“Latvia’s desire to adopt the euro is a sign of confidence in our common currency and further evidence that those who predicted the disintegration of the euro area were wrong,” Olli Rehn, the European Union’s commissioner for economic and monetary affairs, said in a statement.
Both the European Commission, the European Union’s main policy-making body, and the European Central Bank said that Latvia had met the requirements for membership, which include limits on inflation and government debt. Latvia also had to demonstrate that its laws on issues like central bank independence are in line with EU standards.
Latvia’s application still requires review by the European Parliament and endorsement by EU political leaders, a process that is likely to result in formal approval in July.
Latvia would join on Jan. 1, becoming the 18th EU country to adopt the euro.
The country, with 2.2 million people and economic output last year worth about 20 billion euros, is often held up as a model by advocates of austerity because it responded to a severe banking crisis in 2008 by slashing government spending.
Economic output plunged, unemployment soared, and wages fell, but the Latvian economy gradually recovered. The country’s economy grew 1.2 percent in the first quarter of 2013, compared with the previous quarter, second only to neighboring Lithuania among EU countries.
“Latvia’s experience shows that a country can successfully overcome macroeconomic imbalances, however severe, and emerge stronger,” Rehn said.
However, opinion polls indicate that most Latvians are reluctant to join the eurozone, even though they have a powerful political incentive to do so. Like Estonia, another Baltic nation, which was the most recent country to join the eurozone in 2011, Latvia is anxious to tie itself to Europe and distance itself from its former Russian masters. The Latvian government did not hold a voter referendum on euro membership.
The governor of the Latvian central bank will automatically join the ECB’s governing council and have a vote in decisions on interest rates and other monetary policy issues. It is unclear who that person will be, since the term of the current governor, Ilmars Rimsevics, expires at the end of this year.