Thursday, January 31, 2013

Latvian parliament to vote on a euro implementation law

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.