Q&A: Andris Vilks, Latvian finance minister

By:
Lucy Fitzgeorge-Parker
Published on:

With Latvia set to join the eurozone in 2014, and Moody's upgrading its bond rating this week, finance minister Andris Vilks is confident of the benefits to the country in joining the single currency – and aware of the efforts needed to convince a sceptical population.

  What will be the biggest benefits to Latvia’s economy from eurozone membership – closer European integration, cost reduction, FDI flows, greater say in European economic and financial decision-making, support from the ECB?

The main benefits will be the ability to increase the potential of our economy, more sustainable growth, a better structured economy and more FDI. It will also move Latvia further towards European integration, which is an important goal for us, and will give us the opportunity to express our views as a board member of the ECB. As a result of joining the euro, we expect Latvia to become a stronger, larger economy and to achieve a faster convergence speed with other EU members.

Andris Vilks, Latvian finance minister
Was there any hesitation within the government or the central bank about pushing ahead with the application for euro membership in view of the instability in the currency during the past two years and in the immediate aftermath of the Italian elections?


On the contrary – from our perspective, the debt crises in eurozone member states and the market reaction to them have prompted a long overdue policy action to strengthen the coordination of fiscal policy and accelerate reforms, which means Latvia would be joining a much stronger eurozone than in, say, 2008.

So the government and central bank were unanimous in wanting to move forward with adoption?

Yes, definitely. The eurozone is moving in the right direction – member states and the central European institutions are finally working together to ensure that the conditions of membership are fully met.

Was the increasing polarization of the EU into ins and outs a factor in your decision to press ahead with the adoption process?

To be honest, this was not really a tough decision for us as we have never wavered in our intention to join the eurozone. We are now comfortable that we will be able to take our place among the countries that comply with all the requirements for fiscal discipline. Indeed, we hope that, thanks to our impressive recent growth and fiscal performance, we will be able to serve as an example of the rewards to be reaped from strict compliance with the Maastricht criteria.

How might Latvia’s economy be affected by the choice of timing for eurozone entry of other EU member states in CEE?

We have very strong and improving business ties with other countries in CEE – 16% of our exports go to our Baltic neighbour Lithuania and 6% to Poland – so we warmly welcome efforts by those countries towards euro adoption. We see a large part of the growth in Europe over the next few years coming from the Baltics and central Europe, and if EU member states in the region can meet the criteria for euro adoption it would strengthen their own economies as well as helping ours.

If those countries don’t move ahead with eurozone membership, would that be a setback for Latvia?

No. We are confident that we will gain substantial benefits from eurozone membership in any case. However, we are very encouraged to see that serious discussions on membership have been reopened recently in Lithuania, Poland and even Czech Republic. We hope that our progress towards adoption will serve as a positive example for those countries, in the same way as we have benefited from observing the process in Estonia.

According to the most recent Eurobarometer, Latvians are more concerned than the citizens of any other potential eurozone member about issues including loss of national identity, loss of control over national finances and abusive price-setting during the transition to the euro. How do you propose to address such concerns?

Loss of identity is no longer a major issue for Latvians but we have a greater challenge than any other country that has previously adopted the euro in that we have to explain to the public what is going on across the eurozone. Nevertheless, support for adoption is growing. Around 36% of Latvians are in favour of euro adoption, one-third are against, and just under a third are undecided. Clearly we have a lot of work to do in explaining the situation in countries such as Greece and Spain, and also in addressing some rational concerns relating to the confiscation of monetary forms in the Soviet era.

However, we are confident that we can convince the public that the worst of the crisis is over in the wider eurozone, and that we can achieve a painless transition to the single currency. We are lucky in that we can point to the positive experience of Estonia, a country that Latvians understand and trust, in adopting the euro. Not only was the transition there extremely smooth in terms of logistics, but the impact on price stability was limited to 0.2% to 0.3%.