March 6, 2013
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