Latvia: joining the euro

Latvia might be full steam ahead for its adoption of the euro in January 2014, but many ordinary Latvians are not at all happy about the news, confirmed at a meeting of EU finance ministers in Brussels on Tuesday (09.07.2013).

According to the latest polls, published in June, only 38 percent of Latvians support the introduction of the euro, though that is at least an increase of eight percent from the beginning of the year. Most have seen rising prices in other countries on the adoption of the euro, and fear the same might happen to them. In a growing but fairly new economy, many would prefer to stay with the country's present currency, the lats.

Ieva Dabolina, a 44-year-old designer and poet in Riga, reflects the concerns of just over half of Latvians who would like to retain the lats.

"I think that we have the most beautiful money in the world," Ieva Daboliņa told DW. "I have the feeling that I am somehow giving up my country, the national flag and other symbols."

True to its promise

Finance Minister Andris Vilks told DW that Latvia resolved to adopt the single currency when it became a member of the EU on May 1, 2004. The lats has been pegged to the euro since May 2005.

"After joining the EU and NATO, the introduction of the euro is the only homework left to be done," said Vilks.

Vilks and Prime Minister Valdis Dombrovskis, both from the ruling coalition party "Unity", have been key figures in the push for Latvia to become the 18th member of the eurozone. Latvia will become the second Baltic state to introduce the European single currency. Estonia exchanged kroons for euros in January 2011.

Latvia has met all the necessary targets: "Latvia is one of four countries, along with Estonia, Finland and Luxembourg which at present fulfil all the Maastricht criteria," Vilks said.

According to the Convergence Report published by the European Central Bank, Latvia's budget deficit is 1.2 percent of GDP which is well below the three percent ceiling. The average inflation rate over the last year was 1.3 percent - again well below the maximum rate of 2.7 percent. And the national public debt is 40.7 percent which is way below the limit of 60 percent. Long-term interest rates also meet the necessary criteria.

Vilks said Latvia will join the eurozone as a country that is heavily orientated towards fiscal discipline and is demanding of itself and of other countries. "It is very important to be integrated into the existing European structures as much as possible because it is very hard for small and open economies like Latvia to manage with their own independent currencies," he added.

Vilks believes that integration into a strong, regional currency is vital because it improves the investment environment and credit ratings of a country. "It gives a stronger development impulse to the economy and the euro can provide that for Latvia."

'A 21st century way of living'

It is Latvia's younger generation and people with a higher income who, above all, are looking forward to their country joining the eurozone next year. Inese Klimovica is 32 and works as an export manager for a company in Riga that produces designer candles. The company was recently given an award for its significant export potential.

"Japan is amongst our largest export markets and the Japanese pay our bills in euros. And we also export our products to the EU, Korea, Switzerland and other countries," explained Klimovica. "We are also trying to get into the Russian market and the Russians will pay us in euros too."

Once the euro is introduced, Klimovica said, the company will save on conversion costs because its ten employees currently receive their salaries in lats and production costs have to be paid in lats too.

"I am personally in favor of the euro and, of course, people can cling to their personal memories and love for the lats, but we are living in the 21st century," said Klimovica. "Though I am a loyal patriot, we all travel and the euro will make things easier for me. I'm positive about it."

The 'cult' of the euro

Other people are not so positive though. Janis Urbanovics, head of the parliamentary group for the opposition party "The Harmony Center" told DW, "It's obvious that the decision to join the eurozone - as it was with the accession to the EU - is a religion in Latvia. [Logical] arguments don't work here. It's a religion. Let's join the eurozone as soon as possible," is what the pro-euro people are pushing, he feels.

Urbanovics, along with the other opposition party in the parliament, "The Union of Greens and Farmers," announced that Latvia should have postponed the adoption of the euro. "I think that the Poles have been acting more wisely by considering when to join while in the meantime maintaining a desire to introduce the euro," said Urbanovics.

Ieva Daboliņa agrees with a slower road to full participation. She participated in the anti-euro campaign launched in the spring and signed a letter to top officials asking to suspend the adoption of the single currency.

She is convinced that "prices will go up after joining the eurozone and it will be the ordinary people who will suffer again. And nobody can tell me that prices won't end up increasing," she worries.

The new Greece?

Despite its economic past, Latvia is determined not to become the new Greece - in other words a liability for the eurozone. Those who don't want Latvia to join will point to the fact that the country suffered the deepest recession in the EU at the end of 2008 and 2009 because of an unsustainable budget deficit, when its real estate bubble burst and one of its largest banks Parex collapsed.

But then, Latvia received 7.5 billion euros in an international bailout package in 2008 and underwent severe austerity measures, appearing to get back on track. Latvia has not only returned to growth, it is now the fastest growing economy in the EU; because of this Vilks said that he doesn't have any concerns about the sustainability of Latvia's economy.

"Latvia now has a much stronger supervision structure for its banks and the parliament has passed the Fiscal Stability Treaty." Vilks added that the country is still undergoing reforms to become even more competitive.

"Latvia has actually learned a lesson from what happened," Morten Hansen , head of the Economics Department at the Stockholm School of Economics in Riga, told DW. "We had this fiscal discipline law that came into effect in March, that's a very important step. And it means that Latvia, as I see it, has changed a lot with respect to what it was like in 2005, 2006, and 2007."

Hansen said that Latvia still has to carry out structural reforms and there's a lot to do in the spheres of education and welfare, regional policy, and the improvement of the labor market.

Meanwhile Lija Strasuna, chief economist at Swedbank plays down any fears of substantial price increases after joining the eurozone. "If economic growth continues and people spend their money, then prices will indeed go up. But there shouldn't be any increase just because of adopting the euro," said Strasuna.

The current economic crisis might have damaged the arguments for joining further, as Latvians watch as many southern eurozone countries struggle to keep their heads above water. But the government is keen to push its positivity throughout society, making sure that by the time 2014 swings round, the whole country will be a fully paid up cheerleader not just for the eurozone but the benefits of the euro itself too.