July 9, 2013 (TSR) – The economic and financial affairs council of the European Union (Ecofin) passed on July 9 a decision allowing Latvia to adopt the euro as its currency as of January 1 2014.
“From Jan. 1 next year, Latvians can begin making purchases in euro,” Olli Rehn, EU commissioner for economic and monetary affairs, said at a press conference after a meeting of EU finance ministers.
The Ecofin council said that euro notes and coins will be issued on January 1, with the conversion rate is set at 0.702804 Latvian lats to one euro, which corresponds to the current central rate of the lats in the EU’s exchange rate mechanism, ERM2.
Latvia’s formal adoption of the euro followed a series of decisions, starting with the euro area member states recommending on June 21 in favor of the European Commission’s proposal to allow Latvia to join the currency union.
In the light of reports from the Commission and the European Central Bank, the European Council on June 27 and 28 welcomed the fact that Latvia had fulfilled all the “convergence criteria” set out in the EU Treaty and the Commission’s proposal for it to join the euro.
The European Parliament gave a favorable opinion on the Commission’s proposal to allow Latvia to join the eurozone on 3 July, the ECB on 5 July.
Latvia, like the rest of the countries that joined the European Union in the 2004 and 2007 eastward expansions, is required to join the euro zone. The country made a formal request to be admitted in March, saying that it met all the Maastricht criteria for euro zone membership.
The Maastricht criteria are a set of several macroeconomic indicators – budget deficit, government debt, inflation and interest rate fluctuation. Applicant countries are also required to have spent at least two years in ERM2, during which time the exchange rate fluctuations must be kept within a certain range; Latvia entered the ERM2 in May 2005.
Despite being one of the EU countries hit the worst by the global financial crisis in 2008, Latvia recovered quickly after adopting austerity measures that included public sector wage cuts and tax hikes, helped by an International Monetary Fund bailout. However, the decision has met with doubts about the timing of joining the currency area given the debt crisis it is still struggling with.
Latvia’s finance minister Andris Vilks said in Brussels earlier Tuesday that Latvia is confident that it would reap the rewards from joining the eurozone despite the bloc’s ongoing economic problems.
“The hard times will last for several years, no doubt about that. But we see a lot of benefits in the long term, in spite of today’s environment,” Vilks told reporters before attending the EU finance ministers’ meeting.
Pointing to the case of Estonia which adopts the euro in 2011 as an example, Rehn said that joining the eurozone can benefit from further economic and monetary stability, and it can also attract more foreign direct investment.
“It is clearly for Latvia a choice of being part of the economic and political core of Europe, which has wider political importance,” Rehn added.
The commissioner also stressed the importance of sustainable economic and financial policies for members of the single currency area.
“The experience has shown that those countries that take care of their sustainable economic development by avoiding excessive macroeconomic imbalances or unsustainable public finances, they do succeed and benefit from euro membership,” Rehn said.
“But if you suffer from economic imbalances or fiscal irresponsibility, you will face quite serious problem,” the commissioner warned.
Latvia will become the 18th member of the euro area, out of 28 EU member states. The euro zone was officially created in 2002, when it comprised Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Austria and Finland. Over the years, it was expanded to include Slovenia (which joined in January 2007), Cyprus and Malta (January 2008), Slovakia (January 2009) and Estonia (January 2011).