The new currency still whips up feelings in Latvia
On January 1, Latvia introduced the euro. In the run-up to the transition, public opposition was widespread. Around half of the Latvian population was adamantly against giving up the national currency. Now, four months later, many Latvians are getting used to the euro and some even stress its benefits. Yet public concerns have anything but disappeared: fierce objectors still stand by their resistance. Learn more about Latvians’ opinions on the euro with our interactive coffee cup.
By Sophia Schirmer
Mouse over the circles on the cup to find out what Latvians think about the euro. By clicking on the circles, you will be taken to the corresponding part of the article. You can read parts of the text or go round the cup in a clockwise direction and get to know the whole story. You can also scroll down and read the article in its classical form.
RĪGA – “Do you have one cent?” The woman behind the counter of a little cafe in Rīga’s Old Town seems on edge. This is already the third customer in a row that she has had to ask for small change. The young English-speaking tourist wants to buy one piece of cake – at the price of 1.71 euro.
For the tourists lining up in front of the counter, this amount might seem odd. Yet the owners of the cafe have just done their job. They converted the prices from lat, the old Latvian currency, into euro – strictly sticking to the official exchange rate of one euro to 0.702804 lat.
Stuck between two currencies
Having adopted the euro only at the start of the year, Latvians are adjusting to the unfamiliar notes and coins. The results are uneven prices, cashiers taking a little longer to count the change, and a bus driver carefully observing the 20-cent coin in order to be sure you gave him the right amount for the ticket.
The lat is still ever-present in daily life as well. From October 2013 until June 2014, all prices are required to be displayed in both lat and euro. This is supposed to facilitate the currency change for the people.
Ieva Spundzāne, a student from Rīga, says that although the lat is still in her mind, she has “gotten used to the euro on the whole.”
A survey commissioned by the Latvian Ministry of Finance and conducted by the Factum research group in February shows that this is true for most Latvians. 79 per cent of respondents said that they currently don’t have significant problems using the euro.
Latvians have not yet dropped their concerns
Before the euro was introduced, many Latvians voiced concerns related to the currency change, and according to the Factum research, some of these concerns still remain. Whereas 40 per cent of respondents expect a positive impact of the euro on Latvia in the long term, an almost equal number of 38 per cent maintain a sceptical attitude.
One of the prevalent fears is “that the transition from the lat to the euro means the loss of parts of the Latvian national identity.” This concern is still held by a majority of Latvians (74 per cent). It is thus more widespread in Latvia than in all other member states that have yet to adopt the euro.
A symbol of independence and national identity
The Latvian euro coins feature the image of a woman called Milda. She was also shown on the first 5-lats coins, which were in use before the start of the Second World War. Milda is seen as a symbol of freedom and independence in Latvia.
“We chose Milda from a variety of ideas in order to preserve our national identity,” explains Antra Trenko, Senior Economist at the Bank of Latvia. “Also, we wanted to show something special to other countries.”
“The lat was a symbol of independence and national identity,” says Jānis Tomels, member of the city council in Engure. When Latvia was established as an independent state for the first time in 1918, the lat was introduced as its currency. “During the Second World War and the Soviet occupation, when we had to use other countries’ currencies, many people kept the 5-lat coin with the folk maiden Milda as a symbol of something Latvian,” he explains. “With the introduction of the euro, we lost that symbol in just one day.”
This is one of the reasons why many Latvians were reluctant to give up their national currency, including Anna Muhka, who lives in Rīga and is responsible for the city’s international marketing as this year’s European Capital of Culture. She says that giving up the lat was “a very emotional thing” but that people should now start to accept the euro.
Giving up the lat means giving up independence
For the economics professor Ivars Brīvers, acceptance of the euro won’t come with time. He fiercely opposes the common currency and refuses to use it in everyday life. “Since January 1, I am only using my credit card,” says Brīvers. “I am fine with using the euro in other countries, but not here in Latvia. Right now, I only have four euros in my wallet for example to pay in shops that don’t take credit cards or for the offertory in the church.”
Brīvers’s reasons for this strict opposition go beyond an emotional attachment to the lat.
He is convinced that the member states of the EU should be able to keep differences, especially in the areas of economic and monetary policy. “We need independent policies because the conditions will never be the same in all European countries.”
Brīvers compares the euro changeover to Latvia’s situation in the Soviet Union. “In the Soviet times, Latvia also had its own flag, its own constitution, its own parliament, its own anthem. But of course, this was only an illusion of independence. There was no real independence.” During the Soviet regime, Latvia was denied its own currency. “The same is happening now.”
Brīvers is convinced that giving up its currency has wider implications for Latvia. “First we lose our economic independence. And when a country loses its economic independence, the political independence is also just like an illusion.” He thinks it is necessary to rebuild the EU and return to a union of “truly independent countries.”
