Brussels, 23/12/2008 (Agence Europe) - After Hungary, it is Latvia that is now going to benefit from he EU medium-term balance of payments support system. “In light of the major imbalances facing the Latvian economy, accentuated by the financial market strains, and given the Latvian authorities' firm commitment to implement a major programme of economic adjustment, the European Union intends to provide medium-term financial assistance to Latvia of up to € 3.1 billion” explained the European Commission and French Presidency of the ECOFIN Council in a joint press release published on 19 December 2008. With the backing of the International Monetary Fund (€1.87 billion), Scandinavian countries (Sweden, Denmark, Finland and Norway, €1.8 bn in total), the World Bank (€0.4 bn) and other lenders, Latvia will be granted an overall aid package of €7.5 billion until the first quarter of 2011. Latvia has been hit hard by the economic crisis and is expected to enter a serious recession. The Latvian central bank and the Latvian government are expected GDP to contract by between 1.5% and 1.7% in 2008 and by 5% in 2009.
The EU's contribution will take the form of a loan and still needs to be approved by the Commission (at the start of January next year) but has already been approved by EU finance ministers. It is dependent on a detailed economic policy programme to include: keeping within Latvia's current exchange rate range; “an immediate and sustained fiscal consolidation to limit the budget deficit to 5% of GDP in 2009, falling further to 3% of GDP in 2011”; and “wide-ranging structural reforms and wage reductions, led by the public sector”. The Commission will monitor respect of the criteria to be set out in a Council decision in the near future. In November 2008, Hungary was given a loan of €6.5 billion from the support mechanisms for Member States that are not in the euro (covered by EU Regulation 332/2002). The system's cap has been raised from €12 billion to €25 bn. (A.B. trans fl)