It may have seemed like a mistake, but it is now a done deal. Latvia joined the euro zone at midnight on New Year’s Eve, replacing the lats that had been in circulation since the early 1990s.
I use the word “mistake” because Latvia’s accession to the zone is occurring at a time when several euro zone countries in southern Europe are in dire financial straits, and that raises the question of the extent to which our country will have to take part in rescue efforts. To be sure, given that ours is a small country with a small economy, Greek and Spanish profligacy will not empty out Latvia’s coffers, but that remains a concern nevertheless.
Still, in general terms the adoption of the euro is a good thing for the country and its economy. For one thing, the lats was so closely linked to the euro that for all practical purposes, the European currency was in use in Latvia anyway. Many, many bank loans, for instance, are denominated in euros, not least because the relevant interest rate tends to be lower than was the case with the former Latvian currency. It is also true that businesses will no longer have to deal with currency exchange issues and costs. The euro should make it easier to refinance Latvia’s government debt, and the fact that Latvia satisfied the so-called Maastricht criteria so as to be accepted into the euro zone certainly sends a positive signal to international investors, showing that the country’s economic situation is at least stable, if not very good.
Early reports show that the introduction of the new currency proceeded fairly smoothly. There was a ceremony at 12:30 AM at the main headquarters of the Citadele Bank during which Latvian Prime Minister Valdis Dombrovskis withdrew the first euros from an ATM. He was joined in the process by Estonian Prime Minister Andrus Ansip, whose country introduced the euro two years ago. Estonia’s experience has by no means been unimportant for Latvia, and officials from that country have said among other things that it is a myth that the implementation of the new currency will automatically mean higher prices. There may be unscrupulous businesspeople who take advantage of the situation to boost prices, but many Latvian companies have signed up to the so-called “Honest Euro Implementer” programme (it sounds better in Latvian), which posits that prices will be based on the official exchange rate between the lats and the euro that has been defined by the Bank of Latvia. It is also true that during the first two weeks in January, people can continue to spend the lats which they still have in their pockets or purses, though change is issued only in euros. Last night I went to the store to purchase some wine and other things and found that because I had only a two-santīms coin, I paid one santīms more than was required. I received one euro cent in return, even though a santīms is more valuable than a cent. Such is life.
Latvia introduced the euro despite the fact that public opinion surveys that were conducted last year consistently showed that a majority of respondents were opposed to the process. It was only in late December that the percentage of supporters rose above 50%, probably in large part because the process was inevitable. The euro has particularly been opposed by several of Latvia’s political parties, which have been pandering in relation to public opinion. It is true that there is the emotional issue of saying farewell to a currency which was a symbol of Latvia’s independence and sovereignty, though those who believe that sovereignty has been lost might well be asked why they have not opposed Latvia’s membership in the EU, NATO, the Council of Europe, the United Nations, the World Trade Organisation, and other organisations which equally level obligatory demands against member states.
There is also a positive emotional effect in the process in that because the lats was more “valuable” than the euro, people who took a look at their bank accounts after the euro was implemented found that they had “more” money than before. What had been 600 lats on December 31 was nearly 1,000 euros on January 1. Of course, that is an ephemeral effect, because the value of the sum of money is the same as it was before, but I’m sure that I was not the only one to get a little frisson of joy in discovering that the three-figure amount in my bank account had turned into a four-figure amount.
It will indubitably take some time to become accustomed to the new currency. The banknotes and coins will be different, and there is no doubt that for some time to come, people will be calculating the exchange rate in their heads to see how much the relevant product or service once cost in lats. On the other hand, this is not the first time in most people’s living memory that there has been a replacement of currencies. The collapse of the Soviet Union also meant the collapse of the largely worthless Soviet rouble, and so newly independent Latvia quickly had to introduce the so-called Latvian rouble and then, a few years later, the lats. Older people recall that currency replacements and devaluation were nothing uncommon during the Soviet era, either, with so-called Khrushchev roubles replacing Stalin roubles and then Brezhnev roubles replacing Khrushchev roubles. In none of those cases did the sky fall, even though then, too, there were emotional problems such as the fact that when the lats was introduced, it was at a rate of 200 roubles per lats, leading some people to believe that the value of their holdings had dropped by 200 times. Of course, that was nonsense, just as is the case with believing that one has more money just because of the change in currency this time.
All will be well. Introducing the euro is simply another step in the process of Latvia’s Euro-integration, and if we want to be a part of the European Union, that merely makes sense.
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