Prior to Latvia’s euroisation, a majority of the Latvian people shared the expectation that their country will lose control over its economic policy by adopting the euro. The latest Eurobarometer survey on the euro in Latvia – requested by the European Commission and conducted by TNS Political & Social in April 2013 – showed that 63 per cent of Latvians shared this fear, more than in all other EU member states that have yet to adopt the euro.
Member states commit themselves to adopting the euro
That Latvia would join the eurozone one day was clear from the point of its EU accession in 2004. EU treaties state that all member states, except for the United Kingdom and Denmark, commit themselves to adopting the euro once they fulfil the so-called convergence criteria as defined in the Treaty of Maastricht.
1. The budget deficit, the difference between government spending and revenue in one year, must not be higher than 3 per cent of gross domestic product (GDP).
2. The national debt, the sum of the budget deficits of many subsequent years, must not be higher than 60 per cent of GDP. If it is higher, it should at least fall steadily.
3. The inflation rate must not be more than 1.5 percentage points above the previous year’s rate of the three EU countries with the lowest inflation.
4. Long-term interest rates must not be more than 2 percentage points above the previous year’s rate of the three EU countries with the lowest interest rates.
5. The country must participate in the revised Exchange Rate Mechanism (ERM II) and the exchange rate between its national currency and the euro must have remained rather stable for at least two years.
Prior to January 1, a majority of Latvians were persistently against the introduction of the euro. Despite a gradual growth in support, 50 per cent of Latvians still opposed the transition from lat to euro at the end of 2013, a survey conducted by the Latvian research company SKDS shows. Only 25 per cent answered that they were in favour.
This is why Antiglobalisti tried to initiate a referendum on the euro. However, the proposal was rejected by the Central Election Commission, which decides on the admissibility of referenda in Latvia. The same happened to similar proposals submitted by other organisations.
The Ministry of Finance cites the referendum on EU accession as a justification for not holding another public vote. “The referendum on the euro in Latvia was made together with the voting on 20 September 2003 on Latvia’s accession to the European Union,” it writes on its website eiro.lv. Back then, a majority of Latvians (67 per cent) voted for joining the EU.
Not asked about the euro
For Antiglobalisti, this justification is unsustainable. “The referendum on joining the EU was held ten years ago. Opinions have changed since then,” says Jānis Cirulīs, member of the NGO. “Also, in 2003, people weren’t aware that they voted for the euro. The ballot only asked about joining the EU.”
Andris Orols, chairman of Antiglobalisti, mainly blames the Latvian government for acting in an undemocratic way. Yet he also voices criticism against the EU. “The EU doesn’t care about the fact that the euro was introduced in Latvia without a referendum,” he says.
In a letter to the European Parliament, Orols asked the EU authorities to withdraw their invitation for Latvia to join the eurozone “until not only the economic requirements are completed, but also until the fundamental principles of democracy … are observed.” This letter was only answered after nine months, and the answer simply says that the “file has … been closed.”
Orols doesn’t want to give up yet. He plans to appeal to a European court. And with his NGO Antiglobalisti, he wants to form a political party. “All parties in the Latvian parliament are euro-optimists, we are eurosceptics.” One of the points in an already existing party programme thereby reads: “We want our national currency back.”
A drain on people’s pockets
Orols is convinced that there is “no need” for the euro in Latvia as only a few gain something – the people who travel and the companies that operate in the eurozone. The majority of Latvians however get nothing, says Orols. He expects that prices will rise due to rounding up now. Also, the currency shift was costly for businesses that had to pay for example for the adjustment of cash machines, which could increase prices as well.
This concern is shared by a majority of Latvians. According to the Factum survey conducted in February, 81 per cent of respondents were convinced “that the euro changeover costs will be included in the prices” and that the “prices of goods and services” will increase.
The euro and fears of growing inflation
The expectation of rising inflation was the main reason why the social-democratic political group Concord Centre – currently the biggest group in the Latvian Parliament – voted solid against the euro introduction. “We foresee serious economic problems for Latvia,” says Igor Pimenov. He is member of the Committee for European Affairs in the Latvian Parliament and runs for Concord Centre in the European elections.
The group assumes that with the introduction of the euro, imported goods from other eurozone countries will first become cheaper as currency exchange costs no longer apply. As a result, the consumption of these goods can increase. “People simply would like to buy more of these cheaper things.” Yet inflationary theories say that if demand increases faster than supply, prices will go up again and inflation will rise.
“This would in turn also increase the expenditures of Latvian exporters as they need to import things for producing.” So far, prices have not increased significantly. However, after only four months, the real impact of the euro on inflation cannot be assessed yet, says Pimenov.
