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European Union: Latvia Will Join the Euro in 2014

(June 14, 2013) On June 5, 2013, a press release presented the conclusion of the European Commission’s Convergence Report on Latvia that Latvia “has achieved a high degree of sustainable economic convergence with the euro area.” Based on the Convergence Report, the Commission proposed that the Council of the European Union reach a decision on Latvia’s adoption of the euro by January 1, 2014. (Press Release, European Commission, IP/13/500, Commission Concludes That Latvia Is Ready to Adopt Euro in 2014 (June 5, 2012), RAPID; EUROPEAN COMMISSION, CONVERGENCE REPORT 2013 ON LATVIA (2013).)

The Convergence Report, which was drafted by the Commission at the request of Latvia in March 2013, assesses Latvia’s performance with regard to the criteria that must be met by a country prior to joining the euro zone as prescribed in the Lisbon Treaty and in the Protocol on the Convergence Criteria annexed to the Treaty. (Press Release, supra.) These requirements include meeting four economic criteria: price stability and the inflation rate, the state of the government’s budget, the exchange rate, and the long-term stability rate. (Consolidated Version of the Treaty on the Functioning of the European Union, art. 140, 2012 O.J. (C 326) 47.)

In the area of price stability and the inflation rate, the Commission noted that in the 12 months prior to April 2013, the inflation rate in Latvia was 1.3%, which is well below the required reference value of 2.7%. Nevertheless, the Commission recommended that Latvia take extra care to avoid an increase in inflation. (Press Release, supra.)

With regard to government debt and deficit, the Commission noted that Latvia’s ratio of government deficit to gross domestic income (GDP) in 2010 peaked at 8.1%. A decrease to 1.2% for 2012 was noted. The ratio is expected to remain at the same level in 2013. At the end of 2012, the general government debt amounted to 40.7% of GDP. (Id.)

Latvia’s long term interest rate from April 2012 to April 2013, was 3.8%, which is below the reference value of 5.5%. Latvia has also exceeded the two-year minimum participation requirement for its exchange rate, because it has been part of the Exchange Rate Mechanism since 2005. (Id.)

The Treaty specifies that additional factors must be considered, such as market integration and balance of payments, to assess whether an EU Member meets the eligibility criteria. The Commission noted that Latvia’s legislation on related monetary issues is in line with EU legislation. (Id.)

A number of steps must be followed before a final approval is given for Latvia to join the euro zone. First, the European Parliament must provide an opinion on the matter, and then the euro and finance ministers of the 17 Members States of the eurozone must also approve a recommendation in favor of Latvian membership. The EU Economic and Financial Ministers (ECOFIN) Council will make a final decision on the matter after EU high officials discuss Latvia’s adoption of the euro, during the next meeting of the European Council, set for June 27-28, 2013. (Id.)