Latvia calls for EU compensation if sanctions rebound

RIGA Mon Mar 17, 2014 4:11pm GMT

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RIGA (Reuters) - Euro zone newcomer Latvia said on Monday the EU should compensate any countries hurt by sanctions against Russia, highlighting worries in the Baltic region about the economic impact of the crisis over Ukraine.

The United States and the European Union have imposed sanctions including asset freezes and travel bans on officials from Russia and Ukraine after Crimea applied to join Russia following a weekend referendum.

"Agreeing on common sanctions against Russia, it is of decisive importance for the European Union to reach an agreement on compensation to those member states that might be affected the most by the consequences," Latvia's Finance Minister Andris Vilks said in a statement.

Latvia, along with neighbours Lithuania and Estonia, has been cautiously following rising tensions between the EU and Russia. About one fifth of Lithuania's and 12 percent of Latvia's exports go to Russia. All three Baltic countries depend from Russian for natural gas supplies.

Vilks said compensation might be provided from the EU Solidarity Fund.

"All three Baltic states are very vulnerable to economic sanctions," said Nerijus Maciulis, chief economist at Swedbank Lithuania. "Lithuania would face a deep recession if the European Union and Russia limit their trade, especially if Russia limits exports of its energy resources."

Latvian Prime Minister Laimdota Straujuma told a local television network on Sunday that, in the worst case, sanctions might cost its 25 billion euro ($35 billion) economy several hundred million euros.

Last week Russia suspended food product imports through Lithuania's major port Klaipeda, a move local businesses saw as Moscow's way of exerting political pressure.

The Baltic states, now members of the European Union and NATO, were part of the Soviet Union just over two decades ago. Its relations with the Kremlin have often been tense.

Russia's intervention in Crimea, on the grounds that Russian speakers there need protection, has alarmed many in the Baltics. Both Latvia and Estonia have large Russian-speaking minorities.

($1 = 0.7181 Euros)

(Reporting by Aija Krutaine; Editing by Alistair Scrutton/Ruth Pitchford)

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