European Commission endorses Latvian adoption of the euro in 2014

*EC endorses Latvian adoption of the euro

Following a statement from the European Central Bank (ECB), the European Commission has endorsed Latvian adoption of the euro in 2014.

The ECB said that the country has met the critieria to join the common currency.

However, the ECB was cautious on some matters. There are concerns about the high proportion of foreign deposits held in the country's banks.

The reliance by a significant part of the banking sector on non-resident deposits as a source of funding, while not a recent phenomenon, is again on the rise and represents an important risk to financial stability.

Maintaining low inflation rates in Latvia will be challenging in the medium term. It may be difficult to prevent macroeconomic imbalances, including high rates of inflation, from building up again.

Commenting before the decision this morning, Investec's Lee McDarby:

Latvia looks set to start out on the highway to the danger zone in an effort to integrate further with the west and create space between itself and Russia, having been under previous Soviet rule.