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| The Euro Adds Latvia, but Further Growth Is Uncertain | The Euro Adds Latvia, but Further Growth Is Uncertain |
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| PARIS — Dace Utinane, a doctor at a private health center, frowned during a stroll this week through Riga, the capital of Latvia, as she contemplated her country’s move to become the newest member of Europe’s currency union. | |
| “I don’t like it — the euro is not my money,” said Dr. Utinane, arching an eyebrow. “This has been dictated by people from above. But we’re too small to do something about it and protest against it.” | |
| In the halls of power, European leaders are taking a starkly different view. On Wednesday, as Latvia became the 18th country to join the euro, they promoted it as a sign that the currency union — even with wrenching growing pains that included threats of a breakup — is on a long-term path to achieving its founders’ vision of continued expansion. | |
| “Despite the negative headline of the crisis, the basic promise of peace, prosperity and freedom to travel and work still have their appeal,” said Holger Schmieding, chief economist at Berenberg Bank in London. “So the process of euro enlargement has not come to an end.” | “Despite the negative headline of the crisis, the basic promise of peace, prosperity and freedom to travel and work still have their appeal,” said Holger Schmieding, chief economist at Berenberg Bank in London. “So the process of euro enlargement has not come to an end.” |
| How quickly it will grow is another question. While most of the European Union’s 28 member countries are obliged eventually to ditch their national money for Europe’s single currency, skepticism among European citizens about the euro union is still alive in many corners. | |
| Lithuania is on track to be next in adopting the currency, in 2015. Like Latvia, its neighbor and fellow former Soviet republic, it is eager to link itself to the West, an imperative that has grown starker as Russia seeks to keep a grasp on Ukraine despite recent pro-Western protests there. | Lithuania is on track to be next in adopting the currency, in 2015. Like Latvia, its neighbor and fellow former Soviet republic, it is eager to link itself to the West, an imperative that has grown starker as Russia seeks to keep a grasp on Ukraine despite recent pro-Western protests there. |
| After 2015, however, euro zone enlargement is set to slow. In Eastern Europe, several countries have not even taken the first step required for euro membership by entering the exchange rate mechanism, a sort of waiting room. The Czech Republic, Hungary and Poland have all pushed back their target dates for euro zone membership until near the end of the decade in the face of low public support. | After 2015, however, euro zone enlargement is set to slow. In Eastern Europe, several countries have not even taken the first step required for euro membership by entering the exchange rate mechanism, a sort of waiting room. The Czech Republic, Hungary and Poland have all pushed back their target dates for euro zone membership until near the end of the decade in the face of low public support. |
| Smaller nations, including Romania and Croatia, which joined the European Union last year, have said they are unlikely to adopt the euro until around 2020, partly because their economies cannot quickly meet the criteria. Those include achieving a deficit of 3 percent of gross domestic product and keeping debt to 60 percent of the annual gross domestic product. | Smaller nations, including Romania and Croatia, which joined the European Union last year, have said they are unlikely to adopt the euro until around 2020, partly because their economies cannot quickly meet the criteria. Those include achieving a deficit of 3 percent of gross domestic product and keeping debt to 60 percent of the annual gross domestic product. |
| Denmark may be one of the next to join. Although the idea was defeated in a national referendum in 2000, a new public vote will be held during parliamentary elections in December 2015. Public support, which improved slightly after euro bills and coins started circulating, plunged again during the euro crisis. Sweden has also not taken the steps required to join, and has shown no signs of doing so. | Denmark may be one of the next to join. Although the idea was defeated in a national referendum in 2000, a new public vote will be held during parliamentary elections in December 2015. Public support, which improved slightly after euro bills and coins started circulating, plunged again during the euro crisis. Sweden has also not taken the steps required to join, and has shown no signs of doing so. |
| While European Union member states are required to adopt the euro, citizens can still shoot down membership if a government decides to hold a referendum. In Latvia, the government chose not to hold one, given the negative sentiment revealed in public opinion surveys, and to push the issue through instead. | While European Union member states are required to adopt the euro, citizens can still shoot down membership if a government decides to hold a referendum. In Latvia, the government chose not to hold one, given the negative sentiment revealed in public opinion surveys, and to push the issue through instead. |
| Around half of Latvians opposed joining the euro, although support rose toward the end of the year. The reluctance was palpable on New Year’s Eve in Riga, where the fireworks and celebrations that illuminated other countries at the moment of euro membership were starkly absent. The only sign that a new currency was coming was in stores, which had begun to post prices in euros alongside lats, the old money. | Around half of Latvians opposed joining the euro, although support rose toward the end of the year. The reluctance was palpable on New Year’s Eve in Riga, where the fireworks and celebrations that illuminated other countries at the moment of euro membership were starkly absent. The only sign that a new currency was coming was in stores, which had begun to post prices in euros alongside lats, the old money. |
| Part of the reluctance among euro-skeptics, economists say, is the fear of losing a degree of sovereignty and of being liable for supporting other countries should any new crisis break out. Few have forgotten how Estonia, which joined the euro in 2011, was soon called upon to help bail out Cyprus when a banking crisis hit. | Part of the reluctance among euro-skeptics, economists say, is the fear of losing a degree of sovereignty and of being liable for supporting other countries should any new crisis break out. Few have forgotten how Estonia, which joined the euro in 2011, was soon called upon to help bail out Cyprus when a banking crisis hit. |
| The euro’s economic troubles have also damaged the currency bloc’s image and highlighted structural flaws in its foundation that have still not been fully addressed. | The euro’s economic troubles have also damaged the currency bloc’s image and highlighted structural flaws in its foundation that have still not been fully addressed. |
