Latvia becomes 18th state to join the eurozone

http://www.bbc.co.uk/news/world-europe-25567096

by lelf • 13 years ago

81 103 13 years ago

bbc.co.uk

elnate• 13 years ago

"Latvia becomes 18th state to throw away control of their economy."

rjtavares2• 13 years ago

17th

_delirium4• 13 years ago

Are you excluding Germany, on the basis that they're de-facto still in control of their local currency's monetary policy? :P

antr• 13 years ago

economy != control over monetary policy ; but sensationalist media has done a great job at making citizens believe otherwise

fiatmoney2• 13 years ago

Not only monetary policy, but to a large extent their banking system, and their fiscal policy as well.

guard-of-terra• 13 years ago

Some would say they threw their economy away in mid-nineties.

Then again, they seem to fare better than some countries who didn't (Belarus and Ukraine).

jevinskie2• 13 years ago

What does this entail? Open borders to EU residents? Just the Euro? Or also free trade within the EU?

riffraff• 13 years ago

eurozone is a subset of the EU, so free trade and open borders were already there, this is "just" the euro.

_delirium4• 13 years ago

They've also had their currency pegged to the Euro since 2005 (https://en.wikipedia.org/wiki/European_Exchange_Rate_Mechani...), so in a sense their currency has already for years been treated commercially as merely an alias unit for the Euro, like one converts lbs and kg at a fixed rate. The main difference with actually adopting the Euro is: 1) harder to change your mind later, since un-adopting the Euro is harder than abandoning a currency peg; and 2) easier for tourists and cross-border business, since the need for currency conversion & the associated fees is removed. It might also simplify cross-border business accounting, since you'd no longer have assets & liabilities in different currencies (even if pegged ones), though I know less about that.

Denmark is in a similar situation: the Danish crown is pegged to the Euro since 1999, so in practice Denmark has no real scope for independent monetary policy. Public opinion is still against joining the Euro for a mixture of nationalistic reasons (people like the currency as a symbol of sovereignty) and value put on having an exit option if things get too dicey (one exit option is to peg to the Swedish crown instead; another is to fully float).

msthomaa• 13 years ago

Latvia has been a member of the EU since 2004 (which entails all you mention), and now it joined the Eurozone as well, and will use euro as its currency.

jevinskie2• 13 years ago

I see. So they have been in a situation similar to the UK since 2004 until now? Thanks for the info!

Edit: After looking it up, there are 28 countries in the EU and 18 of them are in the eurozone.

thebear• 13 years ago

In addtion to the things that other commenters have mentioned, there is one more difference between having your currency pegged to the Euro and being a Euro country: when goods are traded between two Euro countries, these goods aren't really paid for. Instead, the sale is transacted through the so-called TARGET2 system. Wikipedia describes it like this:

A Dutch importer, for example, might place an order with a Spanish company. Payments to and from the accounts of the buyer and seller are channeled via central banks, so the Spanish exporter's bank gets a credit with the Banco de España, which in turn has a claim on the ECB. The Dutch importer's bank owes its local central bank, leaving De Nederlandsche Bank with a debit at the ECB.

The idea behind this was that the liabilities within the TARGET2 system would cancel each other out. To everybody's utmost surprise, however, this has not happened. For example, Germany is currently being owed over 650 billion Euros. Needless to say, the countries who owe this money don't have it anymore.

nhaehnle4• 13 years ago

when goods are traded between two Euro countries, these goods aren't really paid for

This is a very politically biased and misleading perspective on reality.

Consider an alternative world in which the central banks of the Eurozone would have been consolidated entirely. That is, no more Bundesbank, no more De Nederlandsche Bank, only the ECB. All commercial banks would have central bank accounts directly there.

In this world, everything in the real economy would look exactly the same as it does in our world.

However, this alternative world would not have Target balances in its central bank system, and therefore nobody (including you) would ever even think to write that "goods aren't really paid for".

But how can it be that goods are paid for in this alternative world while they aren't paid for in our world? The answer is that that just doesn't make sense.

Goods are paid for even in our, non-hypothetical world. Yes, there are flow imbalances, but guess what: That happens in every region ever that has a unified currency.

If you don't like that, then please just be honest and come right out and say so. Don't try to cloud your opinion in misleading rhetoric.

dualogy5• 13 years ago

The idea behind this was that the liabilities within the TARGET2 system would cancel each other out. To everybody's utmost surprise, however, this has not happened.

So the eurosystem has been in the making for many decades, developed by many central bankers, and you are now here implying all of those central bankers would assume such a thing (it all cancels out) and could not predict that it would in reality NOT?

