Latvian PM :Austerity only way forward for eurozone

Greece and other debt-wracked eurozone nations have no alternative to austerity, according to Latvian Prime Minister Valdis Dombrovskis, who steered his country out of the world's deepest recession. "In the case of eurozone countries, this seems to be the only realistic way forward," Dombrovskis told AFP Thursday in an interview in Warsaw ahead of a European Union summit in the Polish capital. "We had this debate in Latvia, that it's a bad idea to cut expenditure during a crisis, it's a bad idea to raise taxes, so let's wait until the economy stabilises, let's use the budget deficit as a fiscal stimulus and deal with the debt afterwards," the centre-right premier said. "But unfortunately this logic doesn't function for one simple reason. Financial stability is a precondition for economic growth," he insisted. Dombrovskis, in power since March 2009, has led a biting austerity drive imposed after Latvia's overheated economy went off the rails in the fallout from the 2008 global financial crisis. "Our lesson is that you have to frontload this adjustment, do it quickly," he said. "What's happening in Greece is that they are trying to delay this adjustment. They've been in an international programme for more than a year, since May 2010, and we see there's much less confidence about Greece now than more than a year ago. "I would acknowledge they are doing quite a lot," he said, noting that Greece's austerity measures were "no joke." "But apparently they are not doing enough to convince markets and to convince pretty much everyone. These delaying tactics are not working," he said. "It's better to do this adjustment when it's needed. Also for the public, because they say 'Okay, now we see the light at the end of the tunnel, however bad it is now.'" Latvia has seen little public protest against austerity, with some analysts pointing to memories of tough Soviet times. The former Moscow-ruled nation of 2.2 million joined the EU in 2004 and posted double-digit growth stoked by rising wages and easy credit. But its economy shrank by a quarter over 2008 and 2009 combined -- the deepest recession in the world, according to the International Monetary Fund. At the end of 2008, it turned to the IMF and EU for a 7.5-billion-euro ($10 billion) loan package, which has been paid in tranches provided it keeps tight control over finances. The economy contracted by 0.3 percent in 2010 but has rebounded, with 5.0 percent growth forecast this year. The loan programme ends formally on December 22 Latvia's austerity drive is dubbed "internal devaluation" because its currency, the lat, has been kept pegged to the euro rather than being allowed to float in an effort to restore competitivess. Many Latvians took out loans in euros during the boom years, meaning unhooking the lat was a major risk. But another goal of keeping the peg and restoring state coffers was to help Latvia stick to its goal of adopting the euro by 2014. Dombrovskis's party came third in a September 17 election and is trying to forge a new centre-right coalition. The leader of a left-leaning pro-Russian grouping which topped the polls has called for a referendum on euro adoption. Dombrovskis rejected that. "We had a referendum on joining the EU in 2003, on the EU treaty with all its conditions. One of the conditions was to join the eurozone once we fulfill the criteria, so the people voted on this already," he said. He also played down concerns about entering a crisis-riven currency bloc. "We don't see this crisis as a euro crisis. It's a financial and economic crisis in certain countries which haven't followed basic macro-economic rules," he said. "We feel the eurozone is taking the right steps in reintroducing sanctions and control mechanisms, and strengthening economic governance. "We believe the eurozone has a future, so why not join?"