The European Commission has published its annual convergence report on Latvia, concluding that the country was ready to join the euro zone on January 1 2014 and proposing that the European Council approve the country’s request to join the common European currency.
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 the Exchange Rate Mechanism (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 IMF bailout.
“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,” economic and monetary affairs commissioner Olli Rehn said in a statement.
“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,” he said.
The Ecofin council of EU finance ministers will take the final decision on the adoption of the euro in Latvia in July, after the European Parliament has given its opinion, euro area finance ministers have given a recommendation and EU leaders have discussed the subject at the European Council meeting on 27-28 June, the EC said.
(Photo: Steve Ford/sxc.hu)