ECB chief urges Latvians to be 'vigilant' during euro switch

(RIGA) - European Central Bank chief Mario Draghi told Latvians Thursday to keep a hawkish eye on prices to make sure retailers do not use eurozone entry to jack them up.

The Baltic republic of two million will become the 18th member of the single currency zone on January 1, 2014, when it adopts the euro in exchange for its lat.

"I encourage consumers to be vigilant and be price conscious during the time of the changeover," Draghi said at ceremonies in Riga marking Latvia's accession.

"We have a lot of experience of what can go right and what can go wrong from previous campaigns... Businesses should not use the introduction of the euro for price hikes on goods and services."

Draghi also highlighted Latvia's use of harsh austerity measures to maintain its pre-entry currency peg to the euro as an example to other nations in the bloc mired in debt.

"The essential fact that users of the euro should know about Latvia is that in this period it has actually been a role model" for fiscal adjustment, competitiveness and financial stability, Draghi said.

Latvia will be only the second ex-Soviet state to join the eurozone after Estonia in 2011.

At the height of the global financial crisis in 2008-9, Latvia's economy shrank by 24 percent, in the biggest recession recorded worldwide, after its largest local bank, Parex, collapsed.

It was forced to seek a 7.5-billion-euro bailout from the International Monetary Fund and European Union.

Prime Minister Valdis Dombrovskis has been credited with putting the country back on track with austerity measures that cut public sector wages by more than a third and slashed benefits, while speeding euro adoption.

At the launch of an exhibition Thursday introducing the public to their future euro banknotes and coins, Dombrovskis brushed aside concern over possible switch-related price hikes.

"It somehow happens that in a euro introduction year, all problems are blamed on the euro," Dombrovskis told AFP, underscoring his government has forecast minimal inflation next year.

Latvia was the EU's fastest-growing economy in both 2011 and last year, posting annual GDP growth of more than five. The economy is expected to expand by 4.2 percent this year.

But public enthusiasm for the currency switch is at best lukewarm.

A June survey by the SKDS pollster showed just 22 percent of Latvians support euro adoption with 53 percent opposed and the remaining quarter being either neutral or having no opinion.