Euro Lure Outweighs Latvian Soviet Trauma, Berzins Says

Latvia opted for euro adoption next year over public opposition rooted in the trauma of the Soviet Union’s breakup because of the benefits to the country’s businesses, President Andris Berzins said.

Most Latvians oppose the currency switch because of their experience with the collapse of the Soviet financial system in the early 1990s, Berzins said in an interview in New York yesterday. Economic growth is driven by exports, which will be helped by adopting Europe’s common currency, he said.

“We are making a practical decision,” Berzins said. “Business is in favor of it. It’s good for business, including because there will be no currency exchange. The only way for our small economy to grow is to focus on exports.”

Latvia, which battled a 2009 slump that erased almost a fifth of economic output, the world’s deepest recession, will next year become the 18th nation to adopt the euro. It will become the fourth former communist country in the currency area, following the entry of neighboring Estonia in 2011.

Estonia’s experience will help Latvia navigate the pitfalls of the currency switch, which threatens to boost inflation and raises “some concerns about our independence” 22 years after the country shed Soviet rule, Berzins said.

‘Good Position’

“We are in a very good position,” he said. “Our neighbors, the Estonians, have introduced the euro. We will be analyzing their experience, taking into account their mistakes and problems made during their implementation process.”

Latvian support for the euro remained at 22 percent in August, with 53 percent opposed, according to the polling company SKDS. Twenty-five percent had a neutral view or declined to give their opinion. The poll of about 1,000 people was published Aug. 20 and didn’t give a margin of error.

Being invited to join the euro shows the level of stability Latvia has reached and will help the country in its goal of raising living standards nearer to the European Union average over the next decade, Berzins said. That should also attract people who left Latvia back to the country, giving another boost to the economy, he said.

Economic growth, the EU’s fastest at 4.4 percent from a year earlier in the second quarter, will probably slow to about 4 percent next year from an estimated 4.5 percent in 2013, Berzins said.

The yield on the government’s $500 million bond due 2021 was little changed at 3.966 percent at 1:19 p.m. in Riga, the lowest level since July 24. The cost to insure the country’s debt against non-payment for five years using credit-default swaps was 129 basis points, compared with 163 for Russia and 281 for Hungary.

“We started from scratch in the early 1990s and, finally, we have reached some stability, we have reached some maturity, we are competitive worldwide,” Berzins said. “Everyone started with empty pockets in the early 1990s. When the Soviet Union collapsed, it was a big mess for us.”

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