Brussels, 09/07/2013 (Agence Europe) - On Tuesday 9 July, the Ecofin Council officially adopted the legal agreements allowing Latvia to become the eighteenth country in the eurozone on 1 January 2014.
Latvian Prime Minister Vladis Dombrovskis said it was a good day for Latvia and a good day for Europe. He listed the benefits for Latvia of joining the euro - interest rates will fall, the cost of currency exchange will fall and 70% of Latvia's foreign trade is already done in euro, and foreign investment will be stimulated (as happened for Estonia when it joined the euro in 2011). He said that Latvia's joining the euro was a signal of confidence in the single currency, because the eurozone is taking action to deal with the crisis.
Latvian Finance Minister Andris Vilks said that this was not a technical but a symbolic question. Latvia's joining the euro meant joining the core of Europe and joining the euro was the most complicated part of this, requiring a lot of work since dealing with the economic crisis in Latvia in 2009. He said his country wanted to be an innovative economy based on budget discipline and structural reforms, with inflation ranging between 2% and 2.5% over the next two years. From now until January 2014, Vilks will be an observer at the Eurogroup meetings, explained the head of the Eurogroup, Jeroen Dijsselbloem, on Monday evening.
On Tuesday, the Ecofin Council set the final lats-euro exchange rate, 0.702804 lats for one euro. This is important because it puts an end to speculation from Latvian eurosceptics who claim that the exchange rate would be damaging for Latvia, said Dombrovskis. He said that the euro information campaign is now focussing on the practical details of the changeover, and will gradually increase the number of people in Latvia in favour of the single currency to over 50% (from less than 40% today).
As a member of the eurozone, Latvia will pay €40 million a year over the next five years into the European Stability Mechanism (ESM), which is not such a high membership fee, said Vilks, praising the eurozone's bailout fund as a strong solidarity tool.
Asked about the Latvian flat tax, Dombrovskis said that his country's policy was more or less in line with European practice by reducing the tax burden on low-income workers. Deposits from non-residents (most of them Russian) account for half of all deposits in Latvian banks. Vilks said this was nothing like Cyprus, where banks accounted for 700% to 800% of Cyprus, compared with only 130% of Latvian GDP. (MB/transl.fl)