Latvia, Lithuania to join eurozone budget treaty

  • 2011-12-15
  • From wire reports

RIGA - It is likely that the European Union will experience greater economic stratification: there will be member states with stronger economies, and some countries will then attempt to agree with each other and ignore the others, Finance Minister Andris Vilks (Unity) said in an interview with the newspaper Diena.
Vilks believes that a stricter fiscal discipline and budget control are to be recommended in the EU as long as these measures do not require too much effort.

Asked if Greece could be ejected from the eurozone, Vilks pointed out that the EU member states will stratify sooner or later. It is not the worst-case scenario, since the eurozone could then get rid of those counties which do not want to observe fiscal discipline and could cause problems in the future. Germany could unite the remaining countries, and this is what Latvia needs, explained the minister. Vilks is convinced that the 2012 national budget matches the Baltic region’s vision of next year’s economy. However, it is difficult for Europe’s developed countries to implement austerity measures similar to the ones carried out in Latvia. Western Europe cannot suddenly reduce wages by 20 percent and lay off one-third of employees.

Therefore, “the 2012 budget is a perfectly balanced compromise,” said Vilks.
The new intergovernmental treaty among the 17 members of the eurozone and several other European Union member states envisages that the participating countries will need to have balanced budgets with a budget deficit no greater than 0.5 percent of gross domestic product, according to the eurozone’s agreement confirmed on Dec. 9, reports AFP.
The agreement states that Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania, the six countries outside the eurozone, are also willing to join the process.

This budget deficit requirement will be included in the countries’ constitutions or their equivalents. The new law will envisage an automatic adjustment, whenever a country’s budget deficit exceeds 0.5 percent of GDP. The EU Court of Justice will evaluate how this new requirement will be introduced at the national level.
If a member state’s budget deficit exceeds three percent of GDP, it will automatically face consequences, unless a majority of the other member states objects to it. According to the eurozone’s statement, in this case the European Commission will recommend the necessary steps and sanctions.

European Union leaders abandoned a bid to ensure that all 27 member states would change the bloc’s treaty together to combat the debt crisis. The talks will now go forward seeking treaty change only for the eurozone and others aiming to join.