Latvia’s adhesion on Jan. 1 to the eurozone as its 18th member, while abandoning its national currency the lats, represents a milestone both for the country and the currency union.
The idea all along, as both the European Union and the euro currency zone have grown, is that all 28 members of the EU would ultimately make the euro their currency. Major European economies, including France, Germany, Italy and Spain, have joined. Ten EU members, including the United Kingdom, have not. The United Kingdom sees preserving a separate British pound as essential to maintaining London as a financial center, and as inconsistent with the kind of economic and political independence from the EU and continental Europe it seeks for itself.
For Latvia, this looks like a good deal. It should improve its creditworthiness and make foreign investment easier. The former republic of the Soviet Union joined the EU and NATO in 2004. With borders on Belarus, Estonia, Lithuania and Russia and a population of only 2 million, a quarter of whom are Russian-speaking, Latvia is still in the process of firming up its independence from Russia, still one of its larger trading partners.
Latvia was hit hard by the recent international recession provoked by America’s economic problems. Latvia’s unemployment rose to 20 percent in 2010, causing the need for a $10 billion bailout from the EU and the International Monetary Fund. It is now expecting to show robust 4.1 percent economic growth in 2014.
The eurozone, which also faced major hurdles during the world recession, welcomes the addition of Latvia, its first new member since having to pull itself together in the face of financial crises in Greece, Greek Cyprus, Ireland and Portugal and some uneasy creaking in Italy and Spain over the past few years.
The remaining EU, non-eurozone members include Bulgaria, Croatia, the Czech Republic, Denmark, Hungary, Lithuania, Poland, Romania, Sweden and the United Kingdom. Some of them will be closely watching Latvia’s performance with the euro as they consider their own financial situations.
Adhesion has to be a country’s individual decision. Although 60 percent of Latvians opposed the shift, Prime Minister Valdis Dombrovskis went ahead anyway. The nation will know soon enough how it all works out.