Latvia will adopt the euro from the beginning of next year, becoming the 18th member of a currency union that just a year ago risked disintegration due to the credit crisis.
European Union finance ministers gave the ex-Soviet state on the Baltic Sea the green light Tuesday to swap its currency -- the lat -- for euros starting on Jan. 1, following recommendations from EU officials and the European Central Bank.
Latvia's economy shrank by about 20% in 2008 and 2009, when it was forced to accept a $10 billion bailout from the EU and International Monetary Fund after the global financial crisis burst a real estate bubble.
But it kept the lat pegged to the euro throughout the crisis and introduced a series of spending cuts and tax rises aimed at meeting the strict criteria of eurozone membership. The economy began to recover in 2011 and last year it delivered growth of 5.6%, compared with a decline of 0.6% for the 17-member eurozone.
While the economy is expected to slow next year, expansion of 3.8% should still make it the strongest performer by a wide margin.
Unemployment is slightly above the regional average, and a relatively high proportion of the population is at risk of poverty, but with a budget deficit well below 3% of GDP and debt forecast to fall to 35% of GDP by 2016, Latvia is better placed than many eurozone states to tackle those challenges.
