Why Latvia Loves the Euro

By Shlomo  Maital     

       Latvia

 

  Tomorrow, Jan. 1, Latvia becomes the 18th nation to adopt the euro,  following Estonia’s euro adoption in 2011.  A third Baltic nation, Lithuania, will adopt the euro in 2015. 

   Why would any country willingly choose to shift to a currency in so much trouble?  It is simple, according to Richard Milne, writing in today’s Financial Times.

   According to Finance Minister Andres Vilks, ““Russia isn’t going to change. We know our neighbour. There was before, and there will be, a lot of unpredictable conditions. It is very important for the countries to stick together, and with the EU.   We have completed our mission” of joining all the main institutions in Europe from the EU to Nato….. “We will be more integrated and protected in case of troubles, and we can see what is happening in Ukraine today.”

     Russia has exerted tremendous pressure on Ukraine, not to sign a free-trade agreement with the EU, and has supplied an enormous $14 b. loan as a tempting bribe.       

    The adoption of the euro came despite huge Latvian opposition to the idea, among the public. A poll last October showed only one Latvian in five favored the euro.   The people of Latvia seemed to believe that along with the euro came austerity, which is partly true. 

    Vilks noted that Russia (and Putin)  “is nervous about losing partners and influence. That is one reason why the Baltics and Finland were so eager to go to all institutions, including Nato. It’s not so easy for small countries to deal with these issues; we need help.”

    According to Milne, Latvia still has close ties with Russia, with about 40 per cent of the bank deposits in the country coming from ex-Soviet states, while about a quarter of its population is ethnic Russian.

     As a small nation, Latvia has little leverage on Russia. But, on the other hand, it also has little importance.  Ukraine, a huge country, is crucial for Russia; Latvia is almost a ‘rounding error’. 

   Latvia’s euro adoption shows the importance of strong political leadership.  How many Western political leaders would face a hugely unpopular decision, and proceed with it anyway, knowing they could well be tossed out of office in the next election.  Kudos to Vilk and little Latvia.  Obama, Netanyahu – do some homework on the Baltic states.  They know things about leadership that neither of you do.

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