09 June 2013

VP Rehn's blog: A decisive step for Latvia and its people

"Determined implementation of the EU-IMF-led assistance programme helped the country to reform and to return to economic growth. Indeed, we expect Latvia to be the fastest-growing EU economy this year."

While many challenges remain, including high social inequality and unemployment, Latvia is now widely seen as a positive example for euro area countries in difficulties. Determination and tough decisions have allowed Latvia to emerge much stronger economically than before the crisis. 

I am confident that introducing the euro will bring a range of benefits to everyone living in Latvia. These include the elimination of exchange rate risk, savings on currency exchanges, lower transaction costs and more favourable financing conditions for Latvian businesses, and better price transparency for consumers. The government’s borrowing costs should also decrease further, so less money will be spent on servicing the country’s debt. Most importantly, joining the euro will anchor perceptions of Latvia as a stable and well-respected partner at the core of European integration.

Of course, this is not the end of the road. It will be essential to continue with sound macro-economic and structural policies, to further strengthen institutions like the judiciary and financial market supervision, and to keep enhancing the competitiveness of Latvia’s economy.

In the months ahead, the Commission will be working closely with the Latvian authorities to ensure that people are adequately informed about the practical aspects related to the changeover from lats to euro. The authorities will continue making regular checks, so that businesses and traders do not use the euro changeover for unjustified price increases. Latvia can learn from the successful changeover experiences of Slovakia, Estonia and other countries.   

I am also confident thorough technical preparation of the changeover, balanced and fair communication on its most sensitive aspects and more encouraging news coming out of the euro area will result in higher public support for the euro. We have seen this in Estonia, where support for the euro was similar to current euro support levels in Latvia, at around 37 per cent in May 2010, seven months before the changeover. Today, support for the euro in Estonia exceeds 70 per cent.   

As for the concerns of Latvians that their country will lose a part of its sovereignty on joining the euro, I would argue that the opposite is true: as a member of the euro area, Latvia will participate for the first time in decision-making on issues that already affect the country now, as an economy that is deeply integrated with the economies of the euro area. For the first time, Latvia will have a seat at the table when key decisions are made in Brussels in the Eurogroup, and in Frankfurt on monetary policy. In view of Latvia’s difficult history, joining the euro area will further cement Latvia’s place in Euro-Atlantic structures, thus irrevocably strengthening national sovereignty.

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