- Mark Galeotti, a professor at New York University
Starting from January 1, 2014 Latvia becomes the 18th member of the Eurozone, the second former Soviet state to join the currency bloc, after Estonia. The eastern European country has been a member of the European Union since 2004, but finally got the green light to join the Euro bloc last June. Despite the fact that Latvia remains far behind other developed European countries in terms of gross domestic product, with Latvia's GDP per capita being $21,905, which is only two-thirds of the EU average in 2012, the country is considered as an exemplar of how austerity and growth can be combined. After being hit hard by the crisis of 2008, Latvia received a bailout from foreign creditors and implemented the most severe austerity programme seen in Europe, cutting size of its deficit by almost 17%.
Also, there is speculation, that Latvia's membership will cause an inflow of "dirty" money from Russia and the East, as the country will be considered as safer than other former Soviet states, whereas financial oversight remains loose. However, the good news for the rest of the Eurozone is that Latvia's banking system is not too big compared with its economy, meaning that the country is less likely to need bailout, should banks run into trouble, as it happened with Cyprus.
© Dukascopy Bank SA