Tuesday

27th Sep 2016

Latvia presses ahead with 2014 euro bid

  • Latvia - the 18th member of the eurozone? (Photo: Stephen Downes)

Latvia has moved a step closer to joining the euro after its national parliament backed two laws paving the way for the Baltic country to become the 18th member of the single currency.

Latvia‘s parliament, the Saeima, passed legislation on fiscal discipline, which enshrines the balanced budget 'golden rule' to keep government debt and deficit levels below the 60 percent and 3 percent thresholds, as well as a bill detailing the timetable to switch from the Lat to the euro on Thursday (31 January).

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The move comes after Prime Minister Valdis Dombrovskis recently said the government would submit a formal application for euro membership in February or March to the European Commission and the European Central Bank.

The country plans to join the single currency at the start of 2014 and was given a clean bill of economic health by the IMF in a report published earlier this week.

"We are currently fulfilling the Maastricht [euro adoption] criteria with a considerable reserve, therefore I don't see any basis on which this convergence report would be negative," said Dombrovskis.

Latvia abandoned plans to join the euro in 2008 as the country suffered a 24 percent reduction in output as a result of the financial crisis.

The crash, which was the sharpest economic recession in the EU, led the country to request a €7.5 billion bailout. However, Latvia required only €4.5 billion of the rescue package and is now the fastest growing economy across the EU.

In the most recent convergence report published by the European Commission in July 2012, the EU executive found that Latvia did not fulfil the criteria on public finances, price stability, or on central bank independence.

However, with a budget deficit of 1.5 percent and a government debt ratio expected to peak at 45 percent in mid-2013, Latvia is one of the few EU countries, in or outside the euro, to meet the debt and deficit criteria set out in the Stability and Growth Pact.

Meanwhile, the Latvian Lat has been pegged to the euro under the ERM II mechanism since 2005, one year after the country joined the EU.

Latvia would become the second Baltic country to join the euro after Estonia in 2011 and the first to join the single currency since the beginning of the sovereign debt crisis.

Dombrovskis insisted that the decision to join the eurozone "remains correct."

"The current crisis is less a currency crisis and more a financial and economic crisis of individual eurozone countries," he said.

However, public opinion is opposed to joining the single currency. Sixty-six percent of Latvians have a negative attitude towards the euro according to a December survey by pollsters TNS. The last Eurobarometer poll in countries yet to join the currency bloc found that 68 percent of Latvians believed that joining would mean they lose part of their national identity.

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