“Euro adoption, as a logical EU integration step, was planned in the agreement of Latvia’s joining of the European Union. Unlike the “old” EU member states, Latvia has no so-called “opt-out” or reservations on not implementing a specific policy. The joining agreement provides for Latvia’s joining of Eurozone as soon as the country meets all Maastricht criteria,” – notes PM Valdis Dombrovskis.
He added that January 1, 2014 was set as the Euro adoption date in 2009 – the very peak of the crisis. This helped the economy meet all Maastricht criteria by autumn of 2012.
On Thursday, Jnauary 31, the Saeima decided on the Euro Adoption Law: it was accepted. 52 officials voted for, 40 voted against, 2 officials abstained from the vote.
“Euro adoption is a logical next step in our currently realized macro-economic policy. Even now we are in the Eurozone – more than 80% of household and corporate loans are issued in Euro, more than 40% of deposits are made in Euro. Also, real estate and other valuable asset prices are stated in Euro. More than 60% of our export goes to EU countries, where Euro is the main way of payment,” – said the PM.
According to him, without the risk of Lat’s devaluation and the country achieving its declared goal of macro-economic policy, the state credit risk was also reduced. The Bank of Latvia has calculated that the Euro transition has given countries a 1.5% saving on loan expenses. But if it is so, in Latvia’s case, expenses will only be 1% lower and provide the state budget the saving of approximately 30 million LVL annually.
Enterprises and households will benefit the most from lower interest rates – Euribor will be replaced by Rigibor – servicing loans in lats will become cheaper.
The second national economy benefiting financial saving, according to the PM, will be the cancellation of currency conversion expenses.
According to the outlook of the Bank of Latvia, the volume of investments will grow by 15% by 2020 thanks to the gradual Euro adoption.
With no currency conversion fees and transactions becoming less complicated, external trading volumes increase. If Latvia joins Eurozone in 2014, it is expected that export will grow by 5% by 2020, notes the PM.
Eurozone membership will also ensure Latvia’s stability against economic threats. The ECB can offer Eurozone countries bank liquidity if need be.
When speaking about possible Euro adoption risks and costs, the head of the government mentions two main issues – the payments to the European Stability Mechanism (ESM) and refusal of having an independent monetary policy.
“After joining Eurozone, the first five year payments will reach 200 million EUR and will grow by 124 million EUR more in the following five year. The fund’s money will be used to offer financial assistance to countries that may experience difficulties. Given that the EU and Eurozone countries are closely linked among each other, instability in one country may cause problems in others, as well as negatively affect the entire economy of Eurozone. Before we turn to scepticism about the significance of solidarity and offering assistance, it is worth remembering that the bulk of financial assistance Latvia received as part of the international loan came from the European Commission and the International Monetary Fund. Solidarity is one of Europe’s most basic principles. Let us not forget that our country is not self-sufficient politically and economically,” – said the PM.
“If we want a truly independent monetary policy, we need to separate Lat from Euro. In this case we can clearly conclude that Lat will lose its value. In other words – a truly independent monetary policy de facto means the Lat’s devaluation. So it is no surprise that the parties that previously called for Lat’s devaluation now call out for an independent monetary policy the most,” – said Dombrovskis.
“Euro adoption has a geopolitical aspect to it as well. By joining Eurozone, we will strengthen our belonging to the leading family of states in Western Europe. Eurozone membership means the inclusion in the core of countries that dictate EU’s development. Our role in the EU and the world will grow as well. We will gain better opportunities to participate in the process of making important decisions,” – he concludes.