Analytics, Economics, EU – Baltic States, Financial Services, Latvia, Legislation

"This is clearly 'gerrymandering' and we are not very happy about it," Prime Minister Valdis Dombrovskis said in an interview with Dow Jones Newswires on Monday, reports LETA.

Latvia targets adopting the euro in January 2014, and is struggling to reduce its inflation in order to increase financial stability and to comply with the euro convergence criteria in the Maastricht treaty, the Dow Jones Newswire points out.

Latvia's annual inflation in February stood at 3.3%, which is above the current Maastricht target of 2.9%.

Dombrovskis said that his government certainly needs to watch the inflation criteria carefully.

The Maastricht Treaty states that no country will be allowed to adopt the euro if its inflation is more than 1.5%age points higher than the average of the three "best" performing member states of the European Union.

Maastricht also states that the nominal long-term interest rate must not be more than two percentage points higher than in the three states with the lowest inflation.

Dombrovskis said he is concerned about the way in which the ECB has proposed to calculate these requirements, benchmarking against troubled countries such as Greece, Ireland and Portugal, which all have received massive bailouts from the EU and the International Monetary Fund.

"The ECB basically says, let's count them for the inflation criteria, and not for the long-term debt interest rate criteria," Dombrovskis said.

Dombrovskis asked what the sense is in benchmarking against these countries, which have substantial deflationary pressure in their economies.

"The effect is of course that it makes it more difficult for Latvia to reach the Maastricht criteria, and that is certainly causing concerns in Latvia," he said.

Nevertheless, the premier confirms that his government still intends to join the euro zone.

"The plan is to fulfill the Maastricht criteria this year, in order to join on January 1, 2014," Dombrovskis said.

Asked how confident Dombrovskis is that Latvia will be able to comply with the Maastricht criteria for joining the euro, whatever the interpretation of the criteria, Dombrovskis said he is "quite" confident on the budget deficit and debt criteria.

"But, since inflation is a moving target we don't know yet what the target might be, and as I already said, we are not happy with the way the ECB wants to calculate the long-term interest rates criteria," said Dombrovskis.