Latvia to join the Euro

Scofflaw

Today, the EU Commission decided that Latvia is ready to become the 18th country to adopt the euro as its currency, starting on 1 January 2014.

This follows an EU decision that Latvia now satisfies the conditions* for joining the euro.

Latvia's currency has been pegged to the euro for eight years. As a full euro member, Latvia will be able to take part in all the key decisions in the eurogroup of ministers and the Board of the ECB.

This means six out of the twelve countries who joined the EU since 2004 will have adopted the euro. (The others are Slovenia in 2007, Cyprus and Malta in 2008, Slovakia in 2009 and Estonia in 2011.)

Latvia was one of the non-euro Member States (along with Romania and Hungary) to receive an EU-IMF financial assistance programme after the 2008 economic crisis, so satisfying the conditions for joining the euro in 2013 is a major achievement.

Following painful adjustments, supported by the EU-IMF programme, Latvia is now forecast to be the fastest-growing economy in the EU this year. The Commission has also said that the excessive deficit procedure for Latvia can be closed.

Olli Rehn said in Brussels today:

“Latvia’s experience shows that a country can successfully overcome macroeconomic imbalances, however severe, and emerge stronger. Following the deep recession of 2008-9, Latvia took decisive policy action, supported by the EU-IMF-led financial assistance programme, which improved the flexibility and adjustment capacity of the economy within the overall EU framework for sustainable and balanced growth. And this paid off: Latvia is forecast to be the fastest-growing economy in the EU this year."

He added: "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.”

*In order to join, Latvia had to satisfy the so-called "Maastricht criteria" – you can see them in this table:

The Maastricht convergence criteria (in simplified terms)

WHAT IS MEASURED

HOW IT IS MEASURED

CONVERGENCE CRITERIA

Price stability

Harmonised consumer price inflation rate: Not more than 1.5 percentage points above the rate of the three best performing EU countries

Sound public finances

Government deficit as % of GDP: Reference value: not more than 3%

Sustainable public finances

Government debt as % of GDP: Reference value: Not more than 60%

Durability of convergence

Long-term interest rate: Not more than two percentage points above the rate of the three best performing EU countries in terms of price stability

Exchange rate stability

Deviation from a central rate: Participation in the European Exchange Rate Mechanism for two years without severe tensions



Some of the benefits of the euro which attract new entrants are:

- Stable prices,
- Price transparency,
- Cross-border euro payments (Single payments Area),
- More cross-border and international trade,
- Access to capital,
- Lower travel costs.

It also opens to door to taking part in the new era of economic governance in the euro area.

The next step is that the conversion rate from Latvian currency to the euro will be fixed by unanimous decision of the Council (including Latvia) in July. Later the governor of Latvia's central bank becomes a member of the Governing Council of the ECB, Latvia will become part of the Single Supervisory mechanism and subject to the "Two-Pack" legislation meaning it has to submit its draft budgetary plans for assessment.

Latvia's crash, and subsequent austerity, was probably the most brutal in Europe, and just as with Iceland, there's a lot of disagreement over whether Latvia is a "success story" or not:

http://www.cnbc.com/id/100558455

http://www.theatlantic.com/business/archive/2013/01/sorry-latvia-is-no-austerity-success-story/266774/

Either way, qualifying for euro entry through a period of such major adjustment is an impressive achievement in itself, although one could of course say that about D-Day.

cordially,
Scofflaw

Cody Pomeray

What country does this remind you of?

1. Territory formerly occupied by and living in the shadow of a dominant neighbour; consequently seeks out EU rather than local political alignment.
2. History of economic turbulence since independence
3. Rapid growth 2000 - 2007 leads to overheated economy and crisis
4. Receives EU-IMF programme funding
5. Affirms commitment to the Euro, refuses to depreciate currency, the country instead pursues a policy of "internal devaluation".
6. Weak and ineffective government quits
7. Weak and ineffective government assumes power
8. Weak and ineffective government maintains power by blaming its austerity policies on the previous Government and
9. Government focuses on "restoring competitiveness" by embarking on aggressive cuts to welfare and public expenditure; accusations of anti-social policymaking
10. IMF questions the wisdom of aggressive austerity
11. However, social and industrial peace prevails due to widespread denials that there is any political alternative; EU-IMF targets met satisfactorily.
12. Extremely high rates of emigration, particularly of young well educated citizens
13. Risk of poverty increases, Government maintains social protection to reduce disaffection
14. Growth returns, unemployment remains high; jobless growth predicted.

Welcome, Latvia, to our family.

Dannyboy83

Lithuania are joining on the first of January 2015.

I was in Vilnius 2 weeks ago, they have an impressive Money Museum where I saw the new Lithuanian Euro coins.

I'm looking forward to them joining since I'm there usually twice per year anyway. Pure Daycent.

Axidium

Dannyboy83 wrote: »

Lithuania are joining on the first of January 2015.

I was in Vilnius 2 weeks ago, they have an impressive Money Museum where I saw the new Lithuanian Euro coins.

I'm looking forward to them joining since I'm there usually twice per year anyway. Pure Daycent.

I hope you're being sarcastic!

Dannyboy83

Axidium wrote: »

I hope you're being sarcastic!

About which point? I wasn't being sarcastic at all.

Axidium

Dannyboy83 wrote: »

About which point? I wasn't being sarcastic at all.

My apologies I misunderstood your reply. I thought you meant Lithiania are joining the EU. Once again, my apologies.

Mr Cumulonimbus

Dannyboy83 wrote: »

Lithuania are joining on the first of January 2015.

Not quite over the line yet. From a Reuters article:

Euro zone finance ministers and the European Central Bank will decide on whether to admit Lithuania after the European Commission publishes its a report in early June saying whether it is ready.

http://www.reuters.com/article/2014/01/27/eurozone-lithuania-idUSL5N0L138T20140127