There may be doubts among Latvians and its banking system may be the subject of international concern, but the tiny Baltic state is in. Latvia received the approval to be the 18th member of the Eurozone. The bid from Latvia has boosted confidence on the shared currency. Latvia will be joining the struggling group of 17 nations now that the executive arm of the EU, called the EU Commission, gave the country the official thumbs up on Wednesday.
Latvia’s finances today are in much better shape compared to Euro nations that are deeply in debt such as Greece, Italy, and Portugal. To win the bid, the country had to show that it has the capacity to control government debt, inflation, and deficits. It also had to ensure that its currency and the Euro have a narrow exchange rate range. Latvia is among the Baltic nations that are taking active measures to strengthen their ties with Western Europe while decreasing their dependence on neighboring Russia.
One step closer to the Euro
On July 9, the finance ministers of the Eurozone will release the final decision on the matter. There is still a need to consult with Parliament and EU leaders. Once approved, Latvia will have to replace the Lat, its official currency, with the Euro on January 1, 2014. Latvia will then be the third smallest economy in the Eurozone, just a few notches above Cyprus and Malta.
One of the main benefits of joining the Eurozone is for cross-country travelers not to be inconvenienced with exchanging currencies at each destination. Once Latvia uses the Euro, its constituency would then be sharing in this advantage. On the other hand, one of the main disadvantages of using a shared currency is that Latvia would be unable to lower or raise interest rates to troubleshoot ups and downs in its economy.
Committed to join
Latvia joined the European Union in 2004. One of the requirements presented to members is that they must eventually adopt the Euro. Some of the member countries take many years to fulfill the stringent requirements. Only two countries are exempt namely Denmark and the United Kingdom which negotiated an opt-out clause.
The European Union’s top monetary and economic official, Olli Rehn said that Latvia’s willingness and membership bid is strong evidence against those who have predicted that the Euro’s fate is that of disintegration.
Mixed feelings
The Prime Minister of Latvia, Valdis Dombrovskis sent out a tweet saying that this is “the next step for growth.” However, many Latvians question the need to join the Eurozone given the current crisis and debt issues that assail its member nations. In the recently concluded local elections in Riga, Latvia’s capital, more than half the votes were won by parties who campaigned against the Euro.
The head of “Latvia for the Lat” Andris Orols made the pledge to ask for a review on the decision of the government from the Constitutional Court. This is his reason why he and his party are against the Euro – for a country to remain truly sovereign, it has to have its own currency.
Photo Credit: European Central Bank headquarters in Frankfurt, Germany
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