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| Version 2 | Version 3 |
|---|---|
| Latvia still keen to join single currency despite euro crisis | Latvia still keen to join single currency despite euro crisis |
| (about 1 month later) | |
| Perverse as it may seem, all the talk in the eurozone is not only of shrinkage. Greece's single currency days may be numbered. The jury is out on Portugal. The main narrative is of a leaner and meaner currency area emerging from the crisis. | Perverse as it may seem, all the talk in the eurozone is not only of shrinkage. Greece's single currency days may be numbered. The jury is out on Portugal. The main narrative is of a leaner and meaner currency area emerging from the crisis. |
| But if Latvia has its way, the eurozone will have grown to 18 members within 18 months. | But if Latvia has its way, the eurozone will have grown to 18 members within 18 months. |
| From boom to bust to booming again in the space of five years, Latvia is knocking on the doors in Brussels and Frankfurt asking to come in. | From boom to bust to booming again in the space of five years, Latvia is knocking on the doors in Brussels and Frankfurt asking to come in. |
| "We don't think it's a sinking ship. We still see more positives than negatives," Valdis Dombrovskis, the Latvian prime minister, told the Guardian in an interview. | "We don't think it's a sinking ship. We still see more positives than negatives," Valdis Dombrovskis, the Latvian prime minister, told the Guardian in an interview. |
| Early next year, he said, his government will ask the European Central Bank and the European commission for their assessment of Latvia's fitness to join the single currency, apply for membership, and hope to join neighbouring Estonia in the euro by the beginning of 2014. | Early next year, he said, his government will ask the European Central Bank and the European commission for their assessment of Latvia's fitness to join the single currency, apply for membership, and hope to join neighbouring Estonia in the euro by the beginning of 2014. |
| If Dombrovskis is going against the grain of events – other "pre-ins" countries of eastern Europe are hedging their bets on joining, waiting to see what happens – he breaks many of the rules that have governed European politics as a result of the crisis. | If Dombrovskis is going against the grain of events – other "pre-ins" countries of eastern Europe are hedging their bets on joining, waiting to see what happens – he breaks many of the rules that have governed European politics as a result of the crisis. |
| Governments have tumbled everywhere in a backlash against slashed spending. But Dombrovskis has inflicted arguably the most painful austerity package of all on his country and been rewarded with re-election. | Governments have tumbled everywhere in a backlash against slashed spending. But Dombrovskis has inflicted arguably the most painful austerity package of all on his country and been rewarded with re-election. |
| As Greece pleads with its eurozone creditors for more time in meeting its fiscal adjustment targets, Dombrovskis is a fierce champion of surgical austerity applied quickly and ruthlessly. | As Greece pleads with its eurozone creditors for more time in meeting its fiscal adjustment targets, Dombrovskis is a fierce champion of surgical austerity applied quickly and ruthlessly. |
| "The most important lesson is the speed of adjustment," he said. "When you're in a situation where the markets don't trust you, you need to regain confidence quickly. Without financial stability, the banks are not lending, companies are worried, not investing, and you get a deeper recession." | "The most important lesson is the speed of adjustment," he said. "When you're in a situation where the markets don't trust you, you need to regain confidence quickly. Without financial stability, the banks are not lending, companies are worried, not investing, and you get a deeper recession." |
| With Athens trying to extend its bailout deadlines, Dombrovskis said: "Asking for two more years of delay is asking for two more years of recession. Trying to delay adjustment doesn't work." | With Athens trying to extend its bailout deadlines, Dombrovskis said: "Asking for two more years of delay is asking for two more years of recession. Trying to delay adjustment doesn't work." |
| Although outside the euro, Latvia was the first EU country to go bust in 2008-9, requiring a €7.5bn EU-IMF bailout. | Although outside the euro, Latvia was the first EU country to go bust in 2008-9, requiring a €7.5bn EU-IMF bailout. |
| As with Spain and Ireland, the central reason for the collapse was one of the biggest housing bubbles in the world, with the Swedish banks which dominate the three Baltic states spraying cheap credit around like confetti. | As with Spain and Ireland, the central reason for the collapse was one of the biggest housing bubbles in the world, with the Swedish banks which dominate the three Baltic states spraying cheap credit around like confetti. |
