Fitch Ratings says that the final decision of ECOFIN whether or not to invite Latvia (BBB/Positive) to join Eurozone (due by June 9) will trigger country’s sovereign rating review. Agency maintains that euro adoption would deliver net benefits for the Latvian economy and is likely to lead to a rating upgrade.
Fitch’s base expectation is that Latvia complies with Maastricht criteria and will be invited to join Eurozone as of January 1 2014. Convergence report to be published by EC and ECB on June 5 is going to be a strong indication of the formal decision. Fitch reminds that previously no country that has met the quantitative criteria has had its euro bid rejected.
At the same time criteria compliance needs to be “sustainable”, which leaves room for considerations and recommendations, as well as posing the risk that euro adoption could be delayed. The considerations include high level of non-resident deposits, but Fitch believes that government’s commitment to adopting euro would translate into willingness to solve this issue.
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