The Green Dragon Lady claims a posse or a platoon

So now the monkey wrench flies toward the gears of Latvia’s movement toward the Eurozone. Whether it hits and stops the wheels, we will see next week. However, it is hard to believe that Saeima deputy Iveta Grigule (Green/Farmers’ Union – ZZS) would go out on a risky limb and groundlessly claim that she has the 34 Saeima deputy signatures pledged that are needed to ask the president either to refuse to sign the law on adoption of the euro or submit it for a referendum, first gathering the signatures of at least 10% of the electorate.

The start of that process alone, even if it ultimately fails (insufficient signatures or the euro law is approved), is a major threat to the process of euro adoption, as has been pointed out earlier. In addition, there is yet another threat – that the whole attempt to block the law can trigger a kind of constitutional crisis in Latvia. Grigule has said that if President Andris Bērziņš refuses to act on the request by at least 34 deputies, she will take her case to Latvia’s Constitutional Court. Bērziņš could refuse, citing Article 68 of the Latvian Constitution, which requires at least 50 parliamentarians’ signatures if the disputed legislative act affects Latvia’s foreign relations and treaty obligations. In this case, it could be argued that rejecting the law on euro adoption is the same as backing out of the commitment made to eventually adopt the euro when Latvia joined the European Union (EU) in 2004.

Pro-euro politicians, including Latvian Prime Minister Valdis Dombrovskis, have argued that by passing laws regulating the practical and technical side of the switch from lats to euro, Latvia is simply fulfilling a commitment it implicitly made when the electorate voted in favor of joining the EU in 2003. The euro itself was not on the ballot, it was a yes or no to the EU, but the treaty Latvia signed committed it to adopting the euro when it met the Maastricht criteria, which it now seems to be doing after failing to do so in 2008 and 2011.

It is interesting how the issue would be framed before the Constitutional Court (and I am no expert on Latvian constitutional law). It seems that the Court would have to rule, explicitly or implicitly, on whether there was a Latvian treaty commitment to adopt the euro, which could be changed by a referendum rejecting the implementation law. The president’s rejection of a petition by less than 50 Saeima deputies would also mean that Bērziņš at least implicitly supports this interpretation. After all, if no international treaty commitment by Latvia would be affected by a potential referendum, then there was no commitment in force. The same if the court rules against Bērziņš. In effect, the issue of whether Latvia already “voted” to adopt the euro when it joined the EU and would be substantially modifying this commitment by stopping the implementation law,  or whether there was no such commitment, will end up decided by the Constitutional Court.

So far, so good for Iveta Grigule, who has become the opposition’s Dragon Lady to the coalition government and has probably lured Jānis Dombrava of the National Alliance to her lair. But what happens next, when Latvia is cast into the murky ozone as far as its relationship with the euro in general? After all, if there are no immediate or even medium-term plans to adopt the euro, then the lat could come under various kinds of pressure. If uncertainty jacks up interest rates and yields on the relatively few Latvian interest-bearing instruments available to foreign investors (or investors in general) rise, the lat could surge. Or it could plunge on uncertainty, fear and paranoia. How many millions is the Bank of Latvia ready to spend to stabilize the currency, and by what targets or standards? To keep it in a narrow ERM II corridor when being in the ERM II regime is in question?

No one seems to have a “we just postponed the euro indefinitely” scenario for a managed float of the lat – pegged to what?  Or not pegged, dancing around, to translate a (off)colorful Latvian expression – like a fart in a frying pan (kā pirdiens uz pannas)? All of these issues may come into focus next week, if the Dragon Lady gets her way. Question is – will the dragon be able to blow out any dangerous fires it sets? 

FYI: A platoon is a military unit typically composed of two to four sections or squads and containing 26 to 50 soldiers. The Dragon Lady claims she has her platoon,

Dear Latvian readers: the Green Dragon here has nothing to do with the national sport of alcoholism (zaļais pūķis). No such reference to Deputy Grigule is intended. 

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.