| The impact was as severe as it has become anywhere in Europe. Gross domestic product collapsed by 25%, unemployment quadrupled to 22%, wages were slashed by almost 20%, property prices fell by up to 70%, poverty levels soared and a brain-drain saw 10% of the population move abroad. | The impact was as severe as it has become anywhere in Europe. Gross domestic product collapsed by 25%, unemployment quadrupled to 22%, wages were slashed by almost 20%, property prices fell by up to 70%, poverty levels soared and a brain-drain saw 10% of the population move abroad. |
| Dombrovskis might be excused for being traumatised. Instead he is totally unabashed. | Dombrovskis might be excused for being traumatised. Instead he is totally unabashed. |
| "It seems that our strategy is working," he said. "Now we're the fastest growing economy in the EU." | "It seems that our strategy is working," he said. "Now we're the fastest growing economy in the EU." |
| Indeed, the third poorest country in the EU saw growth of 5.5% last year and almost 7% in the first quarter this year. | Indeed, the third poorest country in the EU saw growth of 5.5% last year and almost 7% in the first quarter this year. |
| "Latvia decided to bite the bullet. Instead of spreading the pain over many years, you decided to go hard, and to go quickly," the IMF chief, Christine Lagarde, told a conference in the capital, Riga, in June. "The achievements were incredibly impressive." | "Latvia decided to bite the bullet. Instead of spreading the pain over many years, you decided to go hard, and to go quickly," the IMF chief, Christine Lagarde, told a conference in the capital, Riga, in June. "The achievements were incredibly impressive." |
| It is one of the ironies of the debt crisis and of the euro's fight for survival that the rules governing the currency are often observed by those waiting to join but flouted by those inside. On the key criteria of national debt and budget deficit levels, for example, the Latvians are performing much better than the French, Dutch, Spanish or Italians, not to mention the bailed-out countries. | It is one of the ironies of the debt crisis and of the euro's fight for survival that the rules governing the currency are often observed by those waiting to join but flouted by those inside. On the key criteria of national debt and budget deficit levels, for example, the Latvians are performing much better than the French, Dutch, Spanish or Italians, not to mention the bailed-out countries. |
| Dombrovskis is closely following trends in Estonia, also growing strongly, and is encouraged by what he sees. "The Estonians say [euro membership] is attracting foreign direct investment. If you join, you reduce transaction costs, you have price transparency. There are many practical benefits." Besides, the national currency, the lat, has been pegged to the euro since 2005. In the heat of the 2008-9 crisis, the Latvians came under strong international pressure to devalue their way out of trouble to cushion a savage recession and bolster competitiveness. | Dombrovskis is closely following trends in Estonia, also growing strongly, and is encouraged by what he sees. "The Estonians say [euro membership] is attracting foreign direct investment. If you join, you reduce transaction costs, you have price transparency. There are many practical benefits." Besides, the national currency, the lat, has been pegged to the euro since 2005. In the heat of the 2008-9 crisis, the Latvians came under strong international pressure to devalue their way out of trouble to cushion a savage recession and bolster competitiveness. |
| Dombrovskis stubbornly refused, instead pursuing "internal devaluation", depressing wages and conducting what he says was a 17% fiscal adjustment programme (the IMF says 15%). | Dombrovskis stubbornly refused, instead pursuing "internal devaluation", depressing wages and conducting what he says was a 17% fiscal adjustment programme (the IMF says 15%). |
| Since Latvian monetary policy is therefore decided in Frankfurt, Dombrovskis argued, they might as well join. "What happens to the euro happens to us. It's better to be inside participating. We're importing [the policies] without sitting at the table." | Since Latvian monetary policy is therefore decided in Frankfurt, Dombrovskis argued, they might as well join. "What happens to the euro happens to us. It's better to be inside participating. We're importing [the policies] without sitting at the table." |
| Despite the quick turnaround since 2010, based on soaring exports and a 10% increase in industrial output, there are powerful sceptical voices in Brussels and Frankfurt who fear that the Latvian recovery may not be sustainable and that euro membership should wait a bit longer. | Despite the quick turnaround since 2010, based on soaring exports and a 10% increase in industrial output, there are powerful sceptical voices in Brussels and Frankfurt who fear that the Latvian recovery may not be sustainable and that euro membership should wait a bit longer. |
| Dombrovskis is unfazed. "We'll take a final decision early next year. If nothing goes wrong in the next six months, we'll be filing the application. And we hope that by 2014, the crisis will be resolved." | Dombrovskis is unfazed. "We'll take a final decision early next year. If nothing goes wrong in the next six months, we'll be filing the application. And we hope that by 2014, the crisis will be resolved." |
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