Latvia Is Ready to Link Currency to the Euro

Latvia, the European Union's fastest growing economy, is ready to link its currency to the euro in a two-year test period prior to adopting Europe's common currency, a Finance Ministry official said. Government and central bank officials will tell a team from the European Commission, the EU's Brussels-based executive arm, that the nation can immediately join the exchange-rate mechanism, which tests currency stability before the euro switchover, said Modris Sprudzans, chief adviser to Finance Minister Oskars Sprundzins. ``Latvia is ready to participate in the mechanism and wants to do so as soon as they allow us,'' said Sprudzans in a phone interview from Riga yesterday. ``Our fiscal deficit is the smallest in six years and we're committed to slowing inflation.'' The former Soviet state of 2.4 million people is working to be the fourth of the 10 nations that joined the EU last year to enter the mechanism, following Slovenia, Estonia and Lithuania. Entry would allow it to swap the lat for the euro by 2008, completing the $11 billion economy's integration into Western Europe and reducing exchange-rate risks for companies and banks. Hansabank Ltd., the biggest Baltic lender, expects the surge in consumer and corporate borrowing that pushed profits to records in the past two years will continue as euro adoption nears and interest rates converge. Latvia's benchmark refinancing rate is 4 percent while the European Central Bank's key rate is 2 percent.