The Economic and Financial Affairs Council (Ecofin) has cleared the decks for Latvia join the troubled Eurozone, the application for membership had earlier been approved by the European Commission and the European Central Bank. The exchange rate has been set at 0.702804 lats to one Euro, and Euro notes and Coins will be issued in Latvia on 1st January, 2014. The Russian speaking, Baltic state is keen to strengthen its ties with Western Europe and reduce its dependency on Russia. The country which shares its borders with Estonia, Russia, Belarus and Lithuania has met the criteria for Euro membership, including low inflation and long term interest rates, as well as low public debt. Latvia underwent one of Europe’s toughest austerity programmes after the 2008-09 financial crisis knocked down a fifth of its GDP, it received a bailout package of 7.5 billion Euros in 2008, but has now repaid the loans.
“Ecofin has taken the final decision approving Latvia’s euro membership from 2014” EU’s current Lithuanian presidency announced in its Twitter account.
The small Baltic state is in praise for its handling of the economic crisis, the government headed by its Prime Minister Valdis Dombrovskis borrowed less money and advocated comprehensive structural programmes to help the country come out of the crisis. Politicians in Latvia and economic experts agree the government policies could be a role model for other Euro countries which are in debt. They see Latvia as a model student of Europe, in an apparent reference to its high growth rate and balanced budgets.
“ Being part of the Eurozone reduces risks for the investors,” said a senior politican Krisjanis Karins, who is also a member of the European parliament. He points to its neighbor Estonia, which has seen foreign direct investment almost double in the past two years. The recovery though has not been easy for the Russian speaking state, Five years ago the country experienced its worst ever economic crisis, before it was bailed out through emergency loans from the EU and the International Monetary Fund (IMF). The aid also required Latvia undertake a major austerity measures, in 2009 alone wages were cut by 30 percent and government spending was cut by 20 percent, Latvia experienced a situation currently faced by Portugal and Greece, high rates of unemployment and poor standard of living. But the government headed by Dombrovskis stuck to its guns and can now reap the rewards.
Olli Rehn, EU’s top economic and monetary official, said that Latvia’s membership bid was “further evidence that those who predicted the disintegration of the euro area were wrong”.
Lithuania is hoping to share the currency by 2015 and a debate in neighboring Poland is also kicking off, with signs there that the government would like to enter the single currency within a few years. Many among the country’s 2 million people are skeptical to join, due to the euro zone’s debt problems. Anti euro parties won more than half the vote held in the local elections in the capital, Riga, in June. Euro opponent Andris Orols, head of “Latvia for the Lat” vowed to ask the constitutional court to review the government’s decision. “We are against the Euro because we believe that an independent and sovereign country cannot exist without its own money which it controls” he said