Andris Vilks said the recent events in Ukraine, which decided at the last minute to turn down an integration agreement with the EU in favour of closer ties with Russia, demonstrated why the Baltic state of 2m people is joining the euro. “Russia isn’t going to change. We know our neighbour. There was before, and there will be, a lot of unpredictable conditions. It is very important for the countries to stick together, and with the EU,”, added the finance minister.
Latvia still has close ties with Russia, with about 40 per cent of the bank deposits in the country coming from ex-Soviet states. In the country, which is the 18th member of the euro area, opponents of the currency switch outnumber proponents two-to-one as public expectations for accelerating inflation mount, opinion polls show. Residents are also bracing for taking on new responsibilities in the currency union.
Concern that inflation will accelerate is rising even after consumer prices fell 0.4 percent in November from a year earlier, the sixth month this year without an increase. The Finance Ministry estimates prices will rise 2.3 percent next year as the economy expands 4.2 percent.
“Joining the euro marks the completion of Latvia’s journey back to the political and economic heart of our continent, and that is something for all of us to celebrate,” EU Economic and Monetary Affairs Commissioner Olli Rehn said in a statement.
“Immediately after Latvia joins the eurozone, I imagine we’re going to see an actual spike in dubious money flowing in,” said Mark Galeotti, a professor at New York University who researches organized crime in the former Soviet Union.
For years, Latvia’s political and financial leaders had hoped to create a mini-Switzerland in Eastern Europe — a place where capital in unstable countries such as Russia or Kazakhstan could either park for a while or channel its way further west to banking meccas like Zurich or London.