Monday, December 21, 2009

The Debts of the Spenders: Latvian Court Says Its Ok for the State to Go Bankrupt

Little Latvia wants the same benefits that larger countries in the West (the USA and UK) have long managed to enjoy - namely the ability to ring up huge debts without being able to pay for any of it. Unfortunately, since the Latvians are not members of the OECD and do not enjoy the benefits of being "too big to fail" (e.g. capital markets large enough to lure in enough suck-I mean investors), then their ministers are faced with the small problem of finding enough money to somehow repay their debts.

However, the Latvians are also members of the EU and have tied their economic fortunes to the bureaucratic stodginess of Brussels thousands of miles to the west. The resulting Eurozone bailout (all but certain) will result in only more joy for USD/EUR bulls.

DJ Latvian Court Overturns Pension Cuts; Threat To IMF Bailout

RIGA, Latvia (AFP)--Latvia's constitutional court Monday struck down pension cuts that form a key plank of an austerity drive, casting doubt on a crucial International Monetary Fund and European Union-led bailout for the recession-hit Baltic state.

"The decision to cut pensions violated the individual's right to social security and the principle of the rule of law," the court said in its judgment, which cannot be appealed.

It said while the government could tighten its belt at a time of crisis, agreements signed with
international lenders "in and of themselves cannot serve as an argument about the limiting of basic rights" and lawmakers who approved the rushed-through cuts had "not evaluated carefully the alternatives."

The court said the cuts--in force since July, and clawing back between 10% 70% of a pension depending on an individual's status--were illegal and parliament must by March 2010 have measures in place to rescind them.

The cut money itself must be paid back no later than 2015, the court ruled in the case brought by 9,000 individual pensioners. The government won a similar case in November over its decision to stop linking pensions to inflation.

Welfare Minister Uldis Augulis said Monday the government would have to find almost 184 million lati (EUR258 million) to refund unpaid pensions and resume full payments at pre-cuts levels.

It wasn't immediately clear how Latvia's embattled center-right government would meet the challenge, nor what the impact would be on the international rescue package that has been helping keep the country afloat.

Finance Minister Einars Repse said the government may have to ask parliament to amend the budget. He said the government would have to find the money within spending limits agreed with lenders.
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