EU urges Latvia to pass budget cuts in exchange for loans

(BRUSSELS) - The European Commission urged Latvia on Wednesday to pass planned austerity budget cuts in exchange for desperately needed loans, warning that there was no other alternative.

The Latvian government vowed on Monday to slash its budget by 500 million lats (700 million euros, 998 million dollars) to meet the terms of a stalled EU and IMF bailout package needed to avert an economic meltdown.

Latvian lawmakers are due to vote on the revised budget on June 17.

"I hope that this will be voted by the parliament next week," EU Economic and Monetary Affairs Commissioner Joaquin Almunia told journalists after talks with Latvian Prime Minister Valdis Dombrovskis in Brussels.

"We consider that on top of this is needed a clear commitment by the Latvian government and Latvian political forces to continue this adjustment," he added, calling for cuts of an "equivalent amount" in 2010.

"We are convinced that there is no alternative, that all other possible alternatives are worse for the Latvian citizens, for the Latvian economy and also the EU economy," Almunia said.

In December, Latvia won a 7.5-billion-euro (10.5-billion-dollar) bailout from lenders including the International Monetary Fund (IMF) and the European Union, with its economy expected to contract a huge 18 percent this year.

Under the terms of the rescue package Latvia has to do all it can to rein in its deficit -- the shortfall between state revenue and spending -- and has been paring public services and wages to the bone.

If Latvia fails to make the promised new cuts, it could be forced to do without a tranche of more than 2.0 billion euros from the international loan package, raising the spectre of debt default and a currency crisis.

"When we receive the results of the parliament discussion and the commitment of the government for next year, we will decide before the end of this month (on) the continuation of the financial support," Almunia said.