1st of January - Eurozone joined Latvia!

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Main steps towards the euro area 2003 –2013

Latvia's full membership in the euro area is set in the agreement of its accession to the European Union (EU). Latvia's participation in the EU was determined in 2003 by a national referendum. Out of 1,010,467 ballots 66.97% (676,700) voted “for”, 32.26% (325,980) “against” and 0.77% (7,787) ballots were invalid.

Latvia's participation in the Exchange Rate Mechanism was launched on 2 May 2005. The practical process of the introduction of the euro is determined in the Law "On the Introduction of the Euro" and the National Euro Changeover Plan. According to the Treaty on the Functioning of the EU, the decision on the date on which a country is to join the euro area is adopted by the EU Council of Ministers, which has an exclusive right of deciding this matter. In accordance with the legal procedures, in order to reach a decision on a country's membership in the euro area, this country must stabilize its national currency against the euro and decide, at the national level, on its participation in the Exchange Rate Mechanism II, stabilizing its economy in accordance with five criteria: low inflation, low budget deficit and government debt, low interest rates and a stable exchange rate.

Latvia joined 15 other European Union countries on 1 May 2004. It was accepted to the “club” along with Cyprus, the Czech Republic, Estonia, Hungary, Lithuania, Malta, Poland, Slovakia and Slovenia. Part of the same wave of enlargement was the accession of Bulgaria and Romania in 2007 followed by Croatia on July 2013. 2004 was also the year Latvia joined NATO.

Adoption of the legislation on euro

A draft law outlining the euro changeover process was presented by the Government on 6 November 2012. The “Law on the Procedure for the Introduction of the Euro” was passed on January 2013 by the Parliament. The “umbrella law” provided for the basic principles of the changeover. The law set the rounding principles applicable for conversion, the dual circulation period, the procedures for the changeover of cash and withdrawal of lats cash, accounting, tax payments and credit record treatment principles. In particular the law specified that: ATMs will stop distributing lats from January 1st 2014; both lats and euros will be in circulation for two weeks; post offices will offer free exchange for a month (this was later extended to three months) and commercial banks for six months; all shops must have dual price displays for three months before and until six months after the adoption.

In order to ensure legal certainty of the changeover, on 19 September 2013, the Latvian Parliament has amended and adopted 113 national laws due to the introduction of the euro; other legal acts are amended by the Cabinet of Ministers. The practical guidelines for private sector accounting, taxation, cash registers, currency exchange and other issues have been prepared in cooperation with partners from various sectors.

Management of euro introduction

The introduction of euro is implemented according to a National Euro Changeover Plan. The euro changeover process is monitored by the Cabinet of Ministers, receiving quarterly progress reports from the Steering Committee.

The Steering Committee mission is to choose the strategy for the euro introduction, develop and supervise the National Euro Changeover Plan and coordinate and manage the implementation of the necessary measures. The Committee is chaired by the State Secretary of the Ministry of Finance. The Steering Committee comprises chief executive officers from the Ministry of Finance, the State Chancellery, the Bank of Latvia and other institutions. Subordinate to the Steering Committee are five working groups set up for specific tasks:

  • State Administration Working Group (conversion of payments in euro, assessment of laws and regulations, the state debt denomination issues, adjustment of statistics sector with Latvia introducing the euro);
  • Money and Payment System Working Group (issues of the euro cash introduction, adjustment of payment systems and financial statistics for handling payments in euro);
  • Financial System Working Group (money and securities markets, financial instruments, the issues of euro introduction in the insurance and pension fund sector);
  • Economy: Non-financial Corporation and Consumer Working Group (studying the impact of the euro introduction on the relationship between non-financial corporations and consumers);
  • Public Awareness and Communication Working Group (organizing public awareness campaigns, including the development and updating of informational website, "Euro information help-desk" for the needs of individuals and companies).

One of the main guiding principles of the Euro Changeover Project is to focus on people to whom financial services are not easily available. Everything possible is being done to ease the transition to the euro in those regions of the country where there is no access to banking services.

A Euro Project Manager is responsible for the implementation of the Steering Committee's decisions, mutual co-ordination of working group activities as well as solution of problems related to the introduction of the euro. The position was held by Ms Sanita Bajāre, current State Secretary of Ministry of Finance from November 2005 to March 2011, continued by Ms Dace Kalsone, the current Euro Project Manager.

Decision making in European institutions

Before Latvia could adopt the euro, it had to meet five convergence criteria set by the EU. An assessment by the European Central Bank (ECB) in April 2012 found that Latvia met 3 of the 5 criteria. The Latvian Finance Minister announced in December 2012 that since convergence checks were only conducted biennially, an extraordinary report would be requested, as he was confident that Latvia was "fulfilling the Maastricht euro adoption criteria with a considerable reserve, therefore I don't see any basis on which this convergence report would be negative."

The Latvian government formally applied for a convergence check at the beginning of March, and the resulting convergence report, published on 5 June 2013 by the European Commission, concluded that "the Commission considers that Latvia fulfils the conditions for the adoption of the euro." The ECB simultaneously published a report which noted that "Latvia is within the reference values of the convergence criteria".

On 9 July 2013 the EU Economic and Financial Affairs Council gave the final approval for Latvia’s participation in the euro area from 1 January 2014.