Currencies Direct: Latvia and the Euro, a Marriage Made in Heaven?

Sep 28, 2012, 08:36 ET from Currencies Direct

LONDON, September 28, 2012 /PRNewswire/ --

Austerity has saved Latvia from the pitfalls of recession and boosted economic growth, but is all that good work about to come undone?

At a time when Europe's monetary union is beset by threats of default and a possible break-up, Latvia, a small Baltic state in north-eastern Europe, plans to adopt the euro in 2014. But why? Why should a state which according to the IMF has shown healthy signs of economic growth since the world financial crisis in 2008 even consider entering the troubled eurozone? Currency exchange experts Currencies Direct explore the possible reasons for Latvia's insistence on joining the eurozone party.

Under one of the harshest austerity regimes in Europe, Latvia has bounced back from recession to become one of the fastest-growing economies in the European Union. The IMF report that output reached £26.4 billion in 2011; a sum lauded by both EU and IMF bigwigs. Yet wouldn't adopting the euro unravel all that good work? After all, with a population of just 2.2 million, couldn't Latvia simply end up like Cyprus, a eurozone member buckling under the weight of debt and of comparative size to Latvia's economy?

Not according to Prime Minister Valdis Dombrovskis. He believes eurozone inclusion offers the Latvian economy increased financial stability and a level playing field to compete on foreign exchange markets and to trade with the rest of Europe. Speaking in the Economist, Mr Dombrovskis says Latvia's geographic position with neighbouring Baltic States Estonia and Lithuania, and economic powerhouses Germany and Poland, should benefit the country's export-lead trade, especially as Northern eurozone members are faring a lot better during the eurozone crisis than those in the South.

He even goes so far as to confess that Latvia's bouncebackability stems from the promise of eurozone membership in 2014; preparing for monetary union by employing strict austerity measures, which were previously implemented with efficient speed and ruthless efficiency - unlike Greece.

Yet suggesting Latvia hasn't been affected by these measures and the eurozone's economic travails would be spurious to say the least. Unemployment remains high, so much so that emigration has now become a major issue for the government. Seemingly internal de-valuation, which proposes steep cuts in wages and prices, has taken its toll, forcing many to look abroad for a living.

The idea of the euro as a financial haven may seem laughable, especially as European leaders continue to preside over its future, but for Latvia and its government inclusion in the euro-bubble's ascent seems too promising to burst.

About Currencies Direct

Currencies Direct is one of Europe's leading non-bank providers of currency exchange payment services. Since its formation in 1996 Currencies Direct has evolved and positioned from being an innovative service provider of foreign exchange for consumers and high-net-worth individuals into a dynamic and pioneering 'business-to-business', fully-integrated treasury solution service provider. 

Headquartered in the City of London (United Kingdom) with operations in Europe, Africa, Asia and the United States, Currencies Direct is part of the Azibo Group, a privately owned investment company.

SOURCE Currencies Direct