Latvia’s reward for austerity? Membership of the euro in 2014

Baltic state will be 18th to adopt single currency, despite opposition within the country

Latvia will become the 18th country to join the troubled eurozone, in a move seen by the Baltic state’s centre-right government as a guarantee of stability and a reward for the tough austerity-measures imposed to help the country recover from a harsh financial crisis.

Announcing the move, Prime Minister Valdis Dombrovskis said that the European Commission (EC) had given the go ahead for Latvia for adopt the euro from early 2014. “Joining the eurozone will foster Latvia’s economic growth for sure,” Mr Dombrovskis said.

The EC hopes that Latvia’s switch to the euro will signal to investors that the eurozone is growing, despite its debt crisis and the huge unpopularity of austerity measures in countries like Greece, Italy and Spain. “Latvia’s desire to adopt the euro is a sign of confidence in our common currency and further evidence that those who predicted the disintegration of the euro area were wrong,” Olli Rehn, the European Union’s commissioner for economic and monetary affairs, said in a statement. The EC concluded that Latvia had managed to achieve sustained low inflation, low long-term interest rates and low public debt by enforcing measures which foreshadowed those currently imposed in crisis-hit eurozone countries.

However, opinion polls have shown that most Latvians are opposed to switching currencies because they fear the move will drive-up prices. Anti-euro parties won over half the vote in elections in Riga at the weekend.

The Baltic state, which has a population of just over two million, was one of the hardest hit by the 2008-2009 financial crisis, which burst a property bubble and forced the closure of one of the country’s leading banks.

Latvia lost a fifth of its economic output and became one of the first countries to be rescued by a bailout from the European Union and International Monetary Fund. The conservative government subsequently imposed some of Europe’s harshest austerity measures and began a vigorous privatisation programme.

Unlike other EU member states, such as Greece, the government was able to impose its austerity programme of draconian wage-cuts and tax increases almost unopposed. Protests against the measures were minimal

Despite its financial recovery, economic activity in Latvia is still 12 per cent below levels experienced before the financial crisis and unemployment stands at 12.4 per cent. Emigration is also on the rise.

Q&A: Why join a crisis-ridden currency?

Q. Why would Latvia want to join the Eurozone?

Latvia, like many eastern European countries, sees joining the EU as a guarantee of economic and political stability. For Latvia’s centre-right government, joining the eurozone is the next logical step after that, and a signal to the rest of the world that it is back in business after a devastating economic crisis. Equally important is that for a majority of Latvians, EU and eurozone membership signifies a final and welcome divorce from Russia. The country was part of the Soviet Union during the Cold War.

Q. What does the eurozone have to gain from it?

The eurozone gets another trading partner.  Brussels hopes that Latvia’s membership will send  an important signal to investors that the eurozone  is expanding rather than disintegrating despite its three-year debt crisis. Pro-austerity policymakers, such as Germany’s Chancellor Angela Merkel, can also point to Latvia and claim unpopular measures are worth it in the long run because they help to overcome economic crises.

Q. Do ordinary Latvians care?

Opinion polls show more than half of all Latvians are opposed to swapping the lat for the euro because they fear it will bring higher prices. In elections held in the Latvian capital, Riga, at the weekend, more than half of the votes went to anti-euro parties. The government refused to hold a referendum on eurozone membership, despite pressure to do so from opposition parties.

Tony Paterson

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Vehicle Technician

£20000 - £45000 per annum: Recruitment Genius: This long established dealer gr...

Recruitment Genius: Contact Centre Team Manager

£25000 - £30000 per annum: Recruitment Genius: The Company is the UK's leading...

Recruitment Genius: Shunter / HGV Driver

£23172 per annum: Recruitment Genius: One of the leading and fastest growing h...

Recruitment Genius: Property Manager / Estate Manager

£25000 - £35000 per annum: Recruitment Genius: Are you an experienced Resident...

Day In a Page

Greece says 'No': A night of huge celebrations in Athens as voters decisively back Tsipras and his anti-austerity stance in historic referendum

Greece referendum

Greeks say 'No' to austerity and plunge Europe into crisis
Ten years after the 7/7 terror attacks, is Britain an altered state?

7/7 bombings anniversary

Ten years after the terror attacks, is Britain an altered state?
Beautiful evening dresses are some of the loveliest Donatella has created

Versace haute couture review

Beautiful evening dresses are some of the loveliest Donatella has ever created
No hope and no jobs, so Gaza's young risk their lives, climb the fence and run for it

No hope and no jobs in Gaza

So the young risk their lives and run for it
Fashion apps: Retailers roll together shopping and social networking for mobile customers

Fashion apps

Retailers roll together shopping and social networking for mobile customers
The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

Gaping hole at the heart of the European Union

Treatment of Greece has shown up a lack of genuine legitimacy
Number of young homeless in Britain 'more than three times the official figures'

'Everything changed when I went to the hostel'

Number of young homeless people in Britain is 'more than three times the official figures'
Compton Cricket Club

Compton Cricket Club

Portraits of LA cricketers from notorious suburb to be displayed in London
London now the global money-laundering centre for the drug trade, says crime expert

Wlecome to London, drug money-laundering centre for the world

'Mexico is its heart and London is its head'
The Buddhist temple minutes from Centre Court that helps a winner keep on winning

The Buddhist temple minutes from Centre Court

It helps a winner keep on winning
Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate