Latvia will give a boost to the eurozone

Posted by Eberhard Rhein on 06/03/13

As expected, the Latvian government has put in its request for joining the Euro-zone as of January 2014. This is a courageous step considering that two thirds of the Latvian population are against the introduction of the Euro.

Like all EU countries, with the exception of Denmark and UK, Latvia is obliged to introduce the Euro as soon as it fulfills the five pre-conditions for membership:

public deficit of less than 3 per cent of GDP, public debt of less than 60 per cent of GDP, inflation rate around 2 per cent, long term interest rate in line with that in other Euro-zone members and a stable exchange between its national currency and the Euro.

Latvia fulfills these conditions. The EU Commission and the ECB will have to check this in detail; they are expected to submit the results of their examination before the end of June.

Latvia will be the second Baltic state to join the Euro-zone. Lithuania might enter one year later.

The three Baltic countries are among the the most ignored success stories of the 2004-07 enlargement. They have managed a remarkable transition from being part of the Soviet Union to proud EU member countries that are also proud to be “Nordic countries” with responsible attitudes towards public administration and finances.

It is the mentality of discipline that has helped Latvia overcome the sharpest recession of any EU country, with the GDP falling by some 20 per cent and investments by 50 per cent in 2008 and 2009, while unemployment soared to an average of 16 per cent of the labour force in 2009-12.

But even during these extremely critical years the country managed to keep its public level from rising beyond 44 per cent of GDP, miles below the levels of practical all other member countries.

Thanks to sober economic policy that also tackled necessary structural reforms and a positive response from the business community economic growth has resumed since 2011 to impressive 5 per cent per year.

The government even took pains to define a national energy strategy until 2030, as only Denmark and UK have done, stressing sustainability and security of supply as the key pillars.

In conclusion, its positive record should enable Latvia to join the Euro-zone in early 2014 and serve as a shining example of how to overcome rugged socio-economic cliffs.

Though it is extremely difficult to transpose success stories among member states, EU governments should more systematically learn more from their respective successes and failures.

Brussels 06.03. 2013 Eberhard Rhein

6 Responses to Latvia will give a boost to the eurozone »»

  1. Comment by Philip royle | 2013/03/11 at 22:07:04

    How exactly is Latvia going to ‘boost’ the eurozone? I s it going to be one of those few countries that puts more in than takes out? It is bearing gifts or ……….?

  2. Comment by Eberhard Rhein | 2013/03/24 at 12:32:54

    The answer is easy. Its accession will demonstrate the EMU is there to stay and to expand to all member counntries except UK and possibly Denmark.
    It is impossible to foresee if Latvia might at one stage ask for support from the ESM.
    That is not the point. I have full trust in Riga for managing its economy responsbly to avoid that.
    Eberhard Rhein

  3. Comment by philip rpyle | 2013/03/24 at 14:50:12

    There is something I missed in my last post. two thirds of the Latvian population do not wish to join?? What sort of democracy is that? Latvia has left the Soviet Union hasn’t it? As to whether it will be a bonus to the EU, come back in five years time and tell me then. But I can almost guarantee that Latvia will have had more out of the EU charity bowl than it will ever put in! Take Spain for instance, in the twenty odd years it’s been a member it’s NEVER been a net contributor to the EU budget. Just another charity case paid from the taxpayers of the 11 nations that DO pay. I’ one of those tax payers and sick of it.

  4. Comment by an european | 2013/04/02 at 11:17:00

    @ philip royle 2013/03/24 at 14:50:12

    That’s called solidarity ! Spain actually reduced their deficit ! It’s only a question of time Spain becomes a n EU net-contributor !
    It seems somebody takes a great amount of your income….

  5. Comment by philip royle | 2013/04/02 at 12:51:36

    ‘An European’ Spain joined in 1986 and since then has (up to 2011) received aid from Brussels plus it’s full budget contribution back. 26 years and counting. How long is it going to take? Remember Spain is one of the better countries, so how long is it going to take for the much poorer, newly joined Eastern block countries to turn round and stop being charity countries? As for solidarity you can keep it! I think 26 years is long enough to get there act together!

  6. Comment by an européan | 2013/07/03 at 23:31:23

    @P. Royle

    As long as we don’t have an United Europe or Countries of it there will prejudges
    since Germany with it’s Austerity and the inability to implement an European Bond market with it’s high depth interests which affects southern economies!
    Youth unenlists jobless imposed by Merkel’s force of attraction !

    Indeed Germany or Merkel’s interests is:sucking member-states last penny until they have to bend on her knees !
    Maybe Latvia will get feed by Merkel’s art of feeling but never will boost the Eurozone!

    Without an united Europe I will preach every member-states should end the
    Union as well as Free-Trade because Leaders are unable to do it so !
    Yes I agree THEY aren’t able .. no sorry ..until now .. they are incapable..!

    And THAT is destroying democracy when there is no real equal Solidarity anymore with a great mix of Jobless and bad economy and the lost of trust of investors !

    An democratic United Europe makes only sense finally or back to full nationalism closing the doors and maybe begin a new Battle war in Europe …


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