All in all, he is convinced that the euro will only boost imports and not exports in Latvia. This is a serious problem as the country already runs a trade deficit with the eurozone, meaning that it imports more from other member states than it exports to them.
Not the right time to adopt the euro
Concord Centre is not against the euro introduction in Latvia as such. The group is just convinced that it is “not the right the time” for Latvia to be joining the eurozone.
At the moment, the member states of the EU vary too much, says Pimenov. There are countries like Latvia that are dependent on imports. On the other hand, there are countries with a positive trade balance, like Germany, that export a lot of goods. These differences have to be decreased. “We would like to make all EU countries similar as far as the balance of imports and exports is concerned. This is a hard job and it will need a decade at least.”
Europe must change
The concern that the euro cannot work for the EU in its current form is also expressed by Jānis Ošlejs. He is CEO of the Primekss Group, a Latvian business that has invented and now exports a new type of concrete. “The system in the eurozone has created a common currency but has not created a common state, which could foster development in all areas of Europe, including poor ones,” he says. At the moment, periphery countries like Latvia have to struggle with low economic growth, relatively low competitiveness and high levels of unemployment.
Ošlejs is convinced that it is the EU’s responsibility to find a solution for the unequal development of its member states. For him, two possibilities exist: either intensify European integration or abandon the euro.
Adopting the euro was Latvia’s strategic goal
Despite all the critique of the euro, Latvia decided to adopt the common European currency. On January 31 2013, the Latvian parliament held its final vote on whether to apply for joining the eurozone and subsequently introduce the euro. 52 per cent of all deputies voted in favour, 40 per cent against.
“From a historical, political and economic point of view, joining the eurozone was a strategic goal for Latvia,” says Arina Andreičika, Head of the Euro Bureau at the Latvian Ministry of Finance. “And sometimes, strategic goals are not discussed, they are just implemented. For some reforms, when you start a discussion, it’s the first step not to implement the reform.”
Both the Ministry of Finance and the Bank of Latvia considered the euro introduction to be a necessary step that has to be taken on any account. “We are part of Europe, and we had already been in trade relations with eurozone countries before we joined,” says Kristaps Otersons, Deputy Head of the International Relations and Communication Department at the Bank of Latvia. “We were so closely linked to the eurozone already before. But we stayed outside. Now, we can participate in taking the decisions which anyway affect us.”
Adopting the euro also brings greater stability for Latvia, he says. “A small and open economy like Latvia with a small currency is largely affected by external events. Risks and crises can come from anywhere.”
The euro also directly benefits the Latvian people – both businesses and individuals – by reducing costs, he says. “For interest rates, it makes a big difference whether you are in the eurozone or not. Also, with the euro, people don’t have to pay currency exchange costs anymore and money transfers as well as international payments become cheaper.”
Joining the eurozone increases Latvia’s security
According to Andreičika from the Ministry of Finance, it is now important to keep explaining and communicating these benefits to the Latvian people. For her, one advantage of joining the eurozone is particularly important: Latvia’s security and further integration into the West.
Latvians can benefit from the euro
“Paldies latiņam” means “Thank you, little lat” and is the title of a song by the Latvian band Aarzemnieki. It sounds a bit like a Latvian folk song and is meant to be a “cheerful funeral” for the Latvian currency, says Jöran Steinhauer, singer and frontman of Aarzemnieki.
He is originally from Germany but now lives in Riga. “The song is full of my own experiences with the lat and Latvia as such,” says Steinhauer. Personally, he only realized after the changeover how important the lat had been for him. “The lat was not only beautiful but you could really get something for it. With one lat in your pocket, you could be sure that you can always go home by bus or tram.“
Yet that doesn’t mean that Steinhauer is against the euro: “I think it’s good and important that we keep track of the European idea. The EU is a great achievement.”
Taking the wish to increase security and specifically the crisis in Ukraine as a starting point, some Latvians have begun to rethink their position on the euro. “I wouldn’t say that scepticism disappeared,” says for instance Anna Muhka, citizen of Rīga and staff of the Capital of Culture-programme. “But suddenly, people understood that it’s maybe a good idea that we are closely integrated in the EU.” Jānis Tomels, member of the city council of Engure, expresses a similar view: “We have to do everything to stay away from Russia. To stay away means to go very deep into European and Euro-Atlantic structures.”
Both Muhka and Tomels think that the euro brings benefits for everyday life as well as travelling for example becomes easier for both Latvians and tourists who come to Latvia. “For me, the advantages of the euro are more important,” says Tomels. “The euro is not just money, it’s something more. It is some kind of concrete which keeps the European countries together.” He thinks that with the euro, Latvia now is a real part of Europe.