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Latvia set to become second Baltic state to join eurozone Latvia set to become second Baltic state to join eurozone
(4 months later)
The Baltic state of Latvia has got the go-ahead to join the euro next year, and will become the 18th country to adopt the single currency despite the eurozone crisis.The Baltic state of Latvia has got the go-ahead to join the euro next year, and will become the 18th country to adopt the single currency despite the eurozone crisis.
The European commission and European Central Bank gave the green light on Wednesday for membership, making the country the second of the Baltic states, along with Estonia, to join the euro.The European commission and European Central Bank gave the green light on Wednesday for membership, making the country the second of the Baltic states, along with Estonia, to join the euro.
Lithuania is hoping to join in 2015 and a debate in neighbouring Poland is also kicking off, with signs there that the government would like to enter the single currency within a few years.Lithuania is hoping to join in 2015 and a debate in neighbouring Poland is also kicking off, with signs there that the government would like to enter the single currency within a few years.
"Latvia's desire to adopt the euro is a sign of confidence in our common currency. It is further evidence that those who predicted a disintegration of the euro, were indeed behind the curve and simply wrong," said Olli Rehn, the commissioner for monetary affairs."Latvia's desire to adopt the euro is a sign of confidence in our common currency. It is further evidence that those who predicted a disintegration of the euro, were indeed behind the curve and simply wrong," said Olli Rehn, the commissioner for monetary affairs.
Eurozone finance ministers still have to bless Latvia's membership next month, but that is expected to be a formality.Eurozone finance ministers still have to bless Latvia's membership next month, but that is expected to be a formality.
The Latvian currency has been pegged to the euro for years and its government argues that since all eurozone decision-taking shapes economic and fiscal policy in the country it would be better to join formally, to be able to take part in decisions.The Latvian currency has been pegged to the euro for years and its government argues that since all eurozone decision-taking shapes economic and fiscal policy in the country it would be better to join formally, to be able to take part in decisions.
While broadly endorsing Latvian membership, the ECB pointed to risks entailed in the high level of foreign deposits in Latvian banks, a reference to the Russian funds held in Latvian accounts, which amount to about 40% of national GDP.While broadly endorsing Latvian membership, the ECB pointed to risks entailed in the high level of foreign deposits in Latvian banks, a reference to the Russian funds held in Latvian accounts, which amount to about 40% of national GDP.
In the recent collapse of the Cypriot banking sector, which led to the winding up of the two biggest banks and a eurozone bailout, the level of foreign accounts was also seen as a significant problem.In the recent collapse of the Cypriot banking sector, which led to the winding up of the two biggest banks and a eurozone bailout, the level of foreign accounts was also seen as a significant problem.
The Riga government argues that the Latvia's banking sector is minuscule compared to that in Cyprus, whose economy relies on big off-shore banking operations.The Riga government argues that the Latvia's banking sector is minuscule compared to that in Cyprus, whose economy relies on big off-shore banking operations.
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