Despite the current problems facing the Euro, Latvia is planning to adopt the single currency in 2014. Analyse the reasons why some EU members states like Latvia are still keen to join the Eurozone

Despite the current problems facing the Euro, Latvia is planning to adopt the single currency in 2014. Analyse the reasons why some EU members states like Latvia are still keen to join the Euro zone.Diana Forson Prescilia HodebourgBertug Korucu

Contents Introduction to the EU

The European Monetary Union

The Eurozone

Benefits and Drawbacks of the Euro

Latvias decision to join the Euro

Introduction to the EUThe European Union is an economic and political union of 28 members states.The EU has developed a Single Market through standardised system of laws that apply in all member states.The single currency is a complement to the single market.

EU Members Map

The road of the European Monetary Union

Criteria needed to join the Euro

Eurozone

Scenarios for Adoption of the Euro

The Euro Area and the Global Economy

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Benefits of Adopting the EuroCurrency StabilityGaining more strengthReduced Threat of Exchange Rates FluctuationsTourismBusiness BenefitsLower Interest RatesSingle Market

Costs of Adopting the Euro Too Tight Money1 Monetary Policy; 17 Fiscal PoliciesToo Tight BudgetsIncrease debt; decrease growthToo Little TradeToo Much Financial Inter-Connection

LatviaPopulation: 2, 178, 443Joined the European Union: 1 May 2004Currency: Lats (LVL) until 31 December 2013, Euro as of 1 January 2014

Recovery from the Financial Crisis11.7% UnemploymentPublic Debt 17% GDP

Should Latvia adopt the Euro? YESGuarantee of Economic and Political stabilitySignal to investors Eurozone is expandingPro-austerity policy makers use Latvia as an example of austerity and what it can achieveAccording to criteria of Optimal Currency AreaTrade already exists with other EU membersLabour markets relatively flexibleExposure to external shocks relatively symmetrical to Germany and other Nordic countriesLat is already to pegged against EuroDivorce from Russia

Should Latvia adopt the Euro?NOHigh levels of opposition amongst public (35% agree with switch)Fear of increases to prices when currency has changedRisk of increasing inflationPoorest member when joined in 2004 convergence of incomes (33%-53% per capita income (EU average) in 7yrs) currency will continue this convergenceFaster growth and faster inflation makes management of fiscal policy difficultPre crisis poor fiscal decisions lead to deeper impact of crisis on countryDifficult demographicsPressure on pensions and healthcareWhole of euro zone faces unresolved problems with banking system

ConclusionEC has set out certain criteria which states need to comply with before being accepted to join the Euro

Latvia gains problems as well as benefitsAlready has fixed exchange ratePolitical and economic decision

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