Latvia May Adopt Euro After 2015, Swedbank’s Hermansson Says
By Aaron Eglitis and Alex Nicholson
Nov. 27 (Bloomberg) -- Latvia may adopt the euro after 2015, at least a year later than its 2014 target date to switch currencies as part of plan with its international lenders, said Swedbank AB’s chief economist Cecilia Hermansson.
Latvia has “a fair chance that they can make this and get the budget deficit down and get the debt down and get into the euro maybe in a few years, sometime maybe after 2015-2016 or so,” Hermansson told reporters in Moscow today.
The Baltic country’s parliament is planning to * next year’s budget, containing tax increases and spending cuts totaling about 500 million lati ($1.1 billion), to meet the terms of the nation’s 7.5 billion-euro ($11.2 billion) international loan. The country plans to tax real estate, capital gains, earned interest income, deposits and to raise its flat tax rate in addition to spending cuts.
Latvia and the other Baltic states are in for some “internal devaluation, which means they are shrinking their economies without changing their exchange rates,” Hermansson said. Without Latvia’s international loan, worth about one-third of gross domestic product, “I think you already would have seen a devaluation,” she said.
Latvia’s economy, which contracted 18.4 percent in the third quarter, may have a “slight turnaround during next year,” Hermansson said. The economies of Estonia, Latvia and Lithuania “are back to the level when they went into the EU,” she said.