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29th Feb 2024

Euro membership is 'guiding light' for Latvia reform

The euro has been "a guiding light" for economic reform, Latvia's central bank governor told MEPs on Tuesday (26 February)

Speaking at a hearing with MEPs on the European Parliament's Economic committee, Ilmars Rimsevics, the Governor of Latvia's central bank, described the eurozone as "a stable and big ship" adding that "Latvia would like to join that".

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  • Latvia - the eurozone's next member? (Photo: European Commission)

Rimsevics and Andris Vilks, the country's finance minister, were pushing Latvia's credentials as part of the government's bid to join the eurozone at the start of 2014. The Baltic country would become the 18th member of the eurozone and the first new country to join since neighbouring Estonia joined the currency club in 2011.

Vilks said that Latvia wanted to be part of the political response to the eurozone debt crisis. "We do not want to wait for the euro crisis to pass," he said, adding that "we want to participate and solve the problems together."

The Latvian economy is one of the few success stories in the EU, growing by 5.2 percent in 2012, according to the European Commission's Winter Forecast making it the fastest growing economy in the EU. With a budget deficit of 1.5 percent and net government debt standing at 42 percent of GDP, Latvia comfortably passes the test posed by the Stability and Growth Pact (SGP).

Last month, the Latvian parliament adopted laws enshrining the balanced budget 'golden rule' set out in the fiscal compact treaty in national law. The bill requires EU governments to keep debt and deficit levels below the 60 percent and 3 percent thresholds in the SGP.

It has also established a changeover timetable to switch from the Lat to the Euro.

Latvia's economic output fell by 17.7 percent in 2009 as a result of the financial crisis. It was the sharpest economic contraction in the EU. Although the crisis led the country to request a €7.5 billion bailout from the IMF, Latvia required only €4.5 billion of the rescue package.

Referring to this, Rimsevics commented that "by not being in the eurozone in 2008, Latvia unfortunately had to go through quite a deep and severe economic and financial crisis."

Public opinion is currently divided on whether to adopt the single currency. Rimsevics conceded that around 30 percent were in favour of euro membership compared to 33 percent against. He said that the government was "determined to increase support to 50 percent by summer this year."

Latvia's euro membership bid is likely to be widely supported by MEPs who will table a consultative report before government ministers decide on the issue.

Centre-right MEP Jean-Paul Gauzès said that joining the euro would send "a message of hope and trust for this country that has made remarkable efforts to master the crisis, to relaunch growth and fight unemployment."

Meanwhile, Burkhard Balz, the German centre-right deputy tasked with drafting Parliament's opinion, said that Latvia's response to the crisis - consisting of harsh spending cuts - sets an "exceptionally good example for everyone."

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