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Nine years after the introduction of the euro, why are residents leaving Latvia?

2023-01-02 22:04:44Kosova&Bota SHKRUAR NGA REDAKSIA VOX
Nine years after the introduction of the euro, why are residents leaving Latvia?
Riga

Latvia was the penultimate country to introduce the euro as its currency, and nine years later its citizens continue to leave the Baltic state of 1.9 million, complaining of high prices and a lack of jobs.

"After the introduction of the euro in the country, we were shocked by the new prices," says Lubova Sela, a 65-year-old pensioner in the capital Riga.

"Before, we could buy much more things with our money than we can now with euros."

Latvia joined the eurozone on January 1, 2014, and neighboring Lithuania did the same a year later.

Aiva Strelca, then a 16-year-old student, was on winter break and remembers well the New Year's Eve in which the lat (local currency) disappeared.

"While we were waiting for the New Year at home, the father went out into the garden, dug a hole and put a box of tiles", says Strelca. "He didn't want to exchange them for euros. He said that one day we would need it again. That they will be valid again in the future".

The fall of the Soviet Union

Latvia gained independence in 1991 with the collapse of the Soviet Union and in 1994 fixed its exchange rate to the German mark and then to the euro. Thus, it kept inflation low and did not use monetary policy to stimulate exports and employment.

In 2000, it had almost 2.4 million inhabitants. Since then, she has lost about half a million of them.

Many of them emigrated to other EU member states in search of a better life.

Anna, the daughter of Lubova Sela, four years ago went to live in the capital of Poland, Warsaw, where she works as a journalist. She believes that the Latvian government introduced the euro for political reasons.

"The introduction of the euro was a matter of security for Latvia," she says. "The unofficial explanation was that the West would be more motivated to help us in the event of a threat from Russia if we entered the common currency area. It was a kind of shield against the influence of Russia."

Croatia is the 20th member of the eurozone

Valdis Dombrovskis, the prime minister of Latvia who brought the country into the Eurozone, ten months later was appointed vice-president of the European Commission in Brussels. He is the European commissioner for the economy, so today his task is to promote the idea of ​​the eurozone.

In early July, he welcomed the Croatian government's decision to introduce the euro.

On Sunday, Croatia became the 20th member of the eurozone.

Latvia and Lithuania, together with Bulgaria, are the countries with the highest social inequalities in the EU, according to the statistical office Eurostat.

The Gini coefficient, which economists use to measure the difference between the richest people in the country, such as politician Dombrovskis, and the poorest, such as pensioner Lubova, was 35.1 percent in 2020. A coefficient of 0 percent means that income are distributed equally among all citizens, while 100 percent indicates maximum inequality.

"The only positive thing is that we don't have to exchange money when we travel to many EU countries," says Lubova in Riga.

Denmark and Sweden did not introduce the euro

However, when she travels to Warsaw to visit her daughter Anna, it means nothing to her because Poland, although a member of the EU, has no intention of introducing the euro.

Even the oldest members of the EU, the advanced democracies Denmark and Sweden, have no intention of giving up their currency because they want to manage monetary policy independently.

"It is their decision. They should be asked about it", answers Martinš Kazaks, Governor of the Central Bank of Latvia.

Kazaks, in the post of governor since December 2019, says that initially in Latvia, many citizens opposed the introduction of the euro, believing that it was not good for them.

"The support, however, is great today: joining the Eurozone was a good decision, economically and geopolitically."

“For example, during the global financial crisis and recession in 2008, we could not get financial resources in the market, so we had to turn to international institutions (IMF) for help. And during the 2021 coronavirus crisis, we borrowed without problems in the financial market and thus supported our economy. Being part of the Eurozone is a great shield against volatility in financial markets. That way you can borrow more cheaply", he adds.

Stiglitz: Croatia should wait with the introduction of the euro

Some economists, such as Nobel laureate Joseph Stiglitz, believe that Croatia should have waited to introduce the euro because of the uncertainty caused by the war in Ukraine and the corona virus, but Kazaks believes that the Croatian government did the right thing.

Since the 1990s, Croatia, like Latvia, has been reluctant to use monetary policy flexibility to stimulate economic growth.

"And the Eurozone countries are our main trading partner. With the introduction of the euro, we have become more economically and politically integrated in the EU, so the reasons for membership are economic and geopolitical", notes Kazaks.

The unemployment rate in Latvia is 7.1 percent, while the average rate in the EU is 6 percent.

"Society mistakenly believes that monetary policy will solve all problems," says the governor.

"It can help, as a supplement, but governments have to make tough decisions so that the economy and incomes grow," he adds.

The cost of living in Latvia rose by 20.1 percent in October compared to the same month a year ago due to rising energy prices. Also due to the increase in demand for products and services because citizens have come out of the "lockdown" caused by the coronavirus.

Latvia is the fourth country in the EU according to the level of inflation.

Aiva Strelca modestly welcomed the New Year next to her father, who is still keeping the buried flowers in the flower garden.

"Father is still convinced that we will need more," he says.


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