Of course, over any given time span --a month, a year-- not all trades will cancel each other out immediately. That's exactly why they have accounts and claims as core of the system. To keep track and balance/settle eventually in a stable "supra-national" unit, rather than one wildly fluctuating or politically-manipulated national or another.

Pretty neat if you ask me. Sucks for "notorious net debtors" of course..

eCa• 13 years ago

http://en.wikipedia.org/wiki/Economic_and_Monetary_Union_of_...

veganarchocap• 13 years ago

R.I.P Latvia.

mindjiver• 13 years ago

National security will always be the number 1 priority with the kind of neighbour Latvia has.

mpg33• 13 years ago

Which neighbor?

scribu• 13 years ago

Russia, probably.

gaius2• 13 years ago

First Latvia was occupied by the Soviet Empire, and all that entails, the purges, the gulags and so on. Then it was occupied by the Nazis, and all that entails, death camps and so on. They were especially keen on punishing anyone they thought might have found a way to co-exist with the previous invaders. Then after that, the Soviets again, keen to punish Latvia for "surrendering" to the unstoppable Nazi war machine. The Soviets were keen on lebensraum too, and set about deporting Latvians on an industrial scale, and colonizing the country with Russians.

They are still finding pockets of exiled Latvians deep inside the Russian interior, and asking them if they want to come home.

troels• 13 years ago

Yeah, those Swedes are a bit wacky.

atmosx9• 13 years ago

As I Greek, having the experience of the Euro both theoretically and practically, I can say that the currency per se, it's not a problem but given the way the ECB acts the last 3 years, I don't understand why would anyone give-away the control of the countries currency to a board of people who act in very controversial ways..

rdtsc• 13 years ago

Usually in exchange for other perceived advantages? -- Less travel restriction, a more open market for products, potentially ability to look for jobs in other EU countries (but I am not 100% sure about this one).

nolok2• 13 years ago

EU and Eurozone are not linked. What you talk about is joining th EU, which Latvia is already a member of, and which doesn't imply using the Euro as currency.

justin66• 13 years ago

Do today's Greeks blame the bulk of their economic problems on outside forces, rather than things they've done to themselves?

edit: I don't really have an agenda with this question - I'm not a European and I'm not invested in any way, really - and I'm a little surprised at how quickly it got voted up. Please just treat it as a sincere question.

atmosx9• 13 years ago

My first reaction was irony to a very well-known propaganda that is sold throughout Central-Northern Europe to justify totally irrational policies which drove an entire nation to it's knees.

But before going into that, I'd like to ask you to be more specific: To which things are you referring to?

varjag• 13 years ago

Many of them perhaps tend to, but it's irrelevant to his point.

Having own currency allows for nation-wide bloodletting through inflation, a classic option of dealing with economic collapse. Having succumbed to Deutschmark er.. Euro, they lost the easy option.

cynicalkane• 13 years ago

In economics, everyone is always looking to blame everyone else. But the fact remains that, once the initial recessionary shock is over, whether or not an economy recovers depends almost entirely on whether the central bank follows mainstream economic principles, or the pseudo-principles that are popular among politicians and pundits. Israel and Australia are known for executing the former. The Fed split the difference. The ECB has taken overwhelmingly the latter course, and Europe is paying for its love of convenient, self-flattering economic narratives.

The policies and the policy effects of central banks are measurable in elementary ways. This is not an opinion. It's very important to realize the role of the ECB and the Euro in this recession, because the current popular alternative--mindless national hatred--has not turned out very well for Europe, historically speaking.

antman• 13 years ago

The Greeks believe what their media says. So it depends on what media they are following. In general although politically active, knowledge about international politics is not wide spread so everybody blames mostly the Greeks. Half of them blame the people, the other half blames the government. I disagree and I believe that Greece for the most part wasn't master of its own fate. Disclaimer: I am Greek

whistlerbrk• 13 years ago

The currency is never the problem. Not having goods/services which are on par with other member states prevents internal trade. Not being able to devalue your currency prevents external trade. That creates debt which Germany and France buys and whoopdy doo, poverty and extremism.

The expansion of the euro into countries which aren't realistic trading partners is the problem but Germany and France love it, it means more long term wealth for them.

atmosx9• 13 years ago

Which is what is happening to Greece: It's cheaper to import fish to the epic Island of Ithaca, than to actually fish it!!!

nhaehnle4• 13 years ago

The currency is never the problem ... Not being able to devalue your currency prevents external trade.

