Even though the economic dynamics of the last few years have revealed fissures in the European economic background, the common euro currency still remains a significantly important tool in helping the integration in the financial sectors. With this in mind, Latvia has slowly but surely recovered from economic drowning and secured a place in the Eurozone.
Latvia, a country in the Baltic region of Northern Europe, is one of the least populous and least densely populated countries in the European Union. With a historical past heavily tormented by foreign rule from 13th to 20th centuries, Latvia regained independence from the Soviet Union in 1991. After a period of economic stagnation in the early 1990s, Latvia showed GDP growth figures during 1998 and 2006, followed by a great GDP decline of in the financial crisis of 2008-2010.
The European Commission and the European Central Bank have agreed few weeks ago on Latvia to join the Eurozone in January 2014. And last week Tuesday the European finance ministers officially agreed to make Latvia the new member of the Eurozone next year. For Latvia being a part of the monetary union will be a great sign of independence and political stability, helping the country to get closer to the west and distance itself from the Russian imperial past and from Russia itself.
Adhering to the euro will mean more budget savings for Latvia, foreign direct investment and recovery from the economic collapse of 2008-2009. The 18th country to use the euro, Latvia seems keener than ever to strengthen its western connections and cut down on Russian dependency. Of course it is hard to predict how important membership in the European currency will be in the political arena for Latvia, but a breakthrough from Russian influence is expected. Latvian economy will have to prove that it can meet the criteria for membership, namely the low inflation, long-term interest rates, low public debt, low public deficits and a stable exchange rate. MEPs say that the Latvian government has to struggle more in order to remedy structural deficiencies in the labour market and to reduce poverty and growing income inequality. Latvia was also advised to ensure that Latvian banks are sound. This could be done by stepping up supervision of banks active in non-resident deposit business.
The Latvian government argues that since all Eurozone decision-making already shapes the economic and fiscal policy of the country, joining the Eurozone officially would be highly advisable to take part in decisions.
The European Parliament plays a consultative role in scrutinising the fitness of prospective Eurozone countries. The Parliament endorsed the committee's recommendation on 3 July, and the EU finance ministers gave their green light on 9 July.
Olli Rehn, the EU’s economic chief said that “Latvia’s experience shows that a country can successfully overcome macroeconomic imbalances, however severe, and emerge stronger”. The central bank warned that the sustainability of Latvia’s long-term economic convergence with the rest of the Eurozone is entering a difficult period as, according to the latest available forecasts, inflation is projected to rise in near future. The European Commission and Latvia's finance ministry forecast growth in GDP of 3.7 percent in 2013 for Latvia, which would make it one of the strongest countries in the Eurozone.
The next applicant in line for euro membership is expected to be Lithuania, which would make it the third Baltic member of the EU. It seems like Lithuania’s government would like to enter the single currency within a few years,. EU officials have said Lithuania could join as early as January 2015.