Editor's note

It is known that Latvia pegged its currency to the euro soon after joining the European Union in 2004; Lithuania pegged to euro in 2002. However, both states were stuck with the links to the currency through two years of turmoil after 2008 which saw their economies shrink by up to a fifth.

Both Baltic States have recovered strongly; in Latvia's case it was through assistance by the EU and IMF bailout in 2009. Latvia has been on track to seal membership of the 17-member club after neighboring Estonia joined successfully in 2011.

It is regarded that small Baltic States, Latvia and Lithuania should slide more easily into the currency bloc than larger states like Poland and the Czech Republic and have remained keener on joining throughout the banking and debt crises, according to Reuters’ analysis.

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 present Latvian currency, the lat. They are also keen to entrench their links with western Europe to keep former “big brother” Russia out of financial reach.

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.

First formality is over

To join the euro zone, 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 on the 4^th of March.

"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.

The PM’s added: “nothing is over with this application; it is only a formality on the road to euro; unanimous support from the EU member states is necessary".

A report on Latvia's euro situation provides hopes that European Commission and the European Central Bank would make a positive decision. The eurozone finance ministers are expected to take a final decision in July.

Latvian report says that the country meets all the economic criteria needed to be accepted into the euro zone. The criteria relate to levels of debt, deficit, inflation, long-term interest rates and having a stable peg to the euro for several years.

PM’s V. Dombrovskis said after the signing the application that the euro would benefit Latvia in terms of increased investment, lower currency exchange costs and would help ease social ills.

He expects public opinion will swing behind euro accession as the entry date gets closer and has no plans for a referendum. The application is handed over in Brussels on the 7^th of March 2013.

Fast growth, but poor people

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 during summer 2012 and membership has inched back onto the agenda in the region's biggest economy, Poland.

The Czechs and Hungary remain far more skeptical while Romania and Bulgaria are still far from fulfilling the Maastricht criteria for joining.

Latvia kept its peg to the euro even when some economists said a devaluation would have helped ease its downturn in 2009 and the government had to slash public sector wages and hike taxes instead.

Despite its current relatively high growth rates, at about 5 percent year-on-year basis and 1,3 percent quarter-on-quarter in the last three months of 2012, the country remains one of the poorest countries in the EU along with Bulgaria and Romania.

Lithuania is considering adopting the euro in 2015 or 2016.

Source: http://www.reuters.com/article/2013/03/04/latvia-euro