The small Baltic nation of Latvia is set to become the 18th member of the Eurozone after it was approved for membership by the European Commission.
The commission released a report that confirmed that Latvia had met the criteria necessary to join the single currency bloc in 2014. The move will be a boon for Latvia as it tries to forge closer ties with the West and become less reliant on its Russian neighbour.
According to the EC’s report, Latvia will start using the Euro at the start of next year after it passed the test for low inflation and long term interest rates. The country also proved that it has low levels of public debt.
The European Central Bank has also given the country its blessing saying but warned that it could struggle to maintain its economic achievements; “All in all, Latvia is within the reference values of the convergence criteria,” the Frankfurt-based ECB said in its Convergence Report today. “Nevertheless, the longer-term sustainability of its economic convergence is of concern.”
The adoption of the Euro is hoped by some pro-Euro supporters to crown a recovery from Europe’s deepest recession since the end of the Second World War.
To some however Latvia’s joining of the currency is a sign of folly. In 2008 the country was bailed out with a €7.5 billion rescue fund and was forced to impose strict austerity measures to get its debt down. Naturally the pro-austerity Herman Van Rompuy is an admirer of the country as a result.
“Although Latvia’s adjustment capacity has been strong, its indicators of the quality of institutions and governance point to a need to make progress in this field,” the ECB said, adding that it is seeking clarification on Article 43 of Latvia’s central bank law, which requires the country’s parliament to supervise the institution.
“Finally, in the financial sector, the reliance by a significant part of the banking sector on non-resident deposits as a source of funding, while not a recent phenomenon, is again on the rise and represents an important risk to financial stability,” the ECB said. Non-resident deposits equalled about 40 percent of GDP last year.
Latvia’s membership has yet to be officially approved by EU leaders and the European Parliament, but that is seen as a formality. EU finance ministers are expected to make Latvia’s membership official in July.
Current Euro (EUR) Exchange Rates
The Euro/US Dollar Exchange Rate is currently in the region of: 1.3067
The Euro/Pound Sterling Exchange Rate is currently in the region of: 0.8513
The Euro/Australian Dollar Exchange Rate is currently in the region of: 1.3683
The Euro/ New Zealand Dollar Exchange Rate is currently in the region of: 1.6339
The US Dollar/Euro Exchange Rate is currently in the region of: 0.7652
The Pound Sterling /Euro Exchange Rate is currently in the region of: 1.1746
The Australian Dollar/Euro Exchange Rate is currently in the region of: 0.7308
The New Zealand Dollar/Euro Exchange Rate is currently in the region of: 0.6120
(Correct as of 15:05am GMT)