Commission Report (2002): Latvia

• Progress since the last Regular Report
• Overall assessment
• Conclusions

Chapter 11: Economic and Monetary Union

Progress since the last Regular Report

A detailed assessment of the various aspects of Latvia's economic policy has been given above, in the Chapter discussing the economic criteria (B-2). Therefore, the present section is limited to a discussion of those aspects of the Economic and Monetary Union acquis -- as defined by Title VII of the EC Treaty and the other relevant texts -- which candidate countries should implement before accession, i.e. the prohibition of direct public sector financing by the central bank, the prohibition of privileged access of the public sector to financial institutions, and the independence of the national central bank. As to the process of liberalisation of capital movements, upon the completion of which compliance with the EMU acquis is conditional, this aspect has been covered above, in the section on Chapter 4 -- Free movement of capital.

Since the last Regular Report, some progress was made in the adoption of the EMU-related acquis.

Alignment concerning prohibition of direct public sector financing by the Central Bank had already been achieved in 2001.

As regards privileged access of the public sector to financial institutions, no legislative developments took place on private pension funds concerning rules for investing pension capital.

Since the last Regular Report, new legislation has been adopted with amendmentsto the law on the Bank of Latvia in June 2002 which aim at further alignment with the acquis concerning the requirements for the independence of the Central Bank, particularly regarding grounds for dismissal of members of the board.

Overall assessment

Latvia will participate in EMU upon accession with the status of a country with a derogation under Article 122 of the EC Treaty, and it will need to implement the necessary changes to its institutional and legal framework by the date of accession.

As regards privileged access of the public sector to financial institutions, further changes to Latvian legislation on private pension funds concerning rules for investing pension capital will be necessary. This concerns mainly the law on Private Pension Funds, which requires further alignment.

In the area of independence of the Central Bank, a high degree of compliancet with the acquis has been achieved.

Conclusions

In its 1997 Opinion, the Commission concluded that Latvia`s participation in the third stage of EMU as a non-participant in the euro area would pose problems in the medium term. It added that the provisions and the practice of the central bank`s budget deficit financing were not yet fully compatible with EC rules.

Since the Opinion, steps forward have been taken and a high level of alignment with the EMU-related acquis has been achieved and the administrative capacity has been put in place.

Negotiations on this chapter have been provisionally closed. Latvia has not requested any transitional arrangements. Latvia is generally meeting the commitments it has made in the accession negotiations in this field.

In order to complete preparations for membership, Latvia`s efforts now need to focus on aligning the rules for investing pension capital.

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