| In Britain, which has no intention of adopting the euro, Prime Minister David Cameron has distanced his government even more from the European Union recently, and has repeatedly pointed to the crisis and the haphazard response of euro zone leaders as proof that the currency bloc is a flawed and cumbersome project. He promised a national vote on exiting the European Union should he win the next election. | In Britain, which has no intention of adopting the euro, Prime Minister David Cameron has distanced his government even more from the European Union recently, and has repeatedly pointed to the crisis and the haphazard response of euro zone leaders as proof that the currency bloc is a flawed and cumbersome project. He promised a national vote on exiting the European Union should he win the next election. |
| Some resistance may start to melt once the euro zone starts showing tangible signs of recovery after a five-year malaise. Growth is already starting to rebound in some crisis-hit economies. Ireland recently exited an international bailout and Spain now no longer needs euro zone support for its banks. | |
| One of the lessons learned from the crisis is that countries need to get their economic houses in order before joining, to avoid the type of disasters that happened in countries like Greece and Spain, said Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington. | One of the lessons learned from the crisis is that countries need to get their economic houses in order before joining, to avoid the type of disasters that happened in countries like Greece and Spain, said Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington. |
| Latvia achieved that, largely by adopting a wrenching austerity program that shrank its economy at one point by 20 percent from its peak. Since then, the economy has rebounded, growing 4.5 percent through the third quarter of 2013, while unemployment fell to 11.3 percent — still high, though down from 20 percent in 2010. | Latvia achieved that, largely by adopting a wrenching austerity program that shrank its economy at one point by 20 percent from its peak. Since then, the economy has rebounded, growing 4.5 percent through the third quarter of 2013, while unemployment fell to 11.3 percent — still high, though down from 20 percent in 2010. |
| And despite negative opinion in the polls, a number of citizens see wider economic benefits of Latvia’s joining the euro club. Unlike Britain, which has a powerful economy, smaller countries can see a lift from euro membership as businesses profit from executing transactions in a single currency. In particular, Latvian businesses expect borrowing costs to fall and investment to go up. | And despite negative opinion in the polls, a number of citizens see wider economic benefits of Latvia’s joining the euro club. Unlike Britain, which has a powerful economy, smaller countries can see a lift from euro membership as businesses profit from executing transactions in a single currency. In particular, Latvian businesses expect borrowing costs to fall and investment to go up. |
| “It’s absolutely positive,” said Normunds Bremers, the director of Wenden, a furniture production company based in Jaunpiebalga. “It will be easier for the exporting business, and easier for those companies that focus on the market of the European Union. | |
| “People are quite often against the euro, but they don’t understand the reasoning that it can, in fact, benefit them.” | “People are quite often against the euro, but they don’t understand the reasoning that it can, in fact, benefit them.” |
| Still, economists say the euro must address further significant challenges if it is to succeed. “In order for the euro to flourish in the long term, it must assume a much more federal character, constructing some kind of a federal budget with transfers, which involves a greater pooling of sovereignty,” said Simon Tilford, deputy director at the Center for European Reform in London. | |
| While it has recently taken a step in that direction by establishing a banking union, how much further it will go is still the subject of heated debate. One of Mr. Cameron’s biggest objections is that too much power is being tilted toward Brussels, a concern shared by Eastern European countries slated to join the euro club. | While it has recently taken a step in that direction by establishing a banking union, how much further it will go is still the subject of heated debate. One of Mr. Cameron’s biggest objections is that too much power is being tilted toward Brussels, a concern shared by Eastern European countries slated to join the euro club. |
| “It’s a little like in the United States, where there is an ongoing fight between Democrats and Republicans about the role and scope of the federal government,” Mr. Kirkegaard said. “In Europe it’s the same thing. There will be a big fight about the role and scope of the euro area vis-à-vis national member states.” | “It’s a little like in the United States, where there is an ongoing fight between Democrats and Republicans about the role and scope of the federal government,” Mr. Kirkegaard said. “In Europe it’s the same thing. There will be a big fight about the role and scope of the euro area vis-à-vis national member states.” |
| The European Union “is a marvelous long-term project when you think about what went on in Europe before that, and it is a natural continuation of European integration,” he said. “At the same time, we need to recognize that Europe is never going to be the United States of Europe — it will never be a fully federal state.” | The European Union “is a marvelous long-term project when you think about what went on in Europe before that, and it is a natural continuation of European integration,” he said. “At the same time, we need to recognize that Europe is never going to be the United States of Europe — it will never be a fully federal state.” |
| As a result, Mr. Tilford predicted, while the euro union will grow, “I don’t believe it will encompass the whole of Continental Europe.” | As a result, Mr. Tilford predicted, while the euro union will grow, “I don’t believe it will encompass the whole of Continental Europe.” |
| “There will be a euro in 50 years’ time, but the membership of that is impossible to predict,” he said. “There’s nothing linear about this.” | “There will be a euro in 50 years’ time, but the membership of that is impossible to predict,” he said. “There’s nothing linear about this.” |
Gederts Gelzis contributed reporting from Riga, Latvia. | Gederts Gelzis contributed reporting from Riga, Latvia. |
| This article has been revised to reflect the following correction: | |
| Correction: January 1, 2014 | |
An earlier version of this article misstated the names of two people and the title of a third. The doctor in Riga is Dace Utinane, not Utinane Dace, and the director of a furniture company in Jaunpiebalga is Normunds Bremers, not Bremers Normunds. Simon Tilford is deputy director the Center for European Reform, not its chief economist. |