News / Economy

Latvia Caps Years of Austerity with Eurozone Membership

A banner showing a Latvian euro coin is seen on the facade of the European Commission headquarters in Brussels, Dec. 20, 2013.
A banner showing a Latvian euro coin is seen on the facade of the European Commission headquarters in Brussels, Dec. 20, 2013.
TEXT SIZE - +
Reuters
— Latvia joins the eurozone on Wednesday, banking on its experience of self-imposed austerity to bring it prosperity in a currency union where other economies have floundered.

The Baltic country of just two million people was set to become the bloc's 18th member at midnight (2200 GMT), taking a step further out of the shadow of neighboring Russia a decade after joining the European Union and NATO.

The euro, which was launched 15 years ago, will now be the official currency of 333 million Europeans.

Even so, neighboring Lithuania is the only remaining EU country showing much enthusiasm for euro admission after the temptations and strains of sharing a currency forced Greece, Ireland, Portugal, Spain and Cyprus to seek international bailouts for their government finances or their banks.

Among the ex-Communist EU countries that have yet to adopt the euro, Croatia is stuck in recession while bigger economies such as Poland, the Czech Republic and Hungary have become reticent about currency union.
 
‘Return to Europe’

But Latvia's acting Prime Minister Valdis Dombrovskis, who led his country through its worst economic crisis since it left the former Soviet Union in the early 1990s, was keen to mark the currency change by withdrawing the first euro banknote from a cashpoint after midnight.

”It's sad [to see the lat go], but we will get used to the euro, which marks our return to Europe,” former central banker Einars Repse, who led the introduction of the lat currency in 1993, told Reuters.

Latvia, which becomes the fourth smallest economy in the eurozone after Malta, Estonia and Cyprus, expects the euro to lower its borrowing costs and encourage investors by eliminating currency risk.

Both Standard & Poor's and Fitch have raised the country's credit ratings in anticipation of its euro entry.

But opinion polls show ordinary Latvians are divided on the euro's merits, with many worried that its adoption will be an excuse to raise prices.

”In all other countries which had switched to the euro, prices rose. Most likely, they will rise here as well, which is bad,” said Oleg Bachurin, 62, a pensioner.

Latvia's central bank expects euro zone entry to lift consumer prices by 0.2-0.3 percentage points in 2014, taking inflation to 2 percent.

”I'm not worried [about euro adoption]. I believe it's progress. We should not look back, we should go forward,” said Anita Linde, 57, a retailer.

Austerity model

Latvia won praise from EU policymakers for emerging with strong economic growth and relatively low debt levels from a deep recession after it slashed spending and wages, and hiked taxes to keep the lat pegged to the euro during the global financial crisis.

Its economy shrank by a fourth during 2008-2010, but then grew at the fastest pace in the EU, expanding by 5.6 percent in 2012, with public debt well within the official ceiling.

”Thanks to these efforts ... Latvia will enter the euro area stronger than ever, sending an encouraging message to other countries undergoing a difficult economic adjustment,” European Commission President Jose Manuel Barroso said.

While Latvia has worked hard to shake off its Soviet past, the European Central Bank sees risks in the high level of foreign deposits in Latvia's banks which, as in Cyprus, have been a magnet for Russian money.

Latvia's financial supervisor FKTK rejects the comparison, saying its financial sector accounts for a much smaller share of gross domestic product than Cyprus and holds fewer risky assets.

Latvia enters the eurozone without a permanent government after Dombrovskis resigned in December, taking political responsibility over a supermarket collapse in Riga that killed 54 people.

President Andris Berzins has given the parties in parliament until January 7 to present a new candidate.

Of the other ex-Soviet Baltic republics, Estonia joined the eurozone in 2011 and Lithuania aims to join in 2015.

