RIGA - President Vaira Vike-Freiberga has said that any failure to adopt the euro by 2008, the country's stated target, would badly affect Latvia's economy.
The president, speaking on Latvijas Radio, explained that the deadline is threatened by the country's high inflation.
"Personally, I think that inflation in Latvia has reached a dangerous level, and the state has to do something about it," she said. "However, the decision on what to do should be taken by the Cabinet of Ministers and the prime minister."
Consumer prices have crossed the 7 percent threshold, Vike-Freiberga said, and as a result the country has significantly exceeded the limit set by Maastricht, the set of criteria that regulates the eurozone. Specifically, the president is concerned about Latvia's position vis-a-vis Estonia and Lithuania, who seem to be on track to adopt the common currency in 2007.
"Taking into account that we are already planning to adopt the euro a year later than our neighbors, if we make this gap even wider, it might have a very negative impact on Latvia's financial deals, on Latvia as a financial center and on our economy as a whole," she said.
Latvia currently has the highest inflation in the EU. In October, prices rose 7.6 percent year-on-year. Government officials have tended to blame external factors 's high energy prices 's for the trend, while Bank of Latvia executives have pointed out fiscal policy and heavy consumer spending for the increase in prices.
In November, the Bank of Latvia raised the mandatory reserve requirements for commercial banks in an effort to curtail the amount of lending to consumers.
Meanwhile, the statistics bureau reported that wages have been growing faster than consumer prices. In the third quarter, wages rose 17.7 percent, while consumer prices increased 6.5 percent.
Net wages increased by 17 percent in the public sector, with 15.1 percent growth in the budget-financed institutions and a 21.1 percent increase among commercial companies with central or local government-capital participation. The average net wage in Latvia's public sector reached 201.6 lats (286.9 euros) in the third quarter.
Compared with the second quarter of 2005, the average monthly net wage of employees in the private sector in the third quarter of 2005 increased by 5 percent.