WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

Latvia is joining the euro area in 2014 at a time when the euro project itself is in deep trouble, the reason being that the country’s ruling elites deem it a safer haven compared to the present hard peg regime. The short-lived ‘success story’ of internal devaluation is souring again, given the lack of investments, ongoing austerity policies and the impossibility of running an ‘export-driven’ beggar-thy-neighbour growth model in a phase marked by an EU-wide economic and social crisis. However, wage increases exceeding those of productivity may well bolster economic growth, at least temporarily.