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Fireworks but no joy as Latvia joins eurozone

27 december 2013, 13:33
0
©Reuters/Francois Lenoir
©Reuters/Francois Lenoir
Fireworks will light up the skies above Riga when Latvia adopts the euro on January 1, but on the ground the feeling will be far from festive among those fearing the impact of the switch, AFP reports.

Polls show just a fifth of people in the austerity-weary nation favour the changeover while nearly 60 percent are opposed.

This can be explained by the fact that Latvians were asked to a take steep pay cuts as the government did not want to devalue the lat, which would have meant pushing back adopting the euro.

Many in the ex-Soviet Baltic nation of two million are also unmoved by government promises of greater investor confidence and an ease in trade for the eurozone's 18th member, and fear the euro will lead to higher prices.

In Krivi, a village northeast of the capital Riga, Leonara Timofejeva's house is worlds apart from the marble offices of the Latvian Central Bank where the currency switch has been planned.

Built during the Soviet era as a tool shed used by inspectors of the rail tracks that run past her back door, Leonara and her son Arkadijs have lived here for nearly two decades.

Water comes from a well in the garden. When a freight train carrying Russian oil rumbles past, the whole house shakes.

Leonora, 56, walks three kilometres along a muddy track each morning to the local cemetery where she tends graves to earn the minimum wage of 200 lats (284 euros per month, $389).

Arkadijs, 25, prefers not to give details of his work, which consists mainly of precarious cash-in-hand jobs.

"Everyone expects prices will go up in January," Leonora told AFP, unconvinced by officials who insist such widespread fears are unfounded.

Estonia "saw price rises of just 0.2 to 0.3 percent," Latvian Finance Minister Andris Vilks said recently, pointing to Latvia's northern neighbour which adopted the euro in 2011.

On the other hand, Arkadijs sees euro adoption as just one more example of the raft of changes Latvia has made since re-emerging from the Soviet rule in 1991.

"Even in my lifetime we've had four currencies (Soviet ruble, Latvian ruble, the Latvian lat and the euro). I hope the euro will last but who knows -- maybe we'll have to change it again one day?" he shrugs.

Neighbour Anita Dabola, 62, whose family of five lives in a small, single-storey wooden cottage, sees a bright side to the switch.

With talk of Soviet-era master Russian being ready to deploy missiles in the region, she told AFP that "anything that ties us closer to the West has to be a good thing."

The Soviet past plays a key role in the unbridled eurozone enthusiasm of Baltic governments of all political stripes, said Witold Orlowski, a Warsaw-based PricewaterhouseCoopers regional analyst.

With Estonia already in, southern neighbour Lithuania is eyeing entry into the currency bloc in 2015.

"The Baltic states are absolutely ready to do everything to be as far away from the successor of the non-existing Soviet Union and as close to the core of the EU as possible," the former economic advisor to the Polish president told AFP.


Tragedy lingers


Just after the stroke of midnight outgoing Prime Minister Valdis Dombrovskis will withdraw the first euro notes from a bank machine in Riga, kicking off eurozone entry.

The moment was supposed to crown his administration's remarkable euro drive, but instead he recently stepped down following the country's worst peacetime tragedy.

A roof cave-in at a Riga supermarket on November 21 that killed 54 people has cast a pall over the nation.

Disaster of a different kind hit amid the 2008-9 global financial crisis, which saw Latvia suffer the world's deepest recession when GDP shrank by nearly 25 percent over the two years.

Dombrovskis steered the gutted economy through a bailout and biting austerity to see Latvia post the top growth rate in the EU in 2011 and 2013 at 5 percent. Growth in 2013 is expected at 4.0 percent.

All the more impressive is that Latvia met the bloc's stringent Maastricht Treaty criteria on euro adoption while paying off a 7.5-billion-euro IMF-EU bailout.

European Central Bank chief Mario Draghi recently told AFP that Latvia was "a role model as far as fiscal adjustment is concerned."

Nordea bank economist Andris Strazds noted that eurozone entry came thanks to a harsh austerity regime, including layoffs and cutting public sector wages and pensions by up to a third, a move unthinkable elsewhere in Europe.

"Latvia and its people have shown real flexibility," he told AFP, with others noting that lingering bitterness over austerity is likely why so few Latvians back the euro.

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