Brussels  – Sweden has nothing to fear from Latvia’s economic meltdown, despite Swedish banks’ massive investments in the troubled Baltic state, Swedish Prime Minister Fredrik Reinfeldt said Tuesday.

“I’m convinced that we have taken the steps that can control anything that happens in Latvia … It won’t have a huge effect on the Swedish economy or send a huge bill to the Swedish taxpayer,” Reinfeldt told journalists in Brussels.

Latvia has experienced the sharpest economic collapse in the European Union, with its gross domestic product tipped to implode by at least 18 per cent this year and its overheated property market suffering one of the steepest price declines in the world.

The Baltic state is currently fighting to secure an emergency 7.5- billion-euro (10.4-billion-dollar) bail-out from the International Monetary Fund and international donors, among fears that it might have to devalue its euro-pegged currency, the lats.

Two of Sweden’s major banks, Swedbank and SEB, invested massively in Latvia after the country joined the EU in 2004, sparking fears that Latvia’s meltdown could drag Sweden down with it.

Outstanding Swedish bank loans in the Baltic states currently total 60 billion dollars, according to Sweden’s national bank.

But Reinfeldt rejected those fears, pointing out that his government had already extended its national guarantee scheme to the banks’ Baltic subsidiaries and was ready to recapitalize them if needed.

“If they lose a lot of capital, we’ll take over part ownership,” he said.

That would mean that “we might end up owning more banks,” but the government would be able to sell its stakes once stability returns to the markets, minimizing the cost to taxpayers, he said.

Reinfeldt was in Brussels to discuss his tenure of the EU’s rotating presidency, which Sweden takes over in July. He was speaking as EU finance ministers held a regular meeting in Luxembourg. (dpa)