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Latvians bank on new euro membership to continue recovery

Latvians bank on new euro membership to continue recovery
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Without fanfare, euro cash was delivered to shops, restaurants and businesses in Riga over the last few days of December. Everyday Latvians leading everyday lives also took the single currency’s arrival without a kerfuffle, in the former Soviet republic.

After Estonia in 2011, Latvia brings to 18 the number of EU countries in the euro group, replacing the old money, the lat.

Latvia has only had the modern lat since shortly after independence from the former USSR in 1991. Officially the third-poorest country in the European Union, Latvia changed currency six times in the 20th century. The goal is to stabilise with the euro, but many Latvians are worried that inflation will come with it.

Oleg Bachurin, a resident of the capital, Riga, said: “Prices rose in all the other countries which switched before us. Too bad that they’ll probably rise here, too.”

They have already noticed that in the village of Valka, which straddles Latvia and Estonia. On Estonia’s side, prices rose when it converted three years ago. But the mayor is more worried about jobs.

Viesturs Zarins said: “I am not that optimistic. The main problem is unemployment. I don’t see that the euro will solve that.”

Latvia saw 20 percent of its two million people leave the country in the wake of the 2009 financial crisis. After five years of austerity and an international rescue plan, at last it’s getting back on its feet.

GDP had risen to 4.5 percent by the third quarter of 2013, from a low in 2009 of more than 19 percent contraction. In April 2013, inflation stood at a mere 1.3 percent, compared to a scalding 16 percent in 2008. However, unemployment still stands at 12 percent.

Latvia today is posting the strongest growth in the EU. It hopes that the adoption of the euro will see a trickle-down effect from the benefits of lower borrowing rates, and that it will help attract investors.