Riga  - Europe's Commissioner for Economic and Monetary affairs, Joaquin Almunia, backed plans Wednesday for the Latvian government to carry on with huge budgetary cuts.

"The European Commission encourages and supports Latvia in the process of drafting budget amendments and in undertaking the necessary reforms in accordance with the economy stabilization program," Almunia said after a meeting in Riga with Latvian Prime Minister Valdis Dombrovskis.

Cuts to public spending of around 40 per cent being implemented in the embattled Baltic state have caused a growing number of protests from groups including teachers, students, nurses, farmers and police officers.

However, Almunia said the austerity regime offered Latvia an opportunity to rebalance its books and overcome the economic crisis.

"We support the government's work aimed at stabilizing its finances and implementing reforms in the most essential areas - public administration, health care and education," Almunia said, adding that Latvia should continue efforts to adopt the euro as its currency in 2012.

In December 2008, the European Commission, the International Monetary Fund (IMF), the World Bank, the European Bank of Reconstruction and Development Bank
(EBRD) and several member states of the European Union (EU) agreed on provision of financial support to Latvia totalling 7.5 billion euros (10 billion dollars) over three years.

Under the terms of the loan, the Latvian government must limit its budget deficit to around 5 per cent of GDP, but the Dombrovskis government is attempting to win more leeway from lenders by asking for a 7 per cent deficit cap instead.

After a decade of breakneck growth when it was known as a "Baltic tiger," the Latvian economy went into rapid decline in 2007 and 2008.

Official forecasts suggest the economy will contract by 13 per cent in 2009 with independent analysts suggesting the eventual figure could be 15 per cent or more.

Almunia's visit also included meetings with governor of the Latvian central bank Ilmars Rimsevics and Finance Minister Einars Repse, who defended the austerity measures being masterminded by his ministry.

"The less the state will spend, the more money will be left to people and businessmen to be invested back in the national economy," said Repse.  (dpa)