Europese Commissie akkoord met tweede lening aan Letland (en)
EUOBSERVER / BRUSSELS - The European Commission announced on Thursday (2 July) its intention to release the second tranche of an EU loan agreed with Latvia last year, while at the same time calling on the small Baltic state to put its public finances in order by 2012.
The disbursement of the €1.2 billion sum will come later this month once the commission has had time to raise the funding on international markets, something it can do at a much lower rate than Latvia due to its higher credit standing.
The loan is part of a wider €7.5 billion package agreed between Latvia and the EU, the International Monetary Fund and other lenders last December.
"Latvia is going though a very painful adjustment, but the EU is providing considerable support with a balance of payments loan that is the biggest part of the international financial assistance," said economy commissioner Joaquin Almunia.
Last month the Latvian parliament approved government proposals to claw back 500 million lats (€700m) from this year's budget, the third announcement of its kind in 2009.
Earlier budget adjustments resulted in a 15 percent reduction in public wages, followed by a further 20 percent reduction.
"The correction of the large budgetary and macro-economic imbalances will put the country on the road to the euro and to sustainable growth conducive to employment creation," said Mr Almunia.
Aspirations of joining the euro area have stopped a number of countries in the region from devaluing their currencies, a measure occasionally used to boost exports by making prices more competitive.
2012 deadline
On Thursday the commission also made recommendations under the excessive deficit procedure to the council [representing member states] regarding Latvia.
The recommendations call on Latvia to bring its budget deficit below 3 percent by 2012, a timetable that the commission said was consistent with the country's economic and budgetary adjustments and plans for joining the euro.
EU guidelines on member state finances that limit government deficits to 3 percent of their GDP - known as the Stability and Growth Pact - have come in for a hammering over the last year due to stimulus spending and falling tax receipts across the union.
However, excessive expenditure by Latvian governments during the recent boom years and the high level of private sector debts in foreign currency have made the small Baltic state particularly vulnerable to a global downturn and leave it will little room for manoeuvre at present.