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Monday 23.07.2018 | Name days: Magda, Magone, Mērija

Bank of Latvia: benefits from Euro – 2 700 LVL per capita within seven years

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It is an undeniable fact that the attitude of Latvian residents is based largely on the unclear situation in Eurozone and the complicated financial situation of specific countries. Psychologically and emotionally led, people usually respond negatively in different surveys. Regardless, residents and businessmen have long since accepted Euro, Santa Berzina of the Bank of Latvia says.

Knowing the importance of Euro in our economy is undoubtedly important in decision making. Unlike other financial institutions, the European Central Bank operates under the principle “one member – one vote”, as opposed to the majority of economic, quotas or other indexes. With that, the interests of all members – small and large countries – are taken into account. Of course, it is also important to search for associates, similar how Latvia behaved during the EU discussions in Brussels – working with other countries with similar interests, the economist explained.

Also, Euro adoption benefits will be felt immediately. According to international researchers, one of the main benefits of entering the united currency zone is the increase of export. Only the expected increase rates differ – surveys state the expected export increase in relation to methods and practice to vary from 5% to 50%.

Given the expected export increase, as well as the profitable interest rate influence on investments and consumption, there will be a notable effect on GDP growth with the adoption of Euro. According to the more careful export increase expectation of an average 5% in a medium-term perspective and a small – 0.5% – effect on the reduction of interest rates, the evaluated additional benefit for national economy is expected to be around 8 billion EUR within seven years. Those are the 2 700 LVL per capita, Berzina notes.

The increase of economic activity will be reflected in companies of the private sector, including the creation of new jobs and salary increase opportunities. This, on the other hand, will secure tax income increase to the state budget. Larger income will allow the country to strengthen its social sphere – allocate more money for pensions, social benefits, education and healthcare.

Expenses should also be taken into account, especially in the first year. For example, the 160 million LVL mentioned by traders; Finance Ministry’s calculations in regard to the state sector’s costs (8.7 million LVL) and the expected Latvia’s investment in the European Stabilization Mechanism – around 140 million LVL in the first five years.

However, it is clear that expenses will be much smaller than benefits after the adoption of Euro. The increase of welfare is solely dependent on the country’s ability to use the benefits of Euro adoption. Euro introduction does not replace the need for structural reforms and reasonable management of the state budget.

Finally, the adoption of Euro would be a good kick-off point – while other countries still struggle with post-crisis consequences, Latvia will have reached the level of Maastricht criteria completion and will be able to join Eurozone. This will raise our country’s recognition and increase investors’ trust, the economist says.

“We cannot stand on the sidelines and watch how important processes and decisions simply transpire in the Eurozone, because these events affect Latvia’s development and welfare. Euro adoption will not only have a positive effect on the increase of income, but also serve as proof that we have managed to sort out our economy for long-term growth, which will in turn affect Latvia’s positive image. This will increase the availability of investments necessary for development,” – Berzina concludes.


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