Here comes the euro - ready or not

  • 2014-01-08
  • By Steven G. Traylor

READY TO SPEND: Opening night ceremonies gave the crowd first proof that Latvia has the euro.

RIGA - Latvia, 24th out of the 28 countries that make up the European Union, according to population, on Jan. 1 became the 18th member state to join the monetary system known as the eurozone, a political and economic feat championed by the country’s soon-to-depart prime minister, Valdis Dombrovskis, who also happens to be the longest serving prime minister since Latvia’s re-independence.
Fireworks lit the skies of Riga on New Year’s Eve as the smiling prime minister and members of his team, under the watchful eyes of the general public and the world press, withdrew a 10 euro banknote at Latvia’s currently recovering Citadele Bank (formally Parex Bank), in the heart of Riga.
Latvia is the second euro member state of the Baltics as Estonia became member in 2011, with Lithuania expected to follow in 2015.

Fading voices

But aside from the fireworks, the mood on the ground among the local population is one that is less receptive and supportive. Data published by DNB, a Norwegian bank in Latvia, showed that 58 percent of Latvians are “concerned” about Latvia’s entry into the eurozone, while a survey conducted by local pollster SKDS in August found that only 13 percent of the population actually supported the transition, reports
The Central Bank of Latvia reports: “Latvia has overcome the economic crisis, demonstrating that a decisive return to responsible budget management helped stabilize the economy and state finances, and renewed growth.”
The deputy governor of the Bank, Andris Ruselis said on Friday, Dec. 27 that the euro notes had arrived at the Central Bank and euro coins came in during the Christmas holidays.

Janis Blums, head of cash at the Latvian Central Bank, added this at his press conference: “Some 293,000,000 euros are now in Latvia” and soon to be in the Latvia economy. As of Jan. 2, merchants, token takers, and reluctant senior citizens - not wanting to give up the only currency they have really known since Soviet times - were starting to adjust to the euro as a daily way of life.”

Make a cash payment in lats and you receive change in euros, with authorities hoping most of the lats will be out of circulation around the middle of January.
For nearly a year, on billboards on the streets of Latvia’s capital - and throughout the country - the euro has stood proud next to the lat, displaying pricing in both currencies. All was in place by Jan. 1 for Latvia to make a complete transition from a former Soviet satellite state to full EU membership, with its second most common currency in the world.
“The New Year’s night and Latvia’s accession to the euro area has probably been the most carefully planned event in the history of Latvia,” said Sanita Bajare, State Secretary of the Ministry of Finance.

“Preparations for this moment started almost 10 years ago, right after the EU membership referendum and accession to the Union. We have successfully reached the objective of ensuring that the changeover is simple, safe and convenient for the Latvian population.”
On Jan. 2 in the Latvian town of Rujiena, the presidents of Latvia and Estonia, Andris Berzins and Toomas Hendrick Ilves, re-invested euros already back into the local economy, with Ilves making a purchase of ‘Rujiena’ ice cream in another ceremonial camera opportunity for the assembled press.

Day-to-day activities in Latvia

A quick sampling of public opinion turns up various results.
From Brussels, when Ivars Godmanis, Latvian member of the European Parliament from Latvia’s First Party/Latvian Way was asked the question ‘should Latvia join the eurozone,’ he replied: “I am absolutely in favor. There are several reasons why. We are deeply integrated in Europe. Our exports are something like 77 percent to Europe.”

Questioned further, bringing up that public opinion polls in Latvia show a high percentage of respondents against euro integration, and so why adopt it, Godmanis continued, “De facto the people have already agreed with the euro. If you have taken 80 percent of loans in euros, and you keep deposits in euros, then actually you agree [with it].”
When asked about Latvia’s future in the eurozone, the MP summed it all up: “For me it’s not realistic to say [it is] a bright future or a bad future. [However], we are one of the first countries that passed the fiscal stability law, which is the toughest in the EU.”

The Baltic Times questioned decision-makers about their outlook for business. Radisson Blu general manager Ronald Smitrhjes was asked about the affects on costs for his three hotels due to the changeover. “The cost for updating the systems and software, including labor hours, is approximately 15,000 euros per hotel,” he responded.
However, in Ventspils, Robert Kirkup, chairman of the management board of Ventspils Nafta, said, “Group companies in the long term will show savings on foreign exchange - from now on income and expenses for VNT and LRT will be in the same currency. As to the Group’s shipping business segment, it is also expected that there will be some savings on foreign exchange.”

