S-word of Damocles to decide Latvia's euro hopes

By bne IntelliNews November 6, 2012

Mike Collier in Riga -

Latvia's turnaround from economic basket case to poster child for the "austerians" has been well documented, but one thing remains to bookend the Baltic state's epic tale of bust and boom: accession to the Eurozone.

In Riga on November 2, the expectation that Latvia will become the 18th member of the currency union was flagged up by Prime Minister Valdis Dombrovskis in no uncertain terms.

"In one word, the eurozone means stability and growth," Dombrovskis said with a straight face of which Buster Keaton would have been proud. He was speaking in a freshly renovated, opulent annex of the Latvian central bank that displayed little evidence of the austerity measures implemented elsewhere in the country since he came to power in 2009.

"I see Latvia's future in the eurozone, " Dombrovskis said. "Latvia is on a sustainable growth path, its economy has grown for eight consecutive quarters. During the economic crisis, we have gone from being the worst affected country to become the fastest growing economy."

His government has targeted January 1, 2014 as the day Latvia will join the eurozone, and insists that it already meets all the Maastricht criteria which govern euro adoption.

But that just makes the S-word - sustainability - the buzzword until next July when a final decision on Latvia's euro entry will be made. Having logged some of the most extreme economic data ever recorded in the last five years (such as a cumulative GDP loss of 25% in 2008-09) Latvian officials are now making a concerted effort to prove to the European Central Bank and European Commission that lessons have been learned and the country will not return to boom and bust.

Asked by bne if Latvia expects to be admitted to the eurozone in 2014, Finance Minister Andris Vilks reached straight for the S-word: "Of course ... sustainability is the only issue that can be raised. September was the first month we met all the Maastricht criteria and there is a very good chance we will meet them next year and the next year. The inflation trend is positive, and in coming years Lavia could be amongst the countries with the lowest inflation in the EU. Interest rates for our bonds are also dropping."

There is no danger of Latvia returning to its bad habits, Vilks insisted: "If you go through such a deep crisis it's like [going through] a war. It has impacted all levels of Latvian society. You cannot easily forget such an experience. We should keep this feeling and approach as long as possible."

"We understand how important it is to be in the eurozone. We are able to show sustainability and that is definitely the key issue, to keep sustainability and even to speed up reforms to increase sustainability," Vilks added.

Having told the conference that Latvia could move from deficit to a balanced budget or even a surplus in 2015, Vilks told bne he hopes that threshold might be crossed even sooner.

"I won't be surprised to see us coming fast to a surplus budget. Maybe it could even happen during 2014. It's difficult to say politically, but to me the trend is so positive that during 2014 it could even be possible. The primary balance should be very close to zero already by 2014," Vilks said.

Latvia's budget deficit has already been slashed from 9.7% of GDP in 2009 to 3.5% in 2011 with a level of 1.9% targeted this year and 1.4% next.

Related Articles

Latvia’s Citadele Bank pulls IPO

bne IntelliNews - Latvia's Citadele Bank has postponed its initial public offering (IPO), citing “ongoing unfavourable market conditions”, the bank announced on November 11. The postponement ... more

BOOK REVIEW: “Europe’s Orphan” – how the euro became a scapegoat for policy ills

Kit Gillet in Bucharest - The euro, conceived as part of a grand and unifying vision for Europe, has, over the last few years, become tainted and often even blamed for the calamities that have ... more

Mystery Latvian linked to Scottish shell companies denies role in $1bn Moldova bank fraud

Graham Stack in Berlin - A Latvian financier linked to the mass production of Scottish shell companies has denied to bne IntelliNews any involvement in the $1bn Moldovan bank fraud that has caused ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss