that the city government has slashed its road maintenance budget by a third. Although the world is watching Greece, Latvia's economy is the most imperiled in Europe -- the country is in the midst of a collapse as bad, by some metrics, as the United States' during the Great Depression.
At the peak of the "Baltic Tiger" boom in 2006, Latvia was the fastest-growing economy in Europe, having transformed, seemingly overnight, from a sleepy former Soviet state to a flashy eastern Copenhagen. New condos and tech start-ups sprouted all over Riga; German luxury cars patrolled the streets. The skyline changed, with 10 of the country's 20 tallest buildings constructed in the last six years. Personal income doubled to 60 percent of the European Union average, introducing many Latvians to full-fledged Western consumerism for the first time.
Then, in 2007, the Baltic real estate bubble burst. Property prices crashed as much as 60 percent. Gross domestic product fell nearly 20 percent. By 2008, the situation had gotten so bad that the International Monetary Fund (IMF) and European Union stepped in to stop the Latvian government from going belly up. They approved a 7.5 billion euro bailout, as the record-setting economic plunge dragged down tax revenue. The loans are being disbursed in separate chunks, each tied to fiscal targets.
Meanwhile, the economy might not yet have bottomed out. A full 26 percent of the population now lives in poverty, including 51 percent of senior citizens, according to the latest figures from Eurostat. Latvia's unemployment rate is the highest in the European Union. In Riga, many of the new shops hawking High Street fashions and cell phones are empty, with retail sales down more than a third. Once bustling restaurants now look like Edward Hopper's Nighthawks. The unemployed are living off a monthly stipend of 100 lats ($191), while prices have only deflated slightly from their boom-time peak.
As part of its deal with its international creditors, Latvia agreed to implement austerity measures to control the budget, rather than allowing deficit spending -- like the United States, China, and Germany do. The government increased taxes and fees, fired public sector employees, and reduced the wages of those remaining by 20 percent. It closed or merged more than 100 schools and cut teachers' salaries by a third. (Teachers released hundreds of black balloons with the message "Save the Education System" in front of the Cabinet of Ministers building, to no avail.) Now, it is shuttering hospitals. Public transportation ticket prices are up. Meanwhile, even those earning close to nothing must pay taxes. If you earn just $50 a month, you still pay $12 in taxes.
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