By Peggy Corlin
May 2, 2006

Hopes that the three Baltic states will be able to join the EU single currency in 2007 have taken a hit following the latest inflation projections.

Based on the latest forecasts, Estonia, Lithuania and Latvia will not be able to join the eurozone in 2007 as they have not done enough to keep prices under control.

Despite good economic performances, inflation rates in the Baltic states remain above the threshold level set by the Maastricht treaty in 1992.

Annual inflation in countries wishing to join the euro must not exceed the average of the three lowest national inflation figures in the eurozone plus 1.5 percentage points, putting the current reference rate at 2.6 per cent.

Eurozone candidate countries must also show sustainable public finances, price stability and exchange rate stability over at least two years, as well as keeping long-term interest rates under control.

Both Estonia and Lithuania had high hopes of meeting the single currency criteria by 2007, while Latvia was hoping for a 2008 entry.

But with inflation currently running at 4 per cent, Tallinn has conceded that it will not be ready until the second quarter of 2007 at the earliest – although 2008 is now a more realistic date.

The pill is even more bitter for Lithuania, whose current inflation rate is 2.7 per cent, a fraction over the threshold.

The country meets all the other criteria, including healthy public finances and one of the highest levels of economic growth in the whole EU.

Latvia will also have to wait longer, despite economic growth running at 10.3 per cent a year. Riga has struggled to keep inflation under control and is unlikely to meet the Maastricht criteria by 2008.