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EU Finance Ministers have given final approval for Latvia to join the eurozone on January 1, diplomatic sources say.
The Latvian currency, the lat, will be converted into euros at a rate of 0.7028 lats per euro, Latvian Prime Minister Valdis Dombrovskis says.
The rate was agreed by a meeting of EU finance ministers on Tuesday.
Latvia thus becomes the 18th — and the second Baltic nation — to use the common currency.
The EU’s leaders, central bank, executive and parliament gave their blessing to the accession over the last month, as had the eurozone’s finance ministers.
“Joining the eurozone will be a milestone in Latvia’s history and a confirmation of the eurozone’s strength,” European Parliament President Martin Schulz said last week.
Latvian Prime Minister Valdis Dombrovskis hopes the move will further boost his country’s economic development.
Latvians are a bit more sceptical, however, with only about a third of the nation’s 2 million inhabitants expressing support for euro accession in the polls. There are fears that the common currency will bring price increases.
Setting an appropriate conversion rate will be key, diplomats noted ahead of the ministers’ talks, with one pointing to theories that a too high exchange rate for Portugal helped lead to its competitiveness problems.
“We can’t get this wrong,” the diplomat said, speaking on condition of anonymity.
Latvia faced massive economic problems in 2008 after its real-estate bubble burst amid the global financial crisis, leading to a 7.5-billion-euro ($9.7-billion) bailout by the EU and the International Monetary Fund.
But the country now boasts of the EU’s highest growth rate, following an austerity-spurred recovery. Its deficit and debt levels are also among the lowest in the bloc.
The country nevertheless faces economic risks, notably when it comes to inflation, EU officials have warned. The European Central Bank has also cautioned that the amount of foreign deposits held in Latvia’s banking sector is a cause for concern.
The issue has been in the limelight since the problems in eurozone member Cyprus, whose oversized and foreigner-fuelled banking sector helped precipitate it into an international bailout.
All EU countries except for Britain and Denmark are mandated to join the eurozone once they fulfil its criteria. Bulgaria, Croatia, the Czech Republic, Hungary, Lithuania, Poland, Romania and Sweden have yet to adopt the common currency.
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