RIGA - Expressions of congratulations were flowing as freely as champagne on New Years as Latvia ushered in a new era as it finally joined the eurozone. At a ceremony at Citadele Bank in Riga’s Old Town, Prime Minister Valdis Dombrovskis withdrew a new 10 euro banknote to mark the occasion.
Attending the event were also Prime Minister of Estonia Andrus Ansip, Latvia’s Minister of Finance Andris Vilks and President of the Central Bank of Latvia Ilmars Rimsevics, who also withdrew new euro banknotes.
Dombrovskis told the assembled crowd that “Introduction of the single European currency will give our country a number of economic benefits. It will boost our economic growth, prosperity and raise our living standards. It will help us strengthen our national security and welfare…Our ‘Milda’ will now grace the coins of the second strongest currency in the world – the euro.”
Ansip, giving his congratulatory comments in Latvian, was greeted by loud cheers and applause.
Finance Minister Vilks said at the ceremony that Latvia has gained a powerful tool - the euro. He emphasized the successful cooperation between the state, local governments and the private sector in the introduction of the euro.
Dombrovskis, speaking at a press conference a few minutes later, said that bringing the euro to Latvia was one of the top three priorities of his administration. The other two were overcoming the crisis in Latvia and stabilizing the country’s finances, and steering Latvia towards the path of growth.
Official reports were that the transition to the euro was proceeding according to plan, with no negative incidents so far, said Finance Ministry Euro Project Manager Dace Kalsone, reported LETA.
Foreign media and commentators have expressed varied opinions about the introduction of the euro in Latvia, mentioning economic troubles in several eurozone member states and Latvian residents’ mixed feelings towards the euro. Much of the media reflected Latvia’s efforts in overcoming the crisis and measures implemented to meet the Maastricht criteria.
“Latvia joined the eurozone on Wednesday, banking on its experience of self-imposed austerity to bring it prosperity in a currency union where other economies have floundered,” wrote the Reuters news agency.
“For the inveterate merchants of gloom Latvia’s entry into the euro is akin to rats climbing aboard a sinking ship. The euro, they will have us believe, was doomed, is doomed, a patient on life support, and Latvia, a dupe of pot-half-full euro-enthusiasts,” dourly reported the Irish newspaper Irish Times.
“The irony is that Latvia is now inventing a new business model for itself as a tax-haven and off-shore banking center for Russian funds, luring deposits away from crippled Cyprus. It is a new Cyprus in the making,” says Marco Giuli from the College of Europe. “But that is a drama for another day, and another cycle.”
Whether this last statement is true remains to be seen. Latvia’s own financial markets regulator Financial and Capital Market Commission (FCMC) would argue otherwise.
The status of a eurozone member means new requirements and duties for Latvia, the Association of Commercial Banks of Latvia President Martins Bicevskis told reporters on Jan. 1, commenting on an Associated Press news story about dirty money concerns in Latvia.
AP reported on Dec. 30, that as the 18th member of the eurozone, Latvia is likely to see a greater influx of dirty money as the country will be viewed as safer than other former Soviet states while financial oversight remains loose. “Immediately after Latvia joins the eurozone, I imagine we’re going to see an actual spike in dubious money flowing in,” said Mark Galeotti, a professor at New York University who researches organized crime in the former Soviet Union.
Whereas Bicevskis said that the FCMC and other authorities were doing their best to properly supervise the banking sector. In his opinion, it is rather strange to expect that the eurozone member’s status will change something for Latvia in this regard, because a variety of financial services has been provided in Latvia since the restoration of independence, and in a variety of currencies.
The Finance Ministry’s State Secretary Sanita Bajare said that Latvia’s accession to the eurozone and the establishment of the banking union meant that more requirements would apply to Latvia, improving the country’s supervisory systems.
Citadele bank’s board chairman Guntis Belavskis said that the bank had been pursuing a zero tolerance policy on such matters since its establishment. This means that the bank exercises caution in opening accounts for new customers and supervises customer transactions.
The Office for Prevention of Laundering of Proceeds Derived from Criminal Activity, however, agrees that after the introduction of the euro in Latvia, Eastern European non-residents will try to launder proceeds derived from criminal activities through Latvian banks. These concerns stem from Latvia’s geographical location and the number of banks in the country, said Aiga Senberga from the Prosecutor General’s Office.
The Office for Prevention of Laundering of Proceeds Derived from Criminal Activity is prepared and aware of these risks, it says, and is currently maintaining contacts with Russia, Moldova and other European countries to prevent potential unlawful activities.
Even though most retailers have made use of the preliminary supply of euro bills when preparing for the introduction of the euro, some of them are concerned about running out a couple of days or a week after the transition, said grocery store Elvi Latvija Marketing Manager Laila Vartukapteine. These concerns stem from the fact that residents continue to make more transactions with lats than with euros. Some stores could run out of euros, since buyers can make their purchases with both currencies, while retailers have to hand out euros in change.
Banks have seen activity jump. Swedbank reported twice as many customers than usual in its branches Latvia-wide at the start of the year, with the average wait time between 30 and 40 minutes. Despite this, customers have been understanding and there have been no incidents, says the bank.
Cash transactions are taking up the most time, specifically, counting coins. Spokesman Dzintars Kalnins is asking residents to make sure whether visiting the bank is even necessary, as perhaps there is an another option.
The adoption of the euro by Latvia will hopefully foster the development and cooperation of border towns in Latvia and Estonia, Estonian President Toomas Hendrik Ilves said during a visit to Rujiena (in northeast Latvia) on Jan. 2, where he bought his favorite ‘Rujiena’ ice cream at a Top! supermarket. He was visiting to congratulate Latvia on its achievement.
Ilves said that thanks to the euro, residents living near the Latvian-Estonian border will be able to visit towns across the border and make purchases there.
“‘Saldejums’ [ice cream] is a Latvian word that all Estonians know well, because Latvian ice cream is considered very tasty. During a conversation with a few Estonians ten years ago I mentioned that my children like Latvian ice cream. The press interpreted this as me saying that Latvian ice cream is better than Estonian, and Estonian ice cream makers then said that I was damaging the Estonian ice cream industry,” Ilves recalled humorously.
Before entering the supermarket, Ilves met with Latvian President Andris Berzins who presented his Estonian counterpart with a Latvian euro starter kit, whereas Ilves presented Berzins with Estonia’s first euro anniversary coins.
Berzins thanked Ilves for the support Estonia had been offering Latvia during the changeover process. “There have been no problems regarding the euro changeover to speak of, and there is a reason for this - we had the opportunity to learn from our closest neighbor,” said Berzins.
About a hundred Rujiena residents came out to see the two presidents visit the local store.
Ilves praised Latvia’s decision to join the euro area, saying that the euro would increase Latvia’s gross domestic product, present new business opportunities in Europe, and aid exports greatly. It is [also] safe to say that the reforms which Latvia and Estonia undertook 22 years ago were correct. The steps Latvia has taken to join the European Union and NATO, and the introduction of the euro, have ensured that the country is free from such pressure as that which Ukraine is experiencing, said Ilves.