Latvia to apply to join the Euro in 2013
LATVIA will apply to join the euro zone in February, its finance minister told Reuters today, confident that it will be accepted and can overcome domestic opposition.
The Baltic country has embarked on a campaign at home and abroad to convince a sceptical public to support the move and to remove any EU doubts that it can thrive inside what is currently a 17-nation currency bloc.
Latvia is one of the fastest-growing economies in the European Union, recovering from years of austerity following a 20 percent output drop in 2009 after the global financial crisis hit.
"We can look at the past three years. Latvia was predictable. If we look now, we have the fastest economic growth, but at the same time, the price growth is very restrained," Andris Vilks, the finance minister, said in an interview.
"With that, we shouldn't have any negative surprises here. I think we've earned respect," said Vilks, whose country has been held up by some as an example to crisis-hit euro zone nations of how to solve budget deficit problems with political will.
He said Latvia would ask for a European Commission assessment of its euro readiness in February, the start of the membership process.
That would pave the way for a recommendation from the Commission, and from the European Central Bank, on which EU leaders would have to vote in June next year.
The ECB is expected to be tougher than the Commission, as it was on Estonia, which adopted the euro in 2011.
But Latvia says it has the right credentials. The centre-right government slashed spending and hiked taxes after the crisis to meet the terms of a 7.5 billion euro bailout led by the International Monetary Fund and European Union.
It successfully completed the bailout programme last year and this month repaid back the IMF loan in full, early.
"I try to speak with colleagues and assure them, purely pragmatically, of what we have accomplished in the Baltics. I don't speak about states that shouldn't be in the euro zone," he said, referring to comments in July that Greece should quit the single currency bloc.
Opinion polls show a majority of Latvians against adopting the euro. No referendum will be held, but strong public opposition could be a negative signal to other EU states, who have to make the decision to back Latvia's adoption of the euro.
"I think the situation will improve in the next months because information will be widely available," he said. The goal is that people don't associate the crisis in the eurozone with the currency as a whole, but with a specific country, he said.
Vilks expects Latvia to have a budget deficit close to 1.5 percent of output this year, well below the 3 percent EU target.
Vilks said Latvia needed to borrow $4 billion in 2013-2014 to refinance its bailout and pay principle on bonds due in 2014.
"We can't say at what moment or how this sum will be split. (Low) interest rates are an important factor in our decision," Vilks said. Latvia borrowed $1.25 billion in bonds earlier this month to repay almost $1 billion to the IMF.