Latvia set for green light to join the euro

By bne IntelliNews June 4, 2013

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Latvia is set to get the green light on June 5 to adopt the euro currency from 2014, EU officials reportedly said on June 3.

The European Commission will give Latvia the go-ahead to become the 18th member of the single currency from the start of next year. "The decision on Latvia is positive," an unnamed official told Reuters.

The EU executive will publish a report on whether the small Baltic state meets all the criteria for membership of the euro, which include low inflation and long-term interest rates, a stable exchange rate and low public debt and deficit.

Latvia, which underwent one of Europe's toughest austerity programmes after a 2008-2009 crisis wiped a fifth off its GDP, meets all the requirements, the Commission will say.

The Baltic country has steered a course of strict austerity to find its way from the deep recession it fell into in 2009, putting its fiscal affairs in order to meet the Eurozone's thresholds for deficit and inflation. Despite the travails of the single currency area, Riga hopes that joining will see borrowing costs tumble and investment flows spike. Fitch Ratings said on June 2 that it would review the country's rating for upgrade should it get the go-ahead.

The Financial Times reports that the Commission's "convergence report" - which will form the centre piece of the debate on June 4 - shows Latvia comfortably beating most fiscal criteria. That means it is unlikely to block the country's membership, despite lingering concerns about the size of Russian deposits in the small Baltic state's domestic banking system. However, the report will stress that Latvia's determination to implement anti-money laundering rules and to adopt new bank regulations "will remain key".

Assuming the EU executive gives the green light, the EU's 27 member states will then need to sign off on the move.

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