RIGA - Latvia is convincingly meeting the euro convergence criteria, therefore positive convergence reports are expected from the European Commission and the European Central Bank (ECB) at the beginning of June regarding Latvia’s compliance with the eurozone accession criteria, reports Nozare.lv.
The data for Latvia has already been in line with the Maastricht criteria since last September, and Latvia requested the Commission’s and the ECB’s convergence reports this past March.
However, the European authorities examine not only a candidate country’s compliance with the Maastricht criteria, but also their ability to meet the criteria in the long term, explains Finance Ministry Communications Department head Aleksis Jarockis. The Commission and ECB reports could emphasize that Latvia must avoid excessive budget deficits and foreign debt in the long run, and recommend the country to pursue responsible and healthy fiscal policy by balancing out budget revenue and spending.
Latvia could also be recommended to reduce social inequality and be offered several recommendations regarding the tax system, aimed at reducing social inequality, the Finance Ministry believes. These matters are already being dealt with: the Finance Ministry has drawn up proposals on increasing the non-taxable minimum income, and transferring the tax burden from labor to property is being analyzed, said Jarockis.
Finally, the European Commission and the ECB could emphasize non-resident deposits in Latvian banks. They will most probably express a high opinion of what has already been done in this regard, for instance, the higher liquidity ratio for banks oriented toward non-resident businesses, but they could nevertheless recommend Latvia to go further and closely supervise this segment of the financial sector. The international experts could also indicate what reforms are necessary in higher education and healthcare, believes the Finance Ministry.
European Parliament member Roberts Zile notes that there are concerns about the assessment of the Latvian financial system’s viability, which is clearly indicated in the past reports and in the communication between the European Commission, ECB, the Bank of Latvia, Financial and Capital Market Commission and Finance Ministry. “The Commission and the ECB are concerned about the large proportion of non-resident deposits in the Latvian banking system,” says Zile.
However, MEP Ivars Godmanis believes that there is no need to “search for a black cat in a black room,” especially if it is not there. Latvia’s financial system is sustainable, and there are reliable figures that prove this, he asserts. Unfortunately, if the situation at Liepajas metalurgs unfolds according to the worst-case scenario, this may lower the gross domestic product indexes, but not for a long time, says Godmanis, emphasizing that he hopes that the situation at the national airline airBaltic and at Latvijas Pasts postal company has stabilized. Non-resident deposits may be considered a risk, but these concerns have already been dispelled, believes Godmanis.
Likewise, MEP Karlis Sadurskis believes that the convergence report will not express any doubts about Latvia’s ability to comply with the Maastricht criteria. Therefore, the report will contain no elements that could be used by some eurozone member states that, for one reason or another, might oppose and obstruct Latvia’s accession to the euro club.