Almunia keeps up pressure on Latvia
The EU's economy commissioner, Joaquin Almunia, is keeping up pressure on Latvia to fulfil budget deficit cuts agreed under the terms of a €7.5 billion international loan led by the EU and the International Monetary Fund.
"This will be extremely important to increase confidence in the markets vis-a-vis the Latvian economy," he told a news conference in Riga on Tuesday (13 October) following discussions with parliamentary leaders.
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"Honestly, I don't see an alternative," he added.
Ongoing squabbling between members of the government's five-party coalition recently caused it to row back from the 500 million lat (€711m) deficit cut agreed for this year.
But sharp criticism of the proposed move - led primarily by Sweden, whose banks have invested heavily in the country – resulted in a government announcement on Monday to go ahead with the full deficit reduction.
This will be achieved through 320 million lats of spending cuts and 180 million lats in new revenues, announced the country's embattled prime minister, Valdis Dombrovskis.
Mr Almunia welcomed the decision during his visit to Riga on Tuesday and urged the country's parliament to approve the budget bill.
"If this 2010 budget is adopted as it has been agreed, this will create the conditions to have again positive figures for growth in the Latvian economy before the end of 2010," he said.
Latvia is suffering one of the worst recessions in the EU following the bursting of a real estate bubble, with the economy expected to contract by 18 percent of GDP this year.
But as unemployment rises and politicians position themselves for elections next October, dissent has been growing over the EU and IMF lending terms.
The conservative Peoples' Party – currently the largest in the five-party coalition – is facing electoral wipeout next year based on current polling results, and has opposed certain tax increases.
Following a meeting with Mr Almunia however, a chief figure in the Peoples' Party, Vents Armands Krauklis, appeared resigned to Monday's agreement.
"Nothing else is left other than to fulfil the unreasonable demands of the international lenders," he is quoted as saying.
Trade unions protesting in Brussels last week said Latvia's lack of a progressive tax system based on salary earnings mean the country's poor are hit hardest by any tax increases.
As many citizens struggle to pay back mortgages on houses whose value has plummeted over the last year, the government is toying with a plan to limit mortgage repayments to banks.
Swedish bank Swedbank has threatened to reduce the level of its operations in the country if the government goes ahead with the plan.