Abstract
Why did Latvia join the Eurozone in 2014, while Lithuania only acceded a year later? The two countries’ diverging experiences are surprising. Latvia suffered a more pronounced economic crisis from 2008 to 2010, which created greater euro adoption challenges in terms of meeting fiscal criteria. This article argues that, while the willingness to adopt the euro increased in both countries during and after the crisis, the will to seek euro adoption was stronger, clearer and more consistent in Latvia than in Lithuania. In examining this divergence, we argue that relying on aggregate economic costs and benefits, identity considerations, geopolitical considerations, societal support, and interest group preferences does not produce a satisfactory explanation of fluctuations in these countries’ willingness to adopt the euro. Instead, we propose that changes in this willingness can be traced to domestic political processes, such as the timing and results of elections and the magnitude of the economic crisis’s impact.
Highlights
Latvia and Lithuania both joined the European Union (EU) in 2004, which entailed a commitment to eventually adopt the euro
We find that the fluctuations in the willingness to adopt the euro in Latvia and Lithuania cannot be accounted for fully by aggregate economic arguments, interest group pressure, societal opinion, or identity and geopolitical factors
It is noteworthy that Kubilius’s and Butkevičius’s governments essentially did not differ in their stances regarding euro adoption, except for some radical public declarations made by certain members of Butkevičius’s coalition (Šimonytė, 2014; Besagirskas, 2014). Another factor that contributed to differing opinions regarding euro adoption in Latvia and Lithuania was a difference in how the crisis impacted them
Summary
Latvia and Lithuania both joined the European Union (EU) in 2004, which entailed a commitment to eventually adopt the euro. Despite numerous pertinent similarities between Latvia and Lithuania, such as country size, economic structure, level of development, and even monetary regime (a currency board system in Lithuania and de facto currency board arrangement in Latvia), their paths towards the adoption of the euro were not identical. In 2004, World Bank representative Lajos Bokros predicted that Lithuania, together with Estonia and Slovenia, would be among the first countries to adopt the euro (International Monetary Fund, 2004).
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