Latvia wants to join the eurozone. Why?

Krissy Clark Jun 5, 2013
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Latvia wants to join the eurozone. Why?

Krissy Clark Jun 5, 2013
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So Latvia is getting the nod for membership in the eurozone today, meaning the small Baltic state would adopt the euro as its currency and be subject to regulation from the European Central Bank.

And yes, we’re talking about that same eurozone that has been in the news so much lately for crisis after crisis. Why would any country want to become a part of it right now? 

“It’s very easy to say the euro area is experiencing a crisis, and so joining the club is surprising,” says Carlo Bastasin, a global economist with the Brookings Institution. 

But there are good reasons to join “Club Eurozone”, Bastasin says. For one, the eurozone crisis is probably going to affect you whether you’re in the club or not. So, he says, you may as well reap the membership benefits: more trading partners, a shared currency that makes it easier for people and products to cross borders, and what Bastasin calls “monetary credibility that a smaller country may find desirable.” 

The biggest risk to joining the eurozone isn’t so much the instability of the zone itself, but how Latvia behaves once it becomes a member, says MIT economist Simon Johnson. “If credit becomes cheap and they go on some sort of crazy lending spree, that’s incredibly dangerous,” he says.

Simon says that is what happened when Ireland and Spain joined, behavior that helped spark Europe’s financial crisis in the first place. 

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