On New Year’s Day Latvia joined the European Union and became the 18th country to adopt the euro.
“[This is] a big opportunity for Latvia’s economic development,” noted Latvia’s Prime Minister Valdis Dombrovskis during celebrations in Riga on the cusp New Year’s Day, as fireworks burst off the top of churches and monuments and citizens began withdrawing euros from cash machines.
Latvia has only recently become one of Europe’s fastest growing economies – after battling through one of the continent’s most savage recessions.
It is the tumultuous economic past of the country that has led many to voice their concerns over the adoption of the new currency.
Hopes and fears
Whilst it is hoped that adopting the euro will lessen the former Soviet republic’s dependence on neighbouring Russia, many Latvians fear for the worst – citing the multiple bailouts across Europe as a cause for concern.
Another area causing worry for the nation’s citizens is the expected price hikes.
Yet many individuals in the country share their Prime Minister’s optimism, citing the move as a mutual insurance policy with the rest of Europe to rely on in times of trouble and expressing relief over the certainty of a more stable currency. The euro did not only weather the storms of 2013, it prospered within them – and is appreciating in value.
The currency increased 4.5% against the dollar last year and is now worth a respectable USD 1.38.
In addition, the euro has already been a regular feature within Latvia’s economy; as it often is in European Union countries which are not members of the Eurozone.
For example many of the country’s loans and mortgages are written in euros.
Yet there is another, more unsavoury aspect of Latvia’s adoption of the euro that will need to be addressed.
Latvia is teaming with suspicious money from both Russia and the East; and experts are predicting that the adoption of the single currency will lead to a spike in the amounts of dubious money entering the country; after being perceived as a safer haven than other ex-Soviet states.
The country had previously hoped to style itself as a “mini-Switzerland” – a safe haven for money where nationals from countries like Kazakhstan and Russia could safely store and channel their money.
Latvia’s historic attitude of acceptance towards such wealth and its efficient structures for managing money outside of the country (in culmination with its near-desperation for foreign wealth) meant it was on the path to achieving this end.
Yet Eurozone leaders have pledged their commitment to cracking down on such financial sanctuaries, and aim to promote financial transparency from country to country.
This will lead to a review of Latvia’s banks by the European Central Bank, the central bank for the euro, when it scours the Eurozone looking for weak spots in the banking sector.
However pinpointing dirty money is never easy, and even with Latvia’s new controls which aim to reduce money laundering and terrorist financing the country may struggle to oust unscrupulouse funds.
The country’s bankers may therefore have a tough time ahead in their new goals to purge the country of unsuitable capital.