Fears that Latvia might devalue its currency have eased after the EU promised more aid in return for budget cuts.
The Baltic state is reeling from the global financial crisis and its economy is forecast to shrink by 18 percent this year. It has fuelled speculation that Riga might have to devalue the lat, which is pegged to the euro. Talks in Brussels sought to avoid such a move. Valdis Dombrovskis, the Latvian prime minister said: “We yesterday in the government adopted the decision to do another fiscal correction of 500 million lats for 2009 in order to ensure that we continue to receive international financing.” Latvia has won a 7.5 billion euro package from the EU and the International Monetary fund. But in order to secure the next instalment it has had to agree to budget cuts of more than 700 million euros. Swedish banks have heavily invested in Latvia and Stockholm has indicated it would give its own support to prevent a financial collapse in the region.