Latvia will adopt the euro as its currency to become the 18thmember of the common currency eurozone. The country has a population of just 2 million and on Wednesday becomes the newest member of the region. Opponents of the switch to the common currency outnumber supporters by a margin of two to one, as the public expects an acceleration in inflation.
Residents also are bracing for the acceptance of new responsibilities in the new common currency union. One shop owner in the capital city of Riga said he expected prices to rise with the new euro. In fact, said the shop owner, Latvia is going to help pay for other euro member country’s debt after adopting it.
The adoption of the euro caps a journey for Latvia of over two decades for one of the former republics in the Soviet Union, which is now the fourth former member of the Soviet communist bloc to join the common currency zone following Estonia, Slovenia and Slovakia.
The government of Latvia and Valdis Dombrovskis, which spearheaded the change, pushed through a number of austerity measures that equaled 16% of the GDP as a requirement of its bailout program that helped its finances and kept its currency tied to the euro.
The country’s economy shrank between 2008 and 2009 by 20%, but is now growing at the European Union’s fastest pace in 2013.
Concern over inflation accelerating, even following the drop in consumer prices by 0.4% during November from the same month the previous year, marking the sixth consecutive month without an increase, continues in the country.
The Finance Ministry has estimated that prices would rise 2.3% in 2014, as the economy grows by 4.2%. Close to 83% of the people in Latvia fear the common currency will trigger price increases that are unwarranted, said the European Commission in a report from December 3.
However, the government in Latvia is focusing on potential benefits the currency brings. It says that by adopting the euro more investment will be attracted and the country can better promote its export industry, which would allow the economy to grow quicker and raise the welfare.
However, 50% of the country is still not convinced. Opposition for the adoption of the euro is at 50%, according to a report released this week, compared to over 58% opposition in October.
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