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July 9, 2013 3:20 pm
Just five years after a wrenching fiscal crisis that nearly forced it to unpeg its currency from the euro, Latvia was officially admitted to Europe’s single currency on Tuesday after EU finance ministers approved the changeover from lats to euros on January 1.
Latvia will become the 18th member of the eurozone, following neighbouring Estonia by two years. The remaining Baltic EU member, Lithuania, is hoping to follow in 2015, which would probably mark the end of the current wave of euro expansion.
No other country is in the EU’s currency rate mechanism, which is a prerequisite to euro membership, other than Denmark, which has an opt-out for the single currency.
Valdis Dombrovskis, Latvia’s prime minister who flew to Brussels for the final approval, called euro membership “a long journey” and said he believed it would bring lower interest rates and foreign investment to his country.
“It’s not just a technical issue, switching from one currency to another,” added Andris Vilks, the Latvian finance minister. “There’s a very symbolic meaning to this day, because we are completing the integration to the core of Europe. That is extremely important for us.”
Still, euro membership remains unpopular in Latvia, with less than 40 per cent supporting the changeover. Mr Dombrovskis said his government would launch a campaign to win backing and provide logistical information on how the changeover would occur, saying he believed support would rise as membership becomes closer. Because euro membership is required under Latvia’s EU membership treaty, no referendum is required.
Mr Dombrovskis said many sceptics in Latvia had claimed that eurozone authorities would change the exchange rate between lats and euros from the current peg, but such warnings proved unfounded, as EU finance ministers formally set the level at 0.702804 lats per euro.
Olli Rehn, the EU’s economic chief, sought to put Latvia’s membership in a historical context, noting all three Baltics will be at “the economic and political core of Europe” less than 25 years after achieving independence from the Soviet Union.
“This is a tribute not only to determined policy action all three took in the wake of the financial crisis, but also to the remarkable economic and democratic transition since gaining independence in that dramatic summer of 1991,” Mr Rehn said. “That’s something we should never loose sight of.”
As part of joining the euro, Latvia must contribute €320m to the eurozone’s €500bn rescue fund, the European Stability Mechanism. Mr Vilks said the bulk of that will be paid in annual instalments of €40m over the next five years, with contributions tailing off after that.
Latvia’s euro coin will feature the profile of a woman known as Milda, who featured on the 5-lat coin minted during the pre-Soviet period in the 1920s and 1930s. Mr Dombrovskis said the coins were stored away during Latvia’s period as a Soviet republic as a symbol of independence.
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