Latvia plans to to be ready to introduce the eur(euro) in January 2014
Latvia plans to be ready to introduce the European common currency, the euro, in 2014. Should it really be done? The turbulence in the euro area caused by the debt crisis has given rise to a number of questions and doubt. Overall, the euro area is healthy, yet it reflects the developments in the debt crisis of several its member states which Latvia should carefully follow thinking about the planned euro changeover. The euro area still has more pluses. Why? Because it will continue to mean greater security, confidence and financial advantages: it will provide good preconditions for growth. The small EU member states that already use the euro – Slovenia, Slovakia, Cyprus, Malta, and Estonia have successfully used the euro shield in the global crisis: the drop in their economies has been smaller.
It is intended in law project that 3 month before and 6 month after the official date of introducing eur there will be allowed using Latvian Lats and euro, but after from July 2014 there will be allowed only eur as official currency in Latvia.
A wider discussion on the opportunities provided by the euro no doubt needed in Latvia and, as far as we know, the Government is planning to hold such a discussion (the Euro Changeover Steering Committee is planning several conferences) and it is also on the agenda of the Bank of Latvia and IMF Conference at the beginning of the summer.
What is lacking in the public discussion on the euro is awareness of the real possibilities offered by the common currency: that with euro Latvia will repay its debt cheaper, saving huge sums on the interest difference; that we will not have to pay to convert currencies; that for responsible small countries the euro has provided protection both in terms on interest rates and ECB loan facility and finally that we are an EU country for whom the euro is one of the cornerstones in capital movement, common trade and functioning of the financial system.
The euro also means much lower interest rates – and for exactly that reason, in the absence of euro, Latvia will overpay about a billion lats for its external debt in the next ten years! In the next few years, the state will have to repay the debt of 2.3 billion lats it accumulated during the crisis years. It will have to be refinanced in 2014 and 2015. It is very important at what interest rate this can be done: 2-2.5% or 5.5-6%. The difference in ten years time is the aforementioned one billion lats or an equivalent to an annual health care or education budget payed out in interest every year.
