Latvia criticises ECB inflation rules for eurozone hopefuls

(RIGA) - Latvian Prime Minister Valdis Dombrovskis criticised the European Central Bank Thursday for the way it applies rules on inflation for would-be eurozone members such as his own country.

Dombrovskis told an economic conference that the ECB's approach was "questionable to say the least".

"It means we don't know against whom we will be benchmarked," he said.

In Dombrovskis' sights is the ECB's application of the 1992 Maastricht Treaty that created European economic and monetary union and set the conditions countries must meet to adopt the euro.

One Maastricht criterion concerns price stability.

It says that to enter the eurozone, countries must over a year have an average rate of inflation not exceeding by more than 1.5 percentage points that of the three best-performing European Union members.

Dombrovskis complained the ECB was also taking on board deflation -- a price fall which can be a feature of a slump.

In 2010, for example, the ECB based its reference inflation figure of 1.0 percent on data from Estonia, Slovakia and Belgium, all of which had logged deflation.

However, it excluded Ireland, which was experiencing even greater deflation, with the explanation that it was an "outlier".

Nordea Bank analyst Andris Strazds told AFP that Dombrovskis had a point, given the particular economic environment in nations such as Latvia which have made the transition from communism to the free market.

"It raises the question of whether this Maastricht criterion is really fair to economies that are catching up," Strazds said.

"If the three best-performing countries had minus 0.5 percent, zero percent and plus 0.5 percent inflation, then the average would be zero percent," he explained.

"That would mean the criterion at that point would be 1.5 percent. I see no chance of Latvia meeting that kind of target," he added.

Latvia is emerging from a deep economic slump and hopes to meet all the Maastricht criteria -- which also include limits on a nation's debt and public deficit -- regularly breached by current eurozone members -- by 2013 in order to adopt the currency in 2014.