On January 1st, Latvia becomes the 18th member of the Eurozone to introduce the European single currency. Most of the country’s politicians and entrepreneurs are convinced of the benefits. However, like the population, a minority fears the risks.
There are quite a few things that speak against the euro. The monetary union has just proven to be rather shaky and the people in Latvia don’t want it at all – at least that’s what a clear majority in opinion polls says. None of this confuses the country’s finance minister, Andris Vilks. And if you ask him about the reasons, the first thing that comes up is a more political argument: "We are completing our dream of being part of all three crucial pillars of the western world: the EU, NATO and the euro zone," replies Vilks.
This enthusiasm for integration with the West has, of course, a lot to do with the fear of the overpowering eastern neighbor and former occupier Russia. But economically, too, the finance minister sees the euro primarily as a safe haven: Then there would be no more speculation with the currency, no constant rumors of devaluation, said Vilks. "Fending that off has always cost us so much strength. The euro is a powerful anchor of stability for us."
The government is behind the introduction of the euro …
Paul Raudseps, the country’s best-known business journalist, also finds the image of the safe haven in a storm: He describes the euro as "a system through which a small country can protect its currency from all these attacks; from attacks that are sometimes not real Have an occasion and just come because the markets are just so good ".
Finance Minister Vilks also sees other advantages, he does not run out of arguments in favor of the euro: "It is very important that we use the euro to improve our country’s rating," he explains. This way we can finance our national debt cheaper, and that too Businesses get credit cheaper. "
And as a eurozone, Latvia should become even more attractive for foreign investors: "We have almost no budget deficit, very little debt, a lot of growth. Everything is very calm and predictable here," explains Vilks. At the same time, wages in Latvia are still three to four times lower than in Western Europe. His conclusion: "Latvia, together with the other Baltic states, will likely be the most attractive investment location in Europe in the next few years."
… the Latvian population is against it …
So far, the Latvian government has hardly ever reached the population with such arguments. There are also politicians in the Latvian opposition parties who are not convinced of the beneficial effects of the euro. Dana Rezniece-Ozola of the Green Party refers to the deep crisis of the common currency. She doesn’t like at all that Latvia is now being held jointly liable via the Euro rescue fund ESM: "The Latvian people shouldn’t work hard just to make the Greeks fat. We always tell each other the anecdote that a Greek is doing it has a good time in the tavern and when the bill comes, he says Germany and Latvia should pay. "
And the development in Greece, as well as in the other southern crisis countries, also shows, according to Rezniece-Ozola, the fatal effects of membership in the euro: After all, it is the strong countries that benefit in every union. "And we are small and poor. Our trade balance is negative, our production is underdeveloped. Experience shows that the weaker a country is when joining the euro, the harder it will be," she fears.
The lack of competitiveness is also for Igor Pimenov the main argument against joining at this point in time. Pimenov is the economic and financial expert of the Harmony Center party, the party of the strong Russian minority in Latvia. In addition, the country is also losing the scope to counteract problems with a flexible monetary policy. Because monetary policy is made uniformly for all euro countries by the European Central Bank in Frankfurt.
… the entrepreneurs, in turn, are for it.
The vast majority of Latvian entrepreneurs are in favor of the euro. Jan Oslejs, the founder of the internationally successful concrete manufacturer Primekss, is one of the few skeptics. The savings through the common currency are not all that significant, after all, the majority of Latvian exports go to non-euro countries – to Russia, Scandinavia or the USA.
"We save a cent, but we lose a whole euro. The problem with the euro in all poorer countries is that prices rise, and with them wages – faster than productivity," fears Oslejs. That makes Latvian exports more expensive – too expensive to be able to sell abroad. "The industry is beginning to suffer. And in the end we have the crash."
Just like it happened in the southern European crisis states. So it will be a while before we can see whether the euro will ultimately be a blessing or a curse for Latvia.