Latvia is looking to exchange its lats for euros starting in 2014 as the small Baltic nation last week officially submitted its bid to become the 18th member of the eurozone. If the European Commission and the European Central Bank give the green light, Latvians will likely see euro bank notes and coins passing through their hands beginning January 1, 2014.
"I am certain that this step will not only strengthen Latvia's reputation and accelerate the economic development of our country, but it will also be a sign for the once again improving strength of the eurozone," said Prime Minister Valdis Dombrovskis. Latvia nearly crashed into insolvency as part of the world-wide financial crisis in late 2008. The collapse was only stopped by international loans amounting to 7.5 billion euros (9.9 billion dollars).
Massive spending cuts have helped to stabilise the budget and Latvia was able to pay back the international loans in full by the end of 2012 - three years ahead of schedule. The government in Riga is looking to crown its economic rehabilitation by introducing the euro.
Yet most of Latvia's 2.2 million citizens have not felt the benefits of the economic upswing and many remain unconvinced that the euro, battered for more than three years by Europe's debt crisis, will improve their situation. Surveys show that only slightly more than one-third are ready to give up their lats. Many fear prices will increase while others have a sentimental bond to the currency first introduced in the 1920s. And many Latvians say they are not prepared to pay for southern European countries that are in financial peril and unwilling to reform - especially after suffering through hard times themselves without much grumbling.
Lower and middle class Latvians were hit particularly hard by drastic salary cuts, tax increases and mass layoffs in the public sector, as well as major cuts in social services. One of the poorest EU members, Latvia suffers from high unemployment - presently around 14 per cent - and high migration, as well as the second-highest risk of poverty in Europe. Still, the economy, which dropped more than 20 per cent between 2008 and 2010, is picking up. Latvian gross domestic product (GDP) has increased by more than 5 per cent each of the past two years and EU forecasts say it will continue to grow stronger than the rest of Europe in 2013.
Neighbouring Lithuania went through a similar upheaval. But instead of stopping the fall by devaluing their currencies, which had been pegged to the euro for years, both countries opted for strict austerity measures. Neither country wanted to endanger its chances of joining the eurozone.
Whereas Latvia says it has met the criteria for joining the euro under the 1992 Maastricht Treaty since September 2012, Lithuania exceeded the allowed inflation target value and is now aiming for the currency union in 2015. Fellow Baltic nation Estonia introduced the euro in 2011 and has seen a rise in foreign investment, employment and standards of living.
Latvia's growth since early 2010 comes predominantly from exports. The Baltic Sea region makes up for more than 65 per cent of their foreign trade. Prime Minister Dombrovskis emphasised that the Latvian economy would profit from doing away with currency exchange rates and that the euro would help make Latvia more attractive for foreign investors.
The Latvian government plans to launch an information campaign by the summer to help convince the population about the benefits of the euro. Riga, however, rejects the calls by many to hold a referendum on the euro. By entering the EU in 2004, Latvia committed itself to introduce the euro upon fulfilling the criteria, argue the country's political leaders. Now everyone must wait for the European Union's assessment, expected this summer.