Latvia’s
parliament, the Saeima, is expected today to pass a draft law on implementing
Latvia’s planned adoption of the euro on January 1, 2014, but that will not
remove some potentially dangerous stumbling blocks to the Baltic nation joining
the Eurozone. The text of the law concerns a range of practical and technical issues in switching from the lat to the euro, but both proponents and opponents of adopting the euro consider it to be milestone legislation.
Opponents of abandoning Latvia’s national
currency, the lat, have called for a protest rally in front of the parliament
building in the Old Town of the capital Riga.
A more
serious potential threat is that opposition parliamentarians are trying to get
at least 34 Saeima deputies to petition the President, Andris Bērziņš, to
refuse to sign the law and trigger a referendum on the euro issue. 31 members
of the leftist opposition Harmony Center have indicated they will sign the
petition, while the Green/Farmers Union is split on whether to push for a
referendum on joining the Eurozone. If only three deputies join the euro
opponents, it would trigger a referendum initiative, which would derail adoption
of the euro in 2014 regardless of the outcome of a popular vote.
As Prime Minister Valdis Dombrovskis pointed
out on a TV talk show last night, Latvia has already missed two windows of
opportunity to adopt the euro in 2008 and 2011, when the country’s key economic
indictor failed to meet the Maastricht criteria. Latvia can’t miss another chance now that it
does meet key Maastricht criteria.
In a call-in vote to Latvian Television, in
which just over 9000 viewers could vote yes or no on adopting the euro, the yes
side won by only about 50 votes, a signal that while support for the euro may
be rising, the voting public could split down the middle if allowed to choose.
Dombrovskis and other euro advocates maintain
that by voting in a referendum to join the EU in 2003, the Latvian electorate
also voted to join the Eurozone as part of the EU treaty to which it acceded.
Euro (as in currency) skeptics are a diverse,
sometimes strange bedfellows, ranging from neo-fascists to “antiglobalists”
calling for restoring the death penalty for those they blame for Latvia’s
economic setbacks to the “autonomous resistance group” which sounds like a West
European anarchist movement and the “Left Patriots”.
Much anti-euro rhetoric is based on claims that
joining the euro will destroy another vestige and symbol of Latvian national
sovereignty and appeals to nationalist sentiments and emotions
In last night’s TV discussion, entrepreneur and
economist Jānis Ošlejs vigorously debated the Prime Minister, saying that
Latvia should not join the Eurozone until it was running a trade surplus with
Eurozone countries and had significantly increased the proportion of foreign
investments going into export-oriented manufacturing rather than the financial
sector and real estate. He said Latvia was at risk from offshore Russian
capital and likened the country to Cyprus, where banks also host large
non-resident deposits.
Ošlejs said that the record of “weak” countries
in the EU was poor and Latvia would follow in their tracks if it adopted the
euro before restructuring its own economy in favor of manufacturing.
Dombrovskis replied that nations
outside the Eurozone had also suffered economic crisis and recession and the
euro could hardly be blamed for that. He also opposed claims that joining the
Eurozone would boost inflation, pointing out that inflation in Latvia peaked
during the credit-boom run-up to the crisis in 2008.
The
anti-euro side has not presented an alternative to the current narrow-corridor
peg of the lat to the euro. If one rejects the euro on nationalist grounds or
because of fears that (despite a seeming respite) the Eurozone could fall
apart, the currency should have an alternative peg or managed float strategy,
perhaps against a basket of Scandinavian currencies or the “hard” euro that may
remain after a scenario in which Greece and, perhaps, Spain are forced to leave
the Eurozone. It this lack of a reasoned alternative scenario that may swing
public opinion (including businesses anticipating lower transaction and credit
costs and young people who have traveled, studied and lived in countries with
the euro) to reluctantly back switching currencies on January 1, 2014.
