04 March 2013

Reuters: Latvia decides to apply for eurozone entry

Latvia decided to apply to join the eurozone next year, a sign of the faith in the currency which still exists in eastern Europe after three years which have threatened the project.

Many Latvians' mortgage loans are in euros, meaning a switch would decrease currency risk and most see the currency as a lesser long-term risk than the lat. They are also keen to entrench their links with western Europe to keep Russia at arm’s length. But while the country's leadership is keen on the project, polls show much of the population are worried that a currency switch will drive prices higher and take control of the economy out of Latvian hands.

To join the eurozone, Latvia needed to ask for an assessment by the European Commission and European Central Bank of its readiness to switch currency and the cabinet of ministers took this step. "This is a day that will enter Latvia's history", Finance Minister Andris Vilks told reporters when he, Prime Minister Valdis Dombrovskis and central bank chief Ilmars Rimsevics signed the application. A report on Latvia's euro hopes will be prepared by the European Commission and the European Central Bank. Finance ministers are expected to take a final decision in July.

Enthusiasm for the euro waned across much of eastern Europe after Greece's problems emerged in 2009 and drove the currency bloc into a series of sovereign bailouts which has split its members economically and raised questions of its broader viability. Much of those nerves have eased for now on the back of strong action by the European Central Bank last summer and membership has inched back onto the agenda in the region's biggest economy, Poland.

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