05 March 2013

European Commission: Latvia and the euro

Latvia has formally asked the Commission to deliver an extraordinary convergence report with the aim of joining the euro from 1st January, 2014. The report will assess if the country has achieved the five convergence criteria defined in the Maastricht Treaty. (Includes press points from VP Rehn.)

The criteria include a qualitative assessment of the structural sustainability of public finances in Latvia.

If Latvia adopts the euro next year:

1. Latvijas Banka, the central bank of Latvia, would become a member of the Eurosystem, the central banking system of the euro area. Upon adoption of the euro, the Latvian monetary financial institutions would be integrated into the euro area banking system and be able to participate in ECB open market operations.
2. The Governor of the Central Bank of Latvia would become member of the Governing Council of the ECB.
3. At the latest with the adoption of the euro, Latvia would become a participating member of the Single Supervisory Mechanism (SSM), which is currently being established and is expected to be fully operational 12 months after the entry into force of the respective regulation. However, Latvia might decide to join the SSM right from the beginning.
4. Latvia would become a full member of the European Stability Mechanism, the Treaty on which it must also ratify.
5. Latvia can become a full member of the Eurogroup of eurozone Finance Ministers once it has adopted the euro.
6. Latvia would also have the right to design Latvia-specific euro coins for circulation throughout the eurozone.

The procedure

1. The Commission will draft the report during the course of spring, with the aim of publishing it end May/early June.
2. In case of a positive assessment, the Commission would propose to the Council of Ministers to abrogate Latvia's derogation from the euro.
3. The Council of Ministers would then receive a recommendation from the qualified majority of its eurozone Member States to this effect.
4. The Council of Ministers would take a formal decision on the abrogation of the derogation, probably in the upcoming EU Presidency, after consulting the ECB and following discussion in the European Council. This would allow Latvia sufficient time for thorough technical preparations for introducing the euro in January 2014.
5. Following the decision on the abrogation of this derogation, the Council of Ministers, acting with unanimity of its eurozone Member States, will also have to irrevocably fix the exchange rate and decide on other measures necessary for Latvia to introduce the euro in Latvia.

Press release

See also: Exchange of Views

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Press points from VP Rehn:

"Andris Vilks, the finance minister of Latvia, has just handed me his country’s formal request for a convergence report in view of Latvia’s aim of adopting the euro on 1 January 2014.

In line with the Treaty requirements, the Commission and the ECB will each make an objective and profound assessment of Latvia’s readiness to join the euro area. We will present the conclusions of our assessment in the Spring – by late May, early June.

Without prejudging in any way the outcome of the assessment, let me say this. Latvia’s decision to request entry to the euro area shows how much progress the country has made in getting its economy back on track, following the very deep economic crisis of 2008-2009.

Determined implementation of the EU-IMF-led financial assistance programme, which was successfully concluded last year in January 2012, helped to steer Latvia out of the very deep recession it had in 2008 and 2009. Latvia now has the fastest rate of GDP growth in the EU. It has the second highest rate of export growth in the EU. And it has steadily falling, if still high, unemployment. Latvia is in fact an example of how macroeconomic imbalances, however severe, can be successfully addressed and how a country can emerge stronger once such an adjustment is completed.

Let me also stress that Latvia’s request is another sign of confidence in the euro. We all remember the rampant speculation less than one year ago of a supposedly imminent break-up of the euro. Fortunately, that speculation did not diminish the determination of the Latvian government and the Latvian people to continue along the path of sound public finances and reforms to create the conditions necessary for sustainable growth and job creation and to prepare for euro accession."

Press release

© European Commission