Cause and Effect in European Politics and Law

Latvia is allowed state aid to boost economy

Adelina Marini, April 23, 2009

Latvia received green light from the European Commission to help companies that experience financial difficulties because of the economic crisis. The scheme allows the granting of subsidised guarantees for initial investment and working capital loans concluded by 31 December 2009. It meets the conditions of the Commission’s Temporary Framework for state aid measures to support access to finance during the crisis because it is limited in time, respects the relevant thresholds and applies only to companies that were not in difficulty on 1 July 2008.

Competition commissioner Neelie Kroes said "The Latvian guarantee scheme is an effective way of encouraging business investment and economic recovery, without unduly distorting competition.

Latvia has serious problems because of the economic and financial crisis because its economy had been growing rapidly in the last years which lead to credit, building and investment boom. This seriously hindered Latvia's ambitions to introduce the European single currency. The intensive economic growth, inflation has not been falling under 15 % on an annual basis. Even now, with the rapid contraction of the Baltic state economy, inflation is still high. Latvia was one of the few European countries that received financial assistance from the IMF and the EU.