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Latvia President Wants Wage Freeze
Real estate news By Joel Sherwood
September 22, 2007
Latvia's new president, Valdis Zatlers, is calling for a voluntary wage freeze in Latvia as the Baltic country's runaway inflation spurs worry and talk of devaluing its currency, which has been pegged to the euro since 2005. Such a broad sacrifice would require massive public support, and the nation's trade unions seem likely to resist it. But with one of the highest inflation rates in Europe, a wage freeze is just one measure under consideration. "The pace we're moving forward is too fast," Mr. Zatlers said in an interview on an official visit to Sweden. "If we're talking about freezing wages, they must be frozen in all sectors, not selectively."
Mr. Zatlers, a former surgeon with no previous experience as an elected politician and unaffiliated with a political party, took office July 8. Latvia's economic growth rate is one of the highest in the European Union this decade. Its 11.9% growth in 2006 was well above the 2.7% average for euro-zone countries. But inflation was at its highest level in a decade at 10.1% in August. Wages rose 33% in the second quarter. Linking its currency to the euro limits Latvia's ability to use interest rates to steer its economy.
As a result of Latvia's rapid growth, the broadest measure of its trade deficit -- the account deficit -- is nearly 30% of gross domestic product. A currency devaluation could help shrink that deficit -- making imports less attractive and exports more easily sold -- but could fuel more inflation. Latvia originally aimed to adopt the euro, the currency shared by 13 other nations, by 2010, along with the other Baltic countries and Bulgaria and Romania.
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