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Latvia becomes :18th state to join the Eurozone

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Latvia has became the 18th member of the euro area, with half the former Soviet republic’s citizens opposing the currency switch and expectations of rising prices at a seven-year high. The eastern European nation with a population of just two million has been a member of the European Union (EU) free market since 2004, but finally got the green light to join the single currency zone last June, 2013. The euro is Latvia’s fourth currency in 23 years, following the Soviet rouble; the Latvian rouble, which was introduced after the country regained independence in 1991; and the lat, which came into circulation in 1992, resurrecting the money Latvia used before Soviet occupation in lativa.eps1940. It follows in the footsteps of two other former Soviet satellite sates, Estonia and Slovakia. The admission follows thorough examination of the country’s compliance with all relevant macroeconomic criteria. This represents an impressive achievement, which appears even more remarkable considering how hard the country was hit in 2009 by the global financial crisis. Latvia’s recovery illustrated several important points. It demonstrates what can be achieved with strong and determined political leadership. It is testimony to the remarkable resilience of the population which suffered severe decreases in income and living standards. But the major lesson, we believe, has been how consistent structural reform that improves the working of product and labour markets can enhance an economy’s ability to respond to adversity.

Why Latvia joined Eurozone: After joining NATO and the European Union in 2004, entering the Eurozone was seen as a natural step for Latvia’s political leadership, deepening the Western integration they have sought since Latvia and its Baltic neighbors, Estonia and Lithuania, broke away from the Soviet Union in the early 1990s. For Latvia, the membership comes with several benefits, including reduced transactions and exchange rate costs when exporting to the euro zone, to which Latvia exports 30 per cent of its goods. Membership will also reduce the economic risk from the country’s large external financing requirements and high level of foreign exchange debt. Further, Latvia will likely become more attractive for foreign direct investment once it joins. This is partly because the cost of doing business with other euro zone countries will fall, making it more appealing for companies looking for a European base. But it is also because participation in a wider bloc may reassure investors the economy would be supported were it to flounder.

What the potential risks for Latvia after joining the Eurozone: With the joining of Eurozone, Latvia will lose control over its monetary policy and it will surely reduce Latvia’s ability to respond to economic shocks. This is a particularly important for Latvia given its small, open economy. However, the country does have a strong record on economic adaptation, given the success of the severe fiscal measures, internal devaluation and structural reforms it imposed following the crisis. The general public in Latvia doubts the membership because they doubt the benefits of harnessing the country to a zone mired in political and economic difficulties. Other concerns include price rises, inconvenience and loss of national sovereignty and identity.

Greece takes over the helm of the European Union: Greece has taken over as the President of the European Union for the next six months. Greece takes over the EU presidency at a particularly busy time, as agreements on a wide range of issues are needed before the end of the current European Parliament in April, 2014. Direct elections to Parliament will follow in all 28 countries in May, 2014 after which a new Commission will be selected. Over the next 6 months, Greece will chair hundreds of formal and informal meetings, provide a lead for complex negotiations and host 13 ministerial councils in Athens.