Baltics concerned about euro criteria

RIGA - Latvian Prime Minister Valdis Dombrovskis (New Era) said discussions about delaying euro area enlargement are a concern for his government, as other Baltic leaders say accession may become more difficult, reports Bloomberg. “What starts to worry us in this debate is some discussion that there should be a postponement of the enlargement of the eurozone or the Maastricht criteria should be changed,” Dombrovskis said in an interview on Bloomberg Television on May 11.

Greece’s debt crisis has shown that criteria used to decide euro accession aren’t enough to enforce fiscal responsibility among the currency bloc’s existing members. That’s prompted some to question the continued enlargement of the currency union, sparking concern in candidate countries that have exacerbated their recessions in an effort to comply with the EU’s fiscal rules.

Latvia’s economy contracted 18 percent last year as the government pushed through the EU’s toughest austerity package to comply with the terms of an international bailout and fulfill convergence criteria. “The real problem is not the new member states or the countries willing to enter, because it’s quite clear you either meet the Maastricht criteria or you are not allowed in,” Dombrovskis said. “The real problem is the lack of control mechanisms within the eurozone.”
The 1992 Maastricht Treaty stipulated that EU states should keep their budget deficits within 3 percent of GDP and debt at no more than 60 percent of GDP.

Lithuanian President Dalia Grybauskaite said “it will be more difficult to achieve all Maastricht criteria,” in a separate interview with Bloomberg Television. Lithuania “had no choice” but to force through budget cuts equivalent to about 9 percent of GDP last year, she said, adding the measures will help the country come “very close” to reaching the EU’s three percent budget deficit target in 2012.

In Latvia, austerity measures since the country was forced to turn to the International Monetary Fund and EU for a 7.5 billion euro loan resulted in a fiscal adjustment of more than 10 percent of GDP, Dombrovskis said.
For countries like Greece and Spain, where the option of devaluing their currencies doesn’t exist, an internal devaluation similar to the one conducted in Latvia is “inevitable,” Dombrovskis said. Latvia, which in 2005 entered the pre-euro exchange rate mechanism two, last quarter emerged from the EU’s worst recession. The country targets 2014 euro adoption, though analysts say 2015 is more likely, at the earliest.