Joining the euro in 2014 remains one of Latvia's strategic goals as it recovers from the economic crisis, and the small Baltic country intends to play its full part as a core member of the European Union, writes its prime minister
In 2008, when Latvia became the worst hit victim of the global economic crisis, our story made media headlines all around the world. Distinguished American economist Paul Krugman famously said that "Latvia is the next Argentina", meaning, in his opinion, the inevitable default of the small Baltic state.
In 2012, after three years, an international bail-out package of €7.5bn and a fiscal adjustment of 17.5 per cent of gross domestic product, Latvia's economy is back on track and in better shape than many other European Union countries. Krugman recently commented that since the crisis "essentially nobody has managed to regain confidence of markets, except for Latvia".
Now, when the credit ratings of many European countries are reduced and more countries need financial assistance, Latvia's accomplishments in restoring financial stability are praised. The improvement in Latvia's credit rating made by Japanese credit rating agency R&I at the end of January, and the increase in Latvia's GDP growth forecast for 2012 up to 2.6 per cent made by the European Bank for Reconstruction and Development – which even exceeds the 2.5 per cent expected by government – give additional confidence to both the financial markets and Latvia about the correctness of the chosen fiscal discipline tactics.
Currently, Latvia is one of the most rapidly growing economies in the EU. In 2011 GDP grew by more than 5 per cent. Production has already reached the pre-crisis level, while exports exceed it. Gradually development can be felt in a real income growth of the population. Unemployment is decreasing gradually; more than 56,000 employees found jobs last year and hopefully even more will this year.
What's next? The main task is to ensure the constant growth of Latvia's competitiveness. The business environment has to be improved and the productivity of labour must continue to grow along with the added value they produce. Resources of the EU funds should be used effectively, not only to rehabilitate the infrastructure but also to support business activities. Positive indications have been observed already – Latvia has become the Baltic leader in the World Bank's Doing Business index by scoring 21st place in 2011, which is an important factor that helps to attract investors.
This year will also be significant to the EU when, to a great extent, its further evolution will be determined. We will work so that Latvia can be one of the countries that will form the future European core. Latvia will support even closer cooperation with European countries; its place is neither on the outskirts of Europe nor on its eastern bridge, but in the European core that moves Europe forwards. We are ready to be one of the countries that will renew Europe's competitiveness and work in the name of a more secure future.
Adoption of the euro in 2014 remains one of Latvia's strategic goals. This choice is obvious since the Latvian lats is already pegged to the euro and we have all the disadvantages of the euro without any of the advantages. We have carefully studied the experience of our neighbour and the newest member of the eurozone, Estonia, and it is clear that the introduction of the euro has served as a positive stimulus for the economy, fortifying the confidence of markets and motivating investors to create more new jobs.
Of course, given the current state of affairs in the eurozone, adoption of the euro is in question more and more. On January 1, 2014, when Latvia plans to join the eurozone, we wish to join a stable and strong monetary union. Therefore, Latvia strongly supports the new treaty on stability, coordination and governance in the economic and monetary union, which was signed by 25 EU countries in March. My government has also prepared a fiscal discipline law and amendments in the constitution of Latvia to strengthen the principles of prudent fiscal policy and ensure their application in future.
Currently, Latvian people feel much more secure about their future than the residents of many other EU countries. I am sure that, provided we maintain prudent fiscal policy, in the next few years Latvia, along with two other Baltic states and the Scandinavian countries, will be the most stable and dynamic region of Europe and a safe haven for investments.Valdis Dombrovskis is the prime minister of Latvia. This article first appeared in PublicServiceEurope.com's sister publication Public Service Review: European Union