Sunday

1st Aug 2021

Latvia heralds 'big opportunity' as it joins eurozone

  • Swapping the Lat for the euro is unpopular with Latvians (Photo: PnP!)

Latvia became the 18th country to join the eurozone on Tuesday (1 January).

Joining the currency is "a big opportunity for Latvia's economic development," Prime Minister Valdis Dombrovskis said as he became the first Latvian to withdraw euro banknotes in Riga.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

The move leaves neighbouring country Lithuania as the only one of the three Baltic states not to be part of the single currency, although Vilnius hopes to join in 2015.

After enduring a severe recession in 2008, at the height of the financial crisis, which sliced 24 percent off its national economic output, Latvia abandoned plans to join the euro.

The crash, which was the sharpest contraction in the EU at the time, led the country to request a €7.5 billion bailout from the International Monetary Fund.

In the event, however, Latvia used just €4.5 billion of the rescue package and has since become one of the EU's fastest growing economies.

"Latvia's strong economic recovery offers a clear message of encouragement to other European countries undergoing a difficult economic adjustment," said EU economic affairs commissioner Olli Rehn in a statement Wednesday (1 January).

Rehn added that euro accession "marks the completion of Latvia's journey back to the political and economic heart of our continent."

The country has one of the lowest levels of government budget deficit and debt in the EU at 1.2 percent of GDP and 40.7 percent of GDP, respectively.

The figures leave Latvia as one of only a handful of EU countries to be in conformity with the bloc's Stability and Growth Pact.

Meanwhile, with a banking sector whose size relative to GDP remains under 150 percent compared to an average of over 350 percent across the eurozone, Latvia is considered to be one of the safest members of the currency bloc.

Its banks have become a popular choice for oligarchs from Russia and the Ukraine.

More than €8 billion of the cash in Latvia's bank vaults, around half its total deposits, is held by foreign savers, most of which is believed to come from Russian and Ukrainian businessmen.

In comparison, Baltic neighbours, Estonia and Lithuania, hold just €2.5 billion and €560 million of non-resident deposits, respectively.

Most Latvian's are unhappy about swapping the Lat for the euro.

A recent survey by pollster SKDS found that only two out of 10 Latvians supported euro membership, with 50 percent opposed.

Over 80 percent believe that the euro will lead to higher prices, according to a separate study by the European Commission.

Pro-Western government wins Latvia elections

Latvia’s main Russia-friendly party scored worse than in previous elections and is likely to stay out of government, amid concerns over Russia's war on Ukraine.

News in Brief

  1. Officials worried at infection-surge on Greek holiday islands
  2. EU calls on online platforms to tackle vaccine hesitancy
  3. Russia accused of falling short on Sputnik V deliveries
  4. France: UK quarantine rules 'discriminatory'
  5. Italy's government reaches deal on judicial reform
  6. EU adopts guidelines to 'climate-proof' infrastructure projects
  7. US backs WHO plan for further Covid-origin investigation
  8. EU to buy 220,000 supplies of potential Covid treatment

Opinion

Brexit: what is the 'Lugano Convention' and does it matter?

After Brexit, the UK ceased to be a member of the Lugano Convention, an international treaty which governs cross-border civil and commercial legal disputes. In May, the European Commission published an opinion calling for the UK's re-application to be rejected.

Stakeholders' Highlights

  1. Nordic Council of MinistersNineteen demands by Nordic young people to save biodiversity
  2. Nordic Council of MinistersSustainable public procurement is an effective way to achieve global goals
  3. Nordic Council of MinistersNordic Council enters into formal relations with European Parliament
  4. Nordic Council of MinistersWomen more active in violent extremist circles than first assumed
  5. Nordic Council of MinistersDigitalisation can help us pick up the green pace
  6. Nordic Council of MinistersCOVID19 is a wake-up call in the fight against antibiotic resistance

Latest News

  1. Malta responsible for journalist's death, inquiry finds
  2. Can Greece work with Biden to solve the West Balkans impasse?
  3. EU and UK frustrated at US travel ban extension
  4. Polish judges rally behind EU court ruling
  5. Why 'Fit for 55' isn't fit for purpose
  6. EU hits vaccination target, as Delta variant now dominates
  7. European arms 'displaced over a million people', research finds
  8. Brexit: what is the 'Lugano Convention' and does it matter?

Join EUobserver

Support quality EU news

Join us