Fireworks and Fear as Latvia Joins Eurozone

By Mike Collier, Agence France-Presse

01 January 13

atvia's Prime Minister Valdis Dombrovskis symbolically withdrew a crisp 10 euro note as fireworks lit up the capital Riga after midnight Wednesday, ringing in the New Year and his country's entry into the troubled eurozone.

"It's a big opportunity for Latvia's economic development," he said as thousands thronged the city centre, insisting that avoiding excessive debt through "responsible" spending was key to any future success.

While leaders feted the 18th addition to the bloc, the people of this Baltic state bade a reluctant farewell to their cherished lats -- seen as a symbol of independence from the Soviet Union -- to switch to the debt-mired European single currency.

There is widespread unease in the country about joining a currency union that has seen five of its members forced into painful bailouts since a crippling debt crisis erupted in 2009.

According to a recent SKDS poll, half of Latvians oppose the third currency switch in just over two decades, fearing price hikes and infuriated by the draconian austerity cuts made to get the country into the club.

"I am against the euro. This isn't a happy day. The lats is ours, the euro isn't -- we should have kept the lats," Zaneta Smirnova told AFP as the 40-year-old watched ceremonies marking the euro adoption

Like the crisis-hit eurozone, which expects to limp back to growth some time in 2014, the country of two million people was hit hard by the 2008-9 world financial crisis.

It suffered the world's deepest recession when GDP shrank by nearly a quarter over the two years.

Dombrovskis -- who deftly steered Latvia towards the euro -- orchestrated a 7.5 billion-euro ($10.3-billion) international bailout to avert bankruptcy, but at the price of deep austerity cuts.

Known as the "Baltic Tiger" for its explosive growth after winning independence from the crumbling Soviet Union in 1990, Latvia has bounced back well from the crisis.

It topped growth in the EU in both 2011 and 2012 and is set to expand four percent in 2013.

Latvia is "a role model as far as fiscal adjustment is concerned," European Central Bank chief Mario Draghi told AFP.

And European Commission President Jose Manuel Barroso praised the country's "impressive efforts" and "unwavering determination", as he welcomed the eurozone's newest member.

Riga's entry comes as the eurozone ends 2013 on a more positive note following years of lurching from crisis to crisis, enduring recession, unemployment and social unrest.

On Tuesday, Spain officially exited its bank bailout programme, a day after Greece's prime minister announced it was ready to return to the markets.

Ireland has also put its bailout programme behind it and EU leaders stitched together an historic banking union deal in December they hope will end the excesses that brought the bloc to its knees.

A good thing?

Despite some signs of light emerging in the eurozone, just a quarter of Latvians are convinced entry is a good idea.

The vocal "No Euro" campaign casts the European Union as a successor to the USSR.

Euro adoption will "allow others to rule our economy", it insists, and attacks Riga for "lying about the benefits that the eurozone will bring".

"Everyone expects prices will go up in January," Leonora Timofejeva, a 56-year-old who earns the minimum wage of 200 lats (284 euros) per month tending graves in a village north of the capital Riga, told AFP.

After adopting the euro in January 2011, Estonia saw inflation leap five percent that year.

But pensioner Maiga Majore believes euro adoption "can only be a good thing".

"To be part of a huge European market is important. All this talk about price rises is just alarmist," she said.

Both lati and euros will be legal tender for the first 14 days of the new year before the lats is phased out.

Other countries currently inside the EU but outside the eurozone are biding their time.

Only Denmark and Britain have a formal opt-out from joining the euro. Sweden rejected it in a 2003 referendum and is unlikely to join soon.

Latvia's neighbour Lithuania has targeted 2015 as a possible joining date while larger economies Poland and the Czech Republic are still several years off meeting the strict membership criteria.

Hungary and more recent recruits to the EU including Bulgaria, Croatia and Romania are even less likely to join the common currency any time soon.