RIGA, Latvia — Unemployment, recession, debt, crisis and bailouts: These have been the sort of words that have been associated with the euro currency over the past few years.
So it may come as a bit of a surprise to hear that a relatively poor country on the edge of the European Union is hurtling toward full membership within the year.
Latvia is the country in question and its lawmakers passed legislation Thursday that brought membership one step nearer in spite of widespread worries among the population.
Latvia, which became independent from the former Soviet Union in 1991, intends to send a formal request to the European Union next month asking permission to adopt the euro — a request that, if approved, would make it the 18th EU country to use the common currency that over the past few years has been ravaged by a debt crisis that at times has threatened its very existence.
Latvia’s center-right government believes that becoming a member of the euro bloc will attract investors to the small, open economy that at the start of the global financial crisis, between the years 2008 to 2010, saw economic activity collapse by nearly 25 percent.
The country had to borrow €7.5 billion ($10.2 billion) in bailout funds from lenders such as the EU and International Monetary Fund in order to avoid bankruptcy. In return, the country had to enact painful austerity measures.
Sound familiar?
Greece has been the most notable casualty of Europe’s debt crisis, and its government has had to negotiate two massive international bailouts in order to stave off bankruptcy. In return it’s had to enact steep salary and pension cuts as well as tax increases — a combination that’s contributed to a five-year recession and sky-high unemployment of around 25 percent.
Greece isn’t the only euro country struggling to get a handle on its debts; Ireland and Portugal have also been bailed out, Cyprus is in talks for a financial lifeline, and much-bigger Italy and Spain have also faced the gaze of skeptical investors.
Given that seemingly-unappetizing backdrop that’s generated a lot of antipathy against the 14-year-old euro within the single currency zone, it may seem somewhat of a surprise to find a country even mulling the possibility of joining. Latvia’s neighbor Estonia was the last country to adopt the euro at the start of 2011.
Addressing lawmakers Thursday, Prime Minister Valdis Dombrovskis said introducing the euro was part of Latvia’s strategy to cope with the economic crisis.
“From an economic standpoint, right now Latvia is at the crisis’ finish line,” he said. “Introducing the euro will symbolize the end of economic reforms and the country’s future development.”
The prime minister said Latvia will benefit from the euro, arguing that foreigners will consider the country a more attractive proposition to do business and local entrepreneurs will save money on currency transactions.
Guntis Snore, who lost his auto repair business and home as a result of Latvia’s crisis, is less sure of the benefits but still considers himself a ‘euroskeptic.’
“I suppose the euro will be good for large exporters, but it’ll be bad for small businesses and consumers,” he said. “Prices will increase for sure. So I don’t see much benefit from it.”
Doing business has not been a hallmark of the eurozone of late as a number of countries have struggled to convince investors they have a strategy to deal with their debts.
Opinion polls in the country of 2 million do show that a majority believes there’s no need to rush since Latvia — which would be the poorest euro member in terms of GDP per capita — may have to contribute to the bailouts that have become such a feature of euro politics over the past few years. A poll by the TNS agency in December showed that 60 percent of Latvians aged 18 to 55 were against adopting the euro.
“I believe southern Europe is acting irresponsibly …. we don’t want to pay for their problems,” said Normunds Bernups, a financial manager in a construction firm who took part in a small protest outside Parliament before Thursday’s vote. “They already have a better standard of living than we do.”
Critics of euro membership have demanded that the government hold a referendum on the issue, but officials have rejected the idea, arguing that Latvians agreed to euro membership when they voted to join the wider 27-nation EU in 2004.
European officials have said that Latvia has a good chance to join. The country meets the key criteria on debt, deficit levels, and inflation, and the economy is growing strongly, which would make it some sort of a standout in relation to its potential euro partners. Latvia’s economy is expected to have grown approximately 5.5 percent last year, making it the fastest growing economy in the EU.
In the vote, 52 lawmakers supported the law on adopting the euro, while 40 were against in the 100-member legislature. The remaining eight either abstained or were absent.
