Latvian parliament moves towards adopting euro currency

Latvia’s parliament has passed laws that open the way for it to become the 18th European Union member to adopt the euro at the start of next year.

Despite surveys showing the vast majority of Latvians have little enthusiasm for the currency, prime minister Valdis Dombrovskis insisted that replacing the lat with the euro would mark an important moment for the Baltic state.

“From an economic standpoint, right now Latvia is at the crisis’s finish line . . . Introducing the euro will symbolise the end of economic reforms and the country’s future development,” he said.

“Euro adoption is the logical next step in implementing our macroeconomic policy framework,” Mr Dombrovskis added.

“We are already importing euro zone monetary policy, while not being in the euro zone and not sitting at the decision-making table, and we pay for converting lats to euros and back.

“The alternative to the euro zone is being relegated to the periphery of Europe . . . joining the euro zone is in Latvia’s best long-term interests.”

Tough austerity programme

Since taking power in 2009, Mr Dombrovskis has pushed through one of the toughest austerity programmes in the EU – cutting even deeper than requested by the International Monetary Fund.

In 2008-09, Latvia’s economy shrank by some 24 per cent, but it returned to growth of more than 5 per cent in 2011 and maintained a similar rate last year, while its budget deficit has shrunk to 1.5 per cent of gross domestic product.

Many economists hold up Latvia as an example of the benefits of austerity, but critics note an increase in poverty rates and a surge in emigration from the country of just 2 million people.

Opponents of the euro fear Latvia will experience a sharp rise in prices once the single currency is introduced and will have to contribute to bailouts for wealthier nations.