Latvia’s entry this month as the Eurozone’s 18th member-state, a decade after Riga’s accession to the European Union (EU), leaves Lithuania as the lone Baltic nation still outside the currency bloc. Not surprisingly, strong nationalist overtones have reverberated in the rival stances in the population of two million on the adoption of the beleaguered euro. For, as many as five countries sharing the common currency including Spain, the group’s fourth largest economy, had to be bailed out in the wake of the credit, banking and housing crises. Bemoaning the country’s third currency change-over in nearly 25 years, after the lats and the rouble earlier, the no-euro camp has characterised euro-entry as another sacrifice of national sovereignty. Conversely, the champions of Riga’s Eurozone entry view membership as symbolic of the assertion of the country’s European identity.
For the leadership of the crisis-ridden European Union, meanwhile, Riga’s entry is a rare opportunity to tout the appeal of the euro. Brussels remembers that neither the economic climate nor the political reception was very different when Estonia adopted the euro in 2011, in the previous expansion of the currency union. Latvia’s spectacular recovery from the ravages of the 2008 banking collapse and the ‘virtues’ of economic austerity is the dominant narrative. The run-up to the so-called Baltic Tiger’s euro entry had raised concerns about the country’s large foreign bank deposits sourced from Russia, especially after the huge run on Cypriot banks last April. Although foreign money accounts for 50 per cent of Latvian bank deposits, the size of the banking sector is small relative to the overall economy, according to the European Commission. Save in Lithuania, which is expected to join in 2015, the prospect of expansion of the Eurozone into the rest of the bloc of 28 countries is extremely remote, both in the states of the former Eastern Europe as well as in Britain, Denmark and Sweden. The reasons for this have to do largely with the rise of strong Eurosceptic parties in some countries. In others, apprehensions about the implications of joining a monetary union that is still dithering on the question of forging economic integration are among the factors. But the reality in the medium term of a two-speed Europe of euro ins and outs could take a toll on the overall process of deeper and closer European integration. The EU will no doubt continue to muddle through. Its leaders have to strive hard to deepen the democratic legitimacy of its institutions to their own people. That would be in the interest of the world’s single largest trading bloc, as well as the rest of the world.