Business is one thing, but others effected by the change over - and not business decision makers - are Latvia’s pensioners.
Living on a fixed income and just making ends meet - and the most reluctant to see the lat eventually disappear – 63-year-old Stasis Stanevichus, a retired chef by profession, when asked if the changeover was good for him, responded: “I believe it is not in my best interest because the merchants have already raised the prices of the products that are needed every day. For example, the packaging [size] has been reduced from 1 kilo to 800 grams, but the price remained the same.”

In Riga, 51-year-old Andris Liepins, a shop owner, said, “I’m convinced prices will rise with the euro. It’s a fact that Latvia will have to pay for other countries’ debts after adopting the euro. Why does a country have to pay other countries’ debts?”
From prime minister to pensioner, Latvia joining the eurozone changes the daily lives of all. The unpopularity of the changeover can be compared to what happened at the Louvre Museum, the 17th century art museum in Paris, that in 1993 received an inverted class pyramid addition during an expansionary phase. The addition, designed by architect I.M. Pei, proved to be extremely controversial at the time. Today the Pyramid is considered an integral part of the museum and, presumably, or without choice now, Latvian citizens will eventually embrace the euro as the French have done with their glass pyramid.

World press tests Latvia

No sooner did the prime minister withdraw the euro banknote at the ceremony, televised live throughout Latvia, than the international press started writing stories with attention-grabbing headlines such as one run by the New Zealand Herald (some 10,000 kilometers away): ‘LATVIA TAKING DIRTY MONEY TO EUROZONE.’

The Herald wrote: “When Latvia adopts the euro on January 1, it brings with it a banking sector that is swelling with suspicious money from Russia to the east, just as the currency block is trying to clamp down on such havens.”
News service Reuters quoted an expert on organized crime: “Immediately after Latvia joins the eurozone, I imagine we’re going to see an actual spike in dubious money flowing in.” This was written by Mark Galeotti, a professor at New York University who researches organized crime in the former Soviet Union.

Reuters went on, “For years, Latvia’s political and financial leaders had hoped to create a mini-Switzerland in Eastern Europe – a place where capital in unstable countries such as Russia or Kazakhstan could either park for a while or channel its way further west to banking centers such as Zurich or London.”

Last word on the euro

In response to the criticism of “dirty money” coming to Latvia, the country’s Financial and Capital Market Commission (FCMC) stresses that there is a set of supervisory measures for monitoring non-resident money flow into Latvia, and FCMC expects supervision on a regular basis to ensure that these activities are maintained in all Latvian banks.
“As regards non-resident cash flow services, FCMC has introduced a ‘special measure package’ for monitoring the cash flows… FCMC experts conduct regular supervision to maintain regulatory activities in all Latvian banks. These measure are aimed at preventing cash inflows in amounts that are incommensurable for the current Latvian financial sector,” said Kristpas Zakulis, FCMC chairman in prepared remarks.

In a press conference before the assembled press, The Baltic Times asked three representatives of the biggest banks in Latvia the following question: “With regards to reports in the media of ‘dirty money’ coming to Latvia with the adoption of the euro, what is your bank doing to display to the general public that this is not the case [with your bank.” The responses were:

Guntis Belavskis, chairman of the board, Citadele bank: “Our bank has a zero tolerance [level] for accepting questionable deposits” from non-resident firms.

Ainars Ozols, chairman of the board, SEB Bank: “We do our due diligence, thus making it a practice to research non-resident depositors and identify all sources of eventual cash transfers from outside of Latvia.”
Finally, Maris Mancinskis, chairman of the board, SwedBank, said “95 percent of our depositors are Latvian residents and the remaining 5 percent non-resident. Our policy is a policy of ‘know your client’ in attempts to insure non-receipt of questionable funds.”

According to the Ministry of Finance Latvia, Euro Communication Department, “Euro accession is an opportunity for Latvia to attract more investment in order to strengthen economic development and benefit the society in other ways. The single European currency is used by 320 million people in 17 countries. By joining them, Latvia reinforces its belonging to the European family of nations and its identity. Latvia will also be an equal decision-making partner about the future of the euro area.”

The euro is now the currency of the land in Latvia, and Latvia is in turn a full member of the European community. As such, Latvia holds its head up high as a small nation – but an equal in relation to its fellow members.
The European Union will continue to look for further expansion, with sights now set on the former communist-ruled countries in the Balkans, who wish to become part of the European community. For Latvia, the difficult task is done. New challenges, and opportunities, present themselves as a new chapter opens. The hard work isn’t over.