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Saturday 29.10.2016 | Name days: Laimis, Laimonis, Elva, Elvijs, Elvis

Economic Diary of Latvia. Premature opening of the market

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RULatvia received one more confirmation that Europe is helpless before the migration crisis and that no one has resources to resolve it. The European Commission has supported German Finance Minister Wolfgang Schäuble’s idea to create an additional fuel tax in the EU. Finances acquired from this tax will be used to finance resettlement of refugees. Latvian representatives in Brussels were the most active lobbyists of this initiative.

Ex-prime minister of Latvia and currently European Commissioner for the Euro and Social Dialogue Valdis Dombrovskis was one of the first to support Schäuble’s idea. «Europe needs fresh ideas to overcome the refugee crisis. Fuel tax on a national or European level could prove a possible source of funding, especially considering that petrol price is currently at its lowest point in years,» – said Dombrovskis.

Artis Pabriks, another Latvian representative, also picked up the German minister’s idea: «This would ensure security, economic growth and social justice for Latvia,» – he wrote on his Twitter micro-blog.

Local politicians, on the other hand, proceeded to heavily criticize the possible adoption of a fuel tax. The parliamentary faction of Latvian Regional Alliance does not support the idea of using revenue from fuel tax to finance resettlement of refugees. «EU member states are desperate to find any options to reduce the consequences of their unreasonable immigration policy. We believe the adoption of additional taxes to resolve the refugee crisis is not worth supporting,» – announced LRA faction leader Dainis Liepins.

Latvian Economy Minister Dana Reizniece-Ozola, who may become Finance Minister in the new government, does not support the possible adoption of the new tax, as well. In her interview to LNT, Reizniece-Ozola said Europe has never had a policy for unified taxes. On top of that, she doubts all countries will come to an agreement. In addition, before adopting such a tax, there should be a plan to use the revenue. Right now, however, it is unclear what that money will be used on – to strengthen borders, provide benefits to refugees or be given to Turkey.

No one knows when the new tax could be adopted. Basically it seems that the costs of resettling refugees will remain on the shoulders of European taxpayers.

An increase of the tax burden means a reduction of real income of residents, which usually leads to a decline in demand and further slowing of economic growth.

This is because the fuel tax will not be isolated just for car owners. Transport costs are an important price-forming factor of any product.

Premature opening of the market

Another European initiative surfaced this week. This one is also expected to have an impact on Latvian companies and consumers. As reported by the German Frankfurter Allgemeine Zeitung, the European Union intends to check all contracts signed between European companies and the Russian Gazprom. This is because European authorities suspect the Russian gas giant of establishing unfair prices. Official Brussels has yet to comment on the article published in this newspaper that allegedly references some internal EU document.

In April 2015, the European Commission accused Gazprom of breaching EU market rules and distorting competition on the gas market of Central and Eastern Europe, where the Russian giant remains the dominating gas supplier.

Now, According to FAZ, EC wishes to receive information in regards to contracts signed with Gazprom, specifically if the Russian company supplies more than 40% of gas consumed in a country.

Meanwhile, Latvian Economy Ministry presented the government with ‘Requirements for supplies and use of natural gas’ for review. This draft will allow companies to procure natural gas from abroad. This document basically provides Latvian consumers who are not households to procure gas from foreign traders by using Latvijas Gāze’s infrastructure.

Chairman of Latvijas Gāze Aigars Kalvitis has announced that this would breach competition rights and basically open the gas market ahead of time.

Positive look at the future

There have been some good news this week. In the annual business risk rating, Coface enhanced Latvia’s B score with a positive development outlook. Latvia’s rating was reduced from A4 to b in 2010. It has remained unchanged ever since.

Coface Director in Latvia Arnis Blumfelds notes: «Economic growth outlook for 2016 is 1.7%. The situation with companies in Europe is gradually improving as well. This is confirmed by insolvency indexes in Western European countries. Latvia stands out with stable growth. This is further enhanced with growing consumption of households in the country and export growth to different European countries at the expense of reduced exports to Russia.»


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