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EU approves Latvian bank aid

(Agencies)
Updated: 2008-12-23 19:05

BRUSSELS, Belgium -- The European Union on Tuesday approved a Latvian plan to stabilize the country's banking markets in the wake of the global financial meltdown.

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The plan includes guarantees that will cover most banking debt and in exceptional cases, it also allows for the takeover of banks in trouble.

In November, the government was forced to nationalize Parex Bank, the country's second-largest financial institution in terms of assets, after the bank ran out of cash.

The government bought a 51 percent stake in Parex and then injected some 200 million lats (euro280 million, $390 million) into the bank to keep it afloat.

EU Competition Commissioner Neelie Kroes said the measures were within state aid rules allowing nations to react quickly to a financial crisis. She said that despite the support there was enough safeguards to guarantee non-preferential treatment and "to maintain a level playing field for all European banks."

Latvia's economy is the worst performer in the 27-member EU and shrank 4.6 percent in the third quarter from a year ago. In addition, gross domestic product fell 0.6 percent over the first nine months of the year. It has burdened the Baltic state's economy, for years the fastest growing in the European Union, with a prolonged recession, calling for government action.

Last week, a group of international lenders pledged US$10.5 billion (euro7.5 billion) in financial aid.