Brussels - The euro zone will embrace Latvia as its newest member from next year, eager to show that the bloc is not disintegrating despite doubts about southern Europe's ability to overcome more than three years of crisis.
Finance ministers from the full 28-nation European Union set Latvia's exchange rate at 0.702804 lats to one euro, an irrevocable conversion that cements the country's shift away from Russia two decades after the fall of the Soviet Union.
The decision crowns Latvia's recovery from years of financial hardship to boast stronger economic growth and lower debts than most current euro zone nations.
“We are completing our integration in Europe,” said Latvia's Finance Minister Andris Vilks, as his country cleared the final hurdle on the way to becoming the 18th member of the bloc that generates about 15 percent of global economic output. “We trust in Europe and we trust the euro,” he told a news conference, seated alongside his prime minister.
Latvia's emergence from its 2008/2009 crisis is just what the EU wants to see in southern European countries now wrestling with recession and debt.
At 40 percent of economic output in 2012, Latvia's debt was less than half the euro zone average.
Greece is under renewed pressure to meet its international lenders' conditions and Portuguese politicians have argued over how to keep their country's bailout on track, but euro zone ministers greeted Latvia's entry in January as proof of the bloc's staying power.
“Except for a few countries, all the EU members will eventually also introduce the euro,” said Jeroen Dijsselbloem, the Dutch finance minister who chairs meetings of euro zone finance ministers.
Latvia will use euro notes and coins from January 1, 2014, hoping entry to the currency bloc of 330 million people will help trade and attract investment. Fellow Baltic nation Estonia joined in 2011 and Lithuania is expected to follow in 2015.
Yet much of the euro zone is in its second recession since 2009, with record unemployment. Potential new flashpoints include Slovenia, whose banks are saddled with billions of euros of bad loans that could force another bailout in the bloc.
“We are not out of the crisis,” Maria Fekter, Austria's finance minister told reporters just before Latvia's membership was adopted. “The euro needs not only to be stabilised in certain areas but we need to generate growth.”
The euro zone, whose very survival was in doubt until the European Central Bank offered to do “whatever it takes” to keep it together a year ago, still lacks unified fiscal policies to underpin the currency.
Germany and France, the two largest economies in the bloc, also retain differing visions more than two decades after European leaders agreed to share a currency.
Germany wants to give supranational EU institutions the power to overrule national budgets and punish deficit offenders, while France favours mutualising European debts and creating a central euro zone budget.
That division and the crisis that began in Greece in 2009 have done little to persuade Latvians that they should join the euro. Polls show many of the 2-million strong population oppose switching currencies.
But EU members are required to join the euro eventually, apart from Britain, Sweden and Denmark who have won opt-outs.
Latvia's Vilks said support “is increasing with every month ... If there were less concerning news from the euro zone, there would be stronger support from our public as well.” - Reuters