Sweden says neighbor Latvia deserves euro entry

RIGA Tue Jun 5, 2012 7:40am EDT

RIGA (Reuters) - Latvia has won the right to adopt the euro currency, euro outsider Sweden said on Tuesday, extolling the small Baltic state's achievement in clinging to its currency peg through the deepest of the 2009 recessions in the European Union.

Latvia kept its lat currency pegged to the euro throughout the crisis, putting pressure on workers to accept pay cuts to keep businesses competitive as well as enduring tax hikes and public spending cuts as the nation's economy shrank by a fifth.

While some economists urged the authorities to devalue the lat currency, Latvia's is now the fastest growing economy in the European Union.

"The Latvians have said they want to enter the euro area in 2014. I would like to give my strong support to this ambition," Swedish Finance Minister Anders Borg told a conference on the lessons of the Latvian and Baltic austerity experience.

Sweden, which is in the EU but whose voters have rejected euro entry, has been praised by investors for sound public finances and economic management during the crisis.

Latvia has said it wants to adopt the euro in order to remove exchange rate worries, although government officials have said it might have to reconsider if the currency bloc cannot resolve the sovereign debt crisis gripping its weaker economies.

The European Central Bank last week said in a report on countries' readiness to join the euro zone that Latvia was not in shape to join the currency bloc.

Borg, whose country provided aid to Latvia under a 7.5 billion euro bailout led by the International Monetary Fund and European Union, said the country's austerity record showed it was suitable for euro entry.

"If the European Union is saying that Latvia cannot be a member of the euro area, who can then be? Who could have done more when it comes to budget restructuring than the government in Latvia? who could have done when it comes to restoring competitiveness?" Borg said.

Latvia hopes this year to meet the economic criteria to adopt the euro and join the bloc in 2014.

(Reporting by Aleks Tapinsh; Editing by Ruth Pitchford)