Latvia becomes the 18th member of the European single currency zone, adopting the euro just as the small Baltic nation starts to enjoy economic growth. Will Latvians come to regret it?
RIGA — In Latvian, it is called the eiro, not the euro. But on the new European single currency coins that Latvians are exchanging for their beloved lats, the value is given in "euros" — spelled the same way as it is in the rest of Europe. The other side of the coins still show either the trusted emblems of the national coat of arms or Milda, a young woman in national costume who symbolizes the fight for independence.
These symbols always resurface in the small Baltic nation whenever a new era begins, so it is fitting that they will appear on the Latvian euros. Today, Latvia becomes the 18th member of the European single currency zone, and its entry is more than welcome.
In these difficult economic times, the step is seen as a “show of faith in the shared currency,” as Michael Roth, the new European affairs minister of state at the German Foreign Office, said a few days ago on a visit to Riga. The Latvian government deserves the utmost respect for the way it has strived to meet the conditions for eurozone entry.
After the fall of Lehman Brothers in 2008, Latvia was hit especially hard by the global economic and financial crisis. Within a few weeks, economic activity had shrunk by 17%, and the country only managed to avoid bankruptcy thanks to loans from the European Union and the International Monetary Fund. Prime Minister Valdis Dombrovskis introduced draconian cuts, civil servants’ salaries and pensions were slashed, and many public-sector jobs were cut. The unemployment rate skyrocketed.
For ordinary Latvians, it was a cruel blow. Even before the crisis, the country was one of the poorest in the EU, along with Bulgaria and Romania. The average income was around 700 euros per month, and many people, especially retirees, had to get by with much less. Many Latvians needed to take on second jobs or ask for help from relatives just to survive. So it was even more striking that Dombrovskis was re-elected, twice.
Eventually, his measures began to meet with success. The economy sprang back to life, and in 2012 Latvia’s 5.6% growth rate placed it atop EU rankings. More growth is being predicted for the next two years with rating agencies Moody’s and Standard & Poor’s offering positive outlooks, although it may be some time before the economy returns to 2007 levels.
From trauma to recovery
Latvia could serve as a shining example to its fellow EU member states. In 2013, national debt levels stood at 42% of gross domestic product. In Germany, the figure was almost double, and it was triple in Italy and quadruple in Greece. This year, Latvia’s deficit was 1.3%, far below the 3% ceiling.
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5 euro note hologram (spacepleb)
Like so much in Latvia, this zeal for recovery can be traced back to the traumatic experience of suppression in the Russian Empire and later in the Soviet Union. After the USSR fell in 1989, Latvia joined the EU and NATO in 2004. The introduction of the euro is “a further security against the risks posed by our very unsteady relations with Russia,” as Foreign Minister Edgars Rinkevics recently explained.
Or as Professor Ivars Ijabs, a political scientist at Riga University, puts it, “The important thing is to belong to a European structure that guarantees our security. The long shadow of Russia is the most important factor in Latvian politics.”
With this history in mind, it is understandably difficult for Latvians to leave behind the lats, a symbol of their independence. It was first introduced after Latvian independence was established in 1918, then suppressed during World War II and under Soviet rule before being reintroduced in 1993.
Younger generations of Latvians have been able to enjoy their own currency for only 20 years and are finding it difficult to part with it. “It’s our money, not other people’s money,” says 21-year-old Liga Petrovska, who sells sweets from a stall in Riga Central Market. Surveys confirm the prevalence of this point of view, as only one-third of those asked say they support the switch to the euro.
But businesses and foreign investors are “fairly unanimously in favor,” says Maren Diale-Schellschmidt, director of the German-Baltic Chamber of Commerce. “Above all, it’s a psychological signal to the rest of the world.”
There will be fireworks to celebrate the New Year in Riga. The new euro coins with Milda’s portrait, which were produced by a mint in Stuttgart, have already been distributed to banks and companies along with the euro notes. Meanwhile, a parting song has been making the rounds on the Internet, a simple gesture of farewell: “Thank you, little lats.”