EU states approve Latvia bail-out

BRUSSELS - EU finance ministers formally agreed a €3.1 billion aid package for Latvia on Tuesday (20 January) at a meeting in Brussels.

The loan is part of a €7.5 billion package of assistance to support Latvia over the medium term that also includes €1.7 billion from the International Monetary Fund.

Further contributions to the package come from the European Bank for Reconstruction and Development and other European countries: Denmark, Estonia, Norway, Poland, Sweden, Finland and the Czech Republic, which currently chairs the EU's six-month rotating presidency.

Speaking at a press conference, Czech finance minister Miroslav Kalousek said he was heartened to see that EU member states had shown "solidarity" towards a fellow member state.

The Latvian economy and financial markets have experienced major turmoil in recent months, with rising public debt and decreasing foreign currency reserves severely undermining business confidence in the Baltic state.

The EU loan will be made available over a three-year period and conditional on measures being taken to restore long-term stability.

EU finance ministers also discussed the economic slowdown in light of new figures released by the commission on Monday.

Economic and monetary affairs commissioner Joaquin Almunia said both stimulus plans and interest rate cuts had a role to play in securing economic recovery but that the nature of stimulus plans would vary from state to state.

Public finance health at risk

Ministers also agreed that their attention should now turn to the successful implementation of the current stimulus plans as further spending packages would threaten the long-term stability of Europe's public finances.

"These fiscal stimulus plans have limits," Mr Kalousek told journalists.

Despite calls for "fiscal responsibility" however, the French government announced plans on Tuesday for a €5 billion to €6 billion rescue plan for the country's automobile sector.

French Prime Minister Francois Fillon said in Paris that the government intended to provide "massive" support for its three main car manufactures, which have been hit hard by the current slowdown.

Likewise, British Prime Minister Gordon Brown unveiled a new support plan for British banks on Monday. But the move failed to prevent large falls on European stock exchanges as markets reacted to news that the Royal Bank of Scotland may post record losses of €31 billion (£28bn).

On Monday, commissioner Almunia said the British economy was amongst the most exposed to the current financial crisis.