So it is the currency that is the problem :-)

aigarius3• 13 years ago

Latvia has exports, including to France and Germany, that means that there are goods that are on par or better. Devaluation does not solve anything long-term. What solves things is investment in high-added-value manufacturing and knowledge-based services. Or as you call those investments "buying dept". There is no point for France and Germany to "buy [our] debts" if there is no expectation on our ability to repay those debts, likely from the new production.

nawitus• 13 years ago

A single currency is the best feature of the Eurozone. Politicians can't pull devaluation stunts anymore, and dealing with a single currency makes trade in Europe a lot more efficient. The European Parliament and the Commission is the biggest problem with EU in my opinion.

ye• 13 years ago

Politicians can't pull devaluation stunts anymore

LOL. They just keep printing.

http://www.ecb.europa.eu/stats/euro/circulation/html/index.e...

    2008	783B
    2009	827B  (+5.6%)
    2010	861B  (+4.1%)

How much % do your savings generate again? :)

I'm trying to find the figures of the amounts they printed after 2011, it's in hundreds of billions.

http://www.marketoracle.co.uk/Article32265.html

http://www.marketoracle.co.uk/Article30666.html

atmosx9• 13 years ago

In order for a common currency to be valuable in any way, you must have a common monetary policy, which practically means that every country should hand much more power to Brussels.

No one is willing to do so, so we ended up with a totally irrational scheme on which you have the ECB controlling the money flow, while politicians with different agendas throughout Europe act like they don't depend on each other.

Either we need to unite Europe, politically, or the EU project is doomed. There are any pro-Europeans left in the South, and being lazy or corrupted has nothing to do with this.

Germany might be the only country who really benefited from the Euro, boosting it's exports beyond what would be possible without the Euro expanding the credit level.

All others in the long run are doomed. No wonder the UK never gave in.

dageshi2• 13 years ago

My friend, having lived in a country which "pulled a devaluation stunt" of 25% (the UK) let me point out the currency devaluation was market driven and necessary because in the wake of the financial crisis the pound was very obviously overvalued.

And the terrifying bogeyman of hyperinflation?!!! 5% for a couple of quarters and now it's at around 2.1%. And that's after said devaluation and bucket loads of printed money in the form of QE.

In other words, I think your cure for is worse than the disease.

Zigurd• 13 years ago

Latvia was put through an austerity program despite having their own currency. Hard to say if that was the right thing. Now that Latvia has a 5%+ growth rate, success has the proverbial 1000 fathers.

dualogy5• 13 years ago

"Basically, this is the direction the Euro group is taking us. This concept was born with little regard for the economic health of Europe. In the future, any countries money or economy can totally fail and the world currency operation will continue. What is being built is a new currency system."

~ "FOA", ca. late 2000 / early 2001

From the outset, the currency was designed to be used fairly similar to any other "shared unit in common use across borders", such as meters or degrees-celsius.

Consequently, local/national government continues to decide on their country's fiscal and economic policy (and deals with their employment, debt, taxation etc. issues), whereas the currency unit is to remain merely a non-political means-of-exchange for trade settlement (as a result, identical products have widely differing prices across the euro zone, this is anticipated and accepted by the design) that is to be managed by ECB (which has NO other mandate unlike the Fed that has to worry about employment and economic recovery etc. etc.) at a steady "2%-or-below" inflation rate for a certain level of price stability across euro-zone.

seivan4• 13 years ago

Yay, another third world country to join EMU.

Yes; Spain, Portugal, Italy, Greece & etc are third world countries. These days I even want to add France to it...

fiatmoney2• 13 years ago

Their per-capita GDP is ~20k in PPP terms, which is hardly third world.

seivan4• 13 years ago

Yes, yes it is. http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_...

It's right there with Italy, Greece and etc. All third world countries.

bane• 13 years ago

You need to spend more time in the third world if you think those virtual paradises are even close.

middleclick• 13 years ago

Racist much?

As someone who grew up in a third-world country, you don't know what you are talking about. Please, educate yourself.

seivan4• 13 years ago

How is this connected to races?

duhast• 13 years ago

I hope that Poland will follow the same way.

X4• 13 years ago

They are fued.. I feel sorry for them as a European. Our politicians will rip their economy away. This pact they signed essentially sold their country including their people. It's always the same, the strong countries look for weak countries to join their forces by promising money. When the small countries need the money the most, they will get promises and packages coming with many hooks. Hooks that will cripple and kill the economy of the country, such that at the end the strong countries can suck up all that is there. Their money, their land, their resources, their best engineers and workforces. And what's left at the end is not a country, but a lost fight. A fight that was never fought and silently won. Both governments win and assure their own security in trades and assets, but the people loose.

falsedan• 13 years ago

Latvia planned to join the Eurozone in 2008, but, well, y'know what happened.

Latvia becomes 18th state to join the eurozone

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