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EU gives Latvia green light to join the euro

Simon Morgan
A man walks past a currency exchange office in the Latvian capital Riga on June 5, 2013. The tiny Baltic state of Latvia received the green light from its European partners Tuesday to become the 18th member of the eurozone, even though the region's long and debilitating crisis is far from over.

The tiny Baltic state of Latvia received the green light from its European partners Tuesday to become the 18th member of the eurozone, even though the region's long and debilitating crisis is far from over.

In what Latvia's prime minister Valdis Dombrovskis described as a "good day for Latvia and also for Europe," the ECOFIN council -- made up of finance ministers of the EU's 28 member states -- gave formal approval to the country's euro membership.

"Yes we are joining the euro as of January 1 next year," Dombrovskis told a news conference.

It had been a long journey for the former Soviet state since it joined the EU in 2004.

And despite the eurozone's current troubles, membership would bring with it benefits, the prime minister said, pointing to lower interest rates, lower currency conversion costs and increased foreign investment.

Neighbouring Estonia had enjoyed similar positive developments since it adopted the single currency in 2011, he added.

It also showed that the crisis-ridden single currency area -- which not long ago had been seen as on the verge of disintegrating -- was continuing to expand, Dombrovskis said.

Latvia's finance minister Andris Vilks said it was a "very symbolic day" for his country, marking the culmination of Latvia's integration into Europe.

"We trust Europe and we trust the euro," he said, adding that he hoped Latvia would prove to be one of the "best performers" in the single currency zone.

Latvia emerged from a crisis in 2008-09 to become the EU's fastest-growing economy. And after notching up GDP growth of more than five percent in both 2011 and 2012, it is projected to register further growth of 3.8 percent and 4.1 percent this year and next year.

The main challenges now were the preparations to introduce euro banknotes and coins.

But Dombrovskis also said that his government still has to fight widespread euro scepticism among Latvians.

Despite large-scale PR campaigns, polls suggest the population remains wary of swapping their currency while eurozone members such as Greece and Cyprus are in crisis.

Irina Livchuk, from a suburb of Riga and an acupuncturist, told AFP she felt it was "the wrong time for Latvia to join."

Igors Antonovs, a 26-year-old sales manager from Riga was also sceptical, even if he believed it was "a good thing for a currency to cover the whole EU one day."

Evirts Melniks, a 24-year-old student, was convinced of the benefits.

"I travel a lot so it is much more convenient to have a single currency.

"Estonians told me prices did go up when they joined the euro, so we expect to see the same thing here. But I understand that this is not just about the currency -- it is about being a good member of the Union as well." he said.

Latvian Foreign Minister Edgars Rinkevics said his government "still has to do a lot to convince the public that it's the right decision.

"I'm not entirely happy that more than half of the population do not believe in the euro," he told AFP.

The EU Commissioner for Economic Affairs Olli Rehn insisted, however, that the experience of Estonia had proved the benefits of the single currency.

Lithuania, which has just taken over the EU's rotating presidency, said the importance of Latvia's adoption of the euro must not be underestimated.

"This is really the proof that European economic model is viable, that European project is viable," said Vilnius's finance minister Rimantas Sadzius.

His Latvian colleague Vilks said Riga also had something it could offer its eurozone partners -- the experience of overcoming a crisis.

The ECOFIN council agreed to set the official conversion rate of the lats to the euro at 0.702804 lats per euro.

The matter is a crucial and delicate one.

When Portugal joined, many observers now believe the escudo was overvalued, a factor which contributed to the country's subsequent problems, a European diplomat said.