INTERVIEW: EU must stand firm on Greek bailout, Latvian premier says

By Alexandra Mayer-Hohdahl Jun 23, 2011, 16:25 GMT

Brussels - Europe has to stick by its pledge to turn off the bailout tap if Greek lawmakers fail to approve budget cuts - even if bankruptcy follows - Latvia's premier said Thursday, after launching in Brussels a book on his country's own austerity-spurred recovery.

'This is a two-sided exercise,' he told the German Press Agency dpa. 'It is for the European Union to provide a financial assistance package - increase it if needed - but it's also clear that this financial assistance comes with certain conditions.'

'As the EU, we should make sure that Greece sticks to these conditions,' he added.

Dombrovskis was in the Belgian capital to attend a two-day EU summit set to be dominated by Greece's debt problems, which have brought it back to the edge of bankruptcy despite a 110-billion-euro (156-billion-dollar) international bailout last year.

Dombrovskis said he intends to float the idea of the EU buying up depreciated Greek bonds as one way to help the debt-plagued country when EU leaders discuss financial issues on Thursday evening.

'If the financial markets are not really trusting Greece and selling their papers with a substantial discount, why not buy back these papers with this discount?' Dombrovskis asked.

'The EU - or we can lend money to Greece (to do this) - can buy it back and reduce the stock of the debt,' he added. 'As soon as the EU would start doing this, financial markets would become more reasonable and less willing to sell this debt so cheaply.'

Dombrovskis was internationally hailed for his crisis management skills after helping lead Latvia out of one of the world's deepest recessions in 2008-09. He detailed the decisions involved in his new book, titled How Latvia Came Through the Financial Crisis.

The Baltic country took a 7.5-billion-euro (10.6-billion-dollar) bailout from international lenders, but resisted calls for a devaluation of its currency - instead restructuring its economy in what amounted to an 'internal devaluation,' Dombrovskis said.

Earlier this month, it was able to turn down a further installment of the rescue package, citing its strong economic recovery. Dombrovskis expects growth of up to 4 per cent this year, with exports alone set to surge by 41 per cent.

'Each country has its specifics, but I think lessons can be drawn,' Dombrovskis said, pointing to the success of Latvia's internal devaluation approach and the importance of implementing painful financial reforms as quickly as possible.

Among the measures his country undertook were wide-ranging privatizations - a move also being demanded of Greece. Dombrovskis, however, warned against the country being pressured into selling state-owned properties now, when their values are at their lowest.

'If Greece should go ahead with privatizations, it is important not to do it during the worst of the crisis,' he said. 'Otherwise, it may amount to a fire sale of assets.'

Latvia, meanwhile, is focused on getting its economy in shape to adopt the euro in January 2014. Inflation is posing a challenge, but Dombrovskis said he is optimistic the target can be met.

The debt crisis gripping the eurozone has yet to prove a deterrent, he said, although he noted that the public debate about the issue is just getting underway.

'I see this crisis not as a euro crisis,' Dombrovskis said. 'It's rather a financial crisis in some countries who were not following macroeconomic rules.'

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