The young pretender

By Gary Peach
02.04.2009 / 05:00 CET

The EU's youngest prime minister and Latvia's new blood.

When Valdis Zatlers, Latvia's president, announced that he was asking Valdis
Dombrovskis to form the country's next government, no one even knew the
whereabouts of the former finance minister and MEP. The president made a terse
announcement and disappeared into his medieval quarters in Riga Castle.

At that point most journalists left the castle, but a few lingered, calling their editors
with the day's headline news. Suddenly, Dombrovskis appeared and bestowed upon
them the day's second headline: if the next government did not overhaul its budget
immediately, Latvia would go bankrupt.

The story of Latvia's economic collapse is well known. Gross domestic product
(GDP) fell by 10.3% in the fourth quarter of last year and has yet to hit rock bottom.
But it was Dombrovskis's candid appraisal of the country's predicament – a stark
departure in style from his predecessor Ivars Godmanis – that left everyone stunned.
“The ruling coalition apparently did not want to admit openly that the state is on the
verge of bankruptcy,” Dombrovskis said.

Some criticised him for scaremongering. Lawyers admonished him on a technicality

(countries don't go bankrupt, they go into default) but many lauded him for speaking
the truth about Latvia's economy. As things turned out, Dombrovskis's style – dire
content, drab tone – did not undermine his nomination. On 12 March the parliament
approved Dombrovskis's centre-right government and the 37-year-old became the
EU's youngest prime minister.

It is a sign of how desperate the times are that Latvia's head of state turned to a
younger generation for fresh faces and bold leadership. Dombrovskis might not
represent “change that Latvians can believe in”, but he is a step in the right direction
because the Latvian political elite is known for its shameless selfishness: my party
first, my business second, my country third. Dombrovskis, who is returning to
domestic politics after nearly five years as an MEP, provides a chance to clean the
Augean stables.

If anyone can do it, he can. In October 2004, not long after taking his seat in the
European Parliament, Dombrovskis openly criticised Ingrida Udre, Latvia's candidate
for European commissioner, for her incompetence. Udre was a last-minute selection
by Indulis Emsis, Latvia's then prime minister, in what was a quintessential example
of the ruling elite's skullduggery. Udre was unqualified for the job that European
Commission President José Manuel Barroso had planned for her, tax and customs.
Dombrovskis pointed out why and Barroso later struck Udre from the list.

The challenges that Dombrovskis faces now are of an entirely different magnitude.
The immediate task is to cut back state expenses so that Latvia can continue receiving
funds from the €7.5 billion bail-out agreement signed in December with the
International Monetary Fund (IMF) and the European Union.
There will have to be painful cuts, some of which are draining the life out of public
sector. As Dombrovskis explains, each time the government slashes wages for
teachers, doctors and the police, social tensions increase. In January, riots broke out in
Riga – the first such violence since Latvia won independence in 1991. A stone-
throwing mob nearly stormed the parliament building. Farmers protested in February,
forcing the resignation of the agriculture minister. Teachers have promised a mass
demonstration in early April. When will it end? Can the government stop the vicious
circle? Here, too, Dombrovskis surprised people with his plain-speaking. “The task is
close to impossible,” he said on 23 March. Few would disagree.

Latvia can take some comfort from Dombrovskis's track-record in economics. He

worked for four years in the central bank, cranking out analysis on macroeconomic
indicators – a job that would bore most people to death. The mathematically-minded
Dombrovskis, however, was ideally suited.

In 2002, when he was just 31, he was appointed Latvia's finance minister and was an
unwavering fiscal conservative. After his tour of duty in Brussels, he knows his way
around EU budget and tax policies. If he is to rescue Latvia, the technocratic
Dombrovskis will have to draw on all this experience.

The finance ministry has forecast that GDP will nosedive 12% this year and the prime
minister has hinted that the fall could be even steeper. Some private-sector economists
have not excluded a mind-blowing 15%-20%. For now, the key will be persuading the
IMF to allow Latvia a larger-than-expected deficit.

A physicist and economist by training, Dombrovskis is arguably the most private

individual in Latvian politics. Even his own party members confess that they know
little about him. They say he is meticulous and loves to engross himself in the
minutiae of state finance. One colleague said that Dombrovskis could show up at a
party equally prepared with a good joke and a poignant question on economic policy.
Married with no children, when he is not crunching numbers he likes to play
basketball and go skiing.

In the two weeks after the president nominated him, Dombrovskis managed to cobble
together a five-party centre-right coalition, albeit one largely similar to the previous
two governments. The only new face is New Era – the centre-right party that
Dombrovskis helped create in 2002 – which will not necessarily endear it to most
Latvians. Still, the coalition controls 64 seats in the 100-member legislature. In
addition, Godmanlis's Latvia's First/Latvia's Way party, which was excluded from the
coalition, has promised its support.

So Europe's youngest premier has some room for manoeuvre. He will need all of it if
he is to accomplish the labours of Hercules that he inherited.