Riga - The central bank in Latvia put its hopes for the euro
on hold Thursday, admitting that the pan-European currency would not
replace the lat as legal tender until 2014 at the earliest.
The prospect of large budget deficits in coming years means
meeting the Maastricht criteria that regulate euro adoption is highly
unlikely, the central bank believes.
In December 2008, the Latvian government agreed a 7.5-billion-euro
(10-billion-dollar) bailout package with international lenders
including the European Commission (EC) and International Monetary
Fund (IMF) which identified euro adoption as a key priority.
However, the Latvian economy has performed much worse than
expected since the deal was signed, contracting by 18 per cent in the
first quarter of 2009.
Now even huge public spending cuts have not been enough to balance
the books, and the government expects to run a budget deficit of
around 10 per cent of GDP this year.
'It was envisioned in the programme for economic stabilization...
the changeover to the euro could take place in 2012-2013,' said a
statement from the bank.
'This programme, however, is not realistic. The budget deficit
level that would comply with the criterion for common currency
introduction, i.e. 3 per cent of GDP, is now projected for as late as
2012, which means that the euro could be introduced in 2014 at the
earliest,' the statement says.
Uncertainty as to when the euro changeover will take place creates
'feelings of insecurity both in entrepreneurs and the general
population as well as investors,' the bank continued.
It urged the government of Prime Minister Valdis Domrovskis to set
a target date for achieving all Maastricht criteria.
Latvia had hoped to adopt the euro in 2008, four years after being
admitted to the European Union.
However, runaway inflation made early adoption impossible and ever
since then the date has been slipping backwards.
Neighbouring Estonia harbours hopes of adopting the euro in 2011,
while Lithuania regards 2012-13 as a realistic target.
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