EU commissioner approves Latvian course to 2014 Eurozone membership

By bne IntelliNews October 19, 2012

bne -

Latvia is in line to join the Eurozone in 2014 as it plans if it continues on its current fiscal and economic path, EU Economic and Monetary Affairs Commissioner Olli Rehn said on October 18.

"It is possible that they could join in 2014. The review (of whether the country meets the criteria) will be done in spring next year, as was done for Estonia in 2010," Rehn told Reuters.

The Baltic state is one of only two EU members to have entered ERM II - the final track towards membership of the single currency which obliges them to join, despite the fact that of the 10 states that pledged to enter by 2014 when they joined the bloc in 2004, only three - Estonia, Slovakia and Slovenia - have done so. With the Eurozone crisis raging, countries have taken the opportunity to backpedal on the commitment, with the Czechs and Hungarians exhibiting particular disdain for the idea.

That leaves only Latvia and neighbouring Lithuania as the candidates to become the 18th and 19th members of the Eurozone. Both have been lauded by the investors for their strict austerity measures since the Baltic economy crumpled in 2009, and that has helped pull them towards the fiscal targets needed to join, including criteria on low inflation, debt and budgetary balance, as well as currency stability.

Latvian Prime Minister Valdis Dombrovskis said in September that "adopting the euro is still the plan, we stick with the intention to join as of January 1, 2014." Lithuania, although enthusiastic, has yet to name a target date for joining. "Both Latvia and Lithuania have good chances of fulfilling the Maastricht criteria in April 2013 to be able to adopt the euro in 2014," Swedbank said in a special report issued in August. "The chances of meeting the criteria are somewhat bigger for Latvia, since it has more room for manoeuvre in terms of the price stability and budget deficit criteria, as well as stronger political re-solve."

Lithuania may face an even bigger challenge following parliamentary elections last week which saw the right-wing austerity minded coalition replace with a group of left-leaning, populist parties. That said, most analysts agree there is little option but to continue to exercise fiscal discipline.

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