Latvia becomes 18th state to join eurozone

Latvia has begun the new year by becoming the 18th state to use the euro as its currency, eight years after joining the European Union on 1 May 2004.

The former Soviet republic on the Baltic Sea recently emerged from the financial crisis to become the EU's fastest-growing economy, but analysts fear Latvia would follow Greece and Spain in requiring a bailout.

"Joining the Eurozone marks the completion of Latvia's journey back to the political and economic heart of our continent, and that is something for all of us to celebrate," EU commissioner Olli Rehn said.

Replacing the native currency lats, the euro is expected to reduce economic dependency on Russia. Latvia joins Malta, Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovakia, Slovenia and Spain.

The transition to the euro has long in the pipeline since Latvia's accession the EU. Apart from the UK and Denmark, EU member states are obliged to adopt the euro once they meet the established criteria.

The government and the majority of business owners welcome the single currency, saying it would improve Latvia's credit rating and attract foreign investors to a country which is still relatively dependent on Russia.

Despite its proximity to neighbouring Baltic states Lithuania and Estonia, Latvia, with its large ethnic Russian minority is often seen as having closer economic ties to Russia. It remains an important export market while its banking system attracts substantial deposits from clients in other ex-Soviet states.

Prime Minister Valdis Dombrovskis dubbed the currency transition as a big opportunity for Latvia's economic development, while the governor of the Latvian central bank, Ilmars Rimsevics, also lauded the move.

"Euro brings stability and certainty, definitely attracting investment, so new jobs, new taxes and so on. So being in the second largest currency union I think will definitely mean more popularity," Rimsevics said.

However, some opinion polls suggested almost 60% of the population did not want the new currency.

Zaneta Smirnova, a Latvian resident, said wanted to keep the lats because the euro, as opposed to the latter, "is not theirs." Foreseeing an increase in prices in January, minimum wage earner Leonora Timofeyeva was also hawkish on the transition.