Latvia is set to become the latest member of the Eurozone when it joins on January 1st, 2014. This will make the 17-nation currency bloc one country bigger, following the lead of two other former Soviet states, Estonia and Slovakia. The small eastern European country, with a population of just 2 million, became a member of the European Union free market in 2004, and finally got the green light to join the single currency zone in June of 2013.
From Wednesday, Latvians will be able to exchange their lats for euros free of charge at a fixed rate of 0.7 to 1 euro. There will be a two-week period in which both currencies will be in circulation before the lat is no longer a legal tender on January 15th.
Latvia's integration into the Eurozone will solidify its position as part of Europe and the Western world, following its membership in NATO, the United Nations, and the EU after the collapse of the Soviet Union. Despite being poorer than many Western European countries, with a 2012 GDP per capita of $21,905, which was only two-thirds of the EU average, Latvia's economy is expected to expand by 4% this year, while the Eurozone economy is forecast to contract by 0.6%.
Latvia's inclusion in the Eurozone is seen as a positive move by many, as it will reduce transaction and exchange rate costs when exporting to the Eurozone, which accounts for 30% of Latvia's exports. In addition, membership will reduce the economic risk from Latvia's high level of external financing requirements and foreign exchange debt. Moreover, the country is expected to become more appealing for foreign direct investment once it joins, as the cost of doing business with other Eurozone countries will fall, making it a more attractive location for companies looking for a European base.
However, membership in the Eurozone is controversial among the Latvian public, who are concerned about the loss of control over monetary policy, price rises, inconvenience, and loss of national sovereignty and identity. Despite these concerns, Latvian public support for joining the Eurozone stood at 38% when membership was announced in June of 2022.
Lithuania is expected to be the next country to join the Eurozone, at the start of 2015. Other potential members, such as Poland, Bulgaria, and Romania, are yet to join the Exchange Rate Mechanism, which is one of the "convergence criteria" for joining the Eurozone.
If Latvia's ascension goes smoothly, it may encourage other eastern European countries to consider the single currency. However, a recent EU survey in April of 2022 found that only 39% of respondents in the region thought joining the Eurozone would be positive for their country, with 54% believing it would have a negative impact.