You May Like

Photogallery Pope's Easter Prayer: Peace in Ukraine, Syria

Pontiff also calls for end to terrorist acts in Nigeria, violence in Iraq, and success in peace talks between Israelis and Palestinians More

Abdullah Holds Lead in Afghan Presidential Election

Country's Election Commission says that with half of the ballots counted, former FM remains in the lead with 44 percent of the vote More

Russia-Ukraine Crisis Could Trigger Cyber War

As tensions between Kyiv and Moscow escalate, so too has frequency of online attacks targeting government, news and financial sites More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Ukraine, Russia, United in Faith, Divided in Politicsi
X
Michael Eckels
April 19, 2014
There is a strong historical religious connection between Russia and Ukraine. But what role is religion playing in the current conflict? In the run-up to Easter, Michael Eckels in Moscow reports for VOA.
Video

Video Ukraine, Russia, United in Faith, Divided in Politics

There is a strong historical religious connection between Russia and Ukraine. But what role is religion playing in the current conflict? In the run-up to Easter, Michael Eckels in Moscow reports for VOA.
Video

Video Face of American Farmer is Changing

The average American farmer is now 58 years old, and farmers 65 and older are the fastest growing segment of the population. It’s a troubling trend signaling big changes ahead for American agriculture as aging farmers retire. Reporter Mike Osborne says a new report from the U.S. Census Bureau is suggesting what some of those changes might look like... and why they might not be so troubling.
Video

Video Donetsk Governor: Ukraine Military Assault 'Delicate But Necessary'

Around a dozen state buildings in eastern Ukraine remain in the hands of pro-Russian protesters who are demanding a referendum on self-rule. The governor of the whole Donetsk region is among those forced out by the protesters. He spoke to VOA's Henry Ridgwell from his temporary new office in Donetsk city.
Video

Video Drones May Soon Send Data From High Seas

Drones are usually associated with unmanned flying vehicles, but autonomous watercraft are also becoming useful tools for jobs ranging from scientific exploration to law enforcement to searching for a missing airliner in the Indian Ocean. VOA’s George Putic reports on sea-faring drones.
Video

Video New Earth-Size Planet Found

Not too big, not too small. Not too hot, not too cold. A newly discovered planet looks just right for life as we know it, according to an international group of astronomers. VOA’s Steve Baragona has more.
Video

Video Copts in Diaspora Worry About Future in Egypt

Around 10 percent of Egypt’s population belong to the Coptic faith, making them the largest Christian minority in the Middle East. But they have become targets of violence since the revolution three years ago. With elections scheduled for May and the struggle between the Egyptian military and Islamists continuing, many Copts abroad are deeply worried about the future of their ancient church. VOA religion correspondent Jerome Socolovsky visited a Coptic church outside Washington DC.
Video

Video Critics Say Venezuelan Protests Test Limits of Military's Support

During the two months of deadly anti-government protests that have rocked the oil-rich nation of Venezuela, President Nicolas Maduro has accused the opposition of trying to initiate a coup. Though a small number of military officers have been arrested for allegedly plotting against the government, VOA’s Brian Padden reports the leadership of the armed forces continues to support the president, at least for now.
Video

Video More Millenials Unplug to Embrace Board Games

A big new trend in the U.S. toy industry has more consumers switching off their high-tech gadgets to play with classic toys, like board games. This is especially true among the so-called millenial generation - those born in the 1980's and 90's. Elizabeth Lee has more from an unusual café in Los Angeles, where the new trend is popular and business is booming.
Video

Video Google Buys Drone Company

In its latest purchase of high-tech companies, Google has acquired a manufacturer of solar-powered drones that can stay in the air almost indefinitely, relaying broadband Internet connection to remote areas. It is seen as yet another step in the U.S. based Web giant’s bid to bring Internet to the whole world. VOA’s George Putic reports.
AppleAndroid

World Currencies

EUR
USD
0.7217
JPY
USD
102.17
GBP
USD
0.5949
CAD
USD
1.1009
INR
USD
60.326

Rates may not be current.