Merkel urges better relations between Russia, Latvia

German Chancellor Angela Merkel called Tuesday on Russia and the former Soviet state of Latvia to work together on improving their relations, reported DPA

"I believe that the time has finally arrived for more intensive relations between Latvia and Russia," the chancellor said after a meeting with Latvian President Valdis Zatlers in Riga.

Speaking on the final day of a two-day trip to Baltic states, Merkel also welcomed the border agreement now in force between Latvia and Russia.

"I wholeheartedly support Latvia's policy of having good- neighbourly relations with Russia as is normal between sovereign states," the chancellor said.

Merkel also praised the austerity course introduced by the Latvian government in order to overcome its economic crisis.

The European Union member state is only now showing signs of exiting the EU's deepest recession after the economy contracted by 18 per cent in 2009.

"Latvia has passed the test with flying colours. We are allies in the European Union when it comes to solid financial policies and adherence to the EU's Stability and Growth Pact," she said.

Zatlers thanked Germany for its financial assistance and support during the negotiations on a border agreement with Russia.

Merkel's day began early with a wreath-laying ceremony at the Freedom Monument in the centre of the Latvian capital before moving on to Riga Castle for her talks with the president.

Speaking to reporters after the next item on her busy agenda - talks with Prime Minister Valdis Dombrovskis - Merkel paid tribute to the manner in which he has tried to rebalance the Latvian economy by means of hard-hitting austerity measures.

She praised the "very clear course" Dombrovskis has steered to reduce Latvia's large budget deficit, giving him a boost ahead of a general election on October 2.

Later Merkel addressed the German-Baltic Chamber of Commerce (AHK), many of whose members have won praise locally for retaining their presences when some other investors chose to flee the troubled Baltic economies.

AHK director Maren Diale-Schellchmidt said it was a "great honour" to welcome Merkel and expressed hopes that the visit would help highlight the potential of German-Baltic trade.

"It won't happen immediately but those signals in Latvia and Germany are very important," Diale-Schellchmidt told dpa.

Merkel was due to fly back to Germany Tuesday night