Speech by Ilmārs Rimšēvičs, Governor, Bank of Latvia


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Speech by Ilmārs Rimšēvičs, Governor, Bank of Latvia

  1. 1. Euro Conference Latvia 2013 Speech by Ilmārs Rimšēvičs, Governor, Bank of Latvia Excellencies, guests, colleagues, friends! Welcome to Riga and to Latvia's euro conference. Riga is a place which is constantly on the move, as we have heard from the Minister of Finance – really everything will be changing and will be sustained through the change. Indeed, Riga is a place which is constantly on the move – changing, rebuilding and never ceasing to improve. There is even a Latvian folk legend which warns against complacency and self-happiness: the inhabitants of Riga know – whenever asked whether Riga is finally built and completed they should never say “yes”. Otherwise the city would disappear from sight, covered by the Daugava River that flows through it. So far goes the legend. To my mind, economic and monetary unions – very much like Latvia's capital Riga – also have to be a constant work-in-progress – never static, never stale. Consequently, this conference is also intended as a working meeting on the euro and on the changing economic environment and its challenges for the common economic currency. At the same time, our gathering today is undeniably also a festive occasion which encourages us – at least briefly – to look back and appreciate what has been achieved in economic terms since joining the European Union in 2004.  A mere 25 years ago the very idea of Latvia becoming a free and independent nation again was more like a beautiful but not realistic dream.  It was even harder to imagine that our country would become a full-fledged member of the European Union and NATO within the next decade.  And the suggestion that Latvians would share the same currency with more than 330 million Europeans could have sounded like a totally unrealistic fantasy. Nevertheless, all these dreams were turned into reality. How did it happen? First, there was clarity of the aims, then – a strong determination and very decisive action by the government and Latvian Parliament. And second, we received invaluable support from our friends here, our friends in Europe and in the wider world. The same determination and decisive action allowed Latvia to recover quickly from the serious economic crisis that we experienced in recent past and which was caused both by the
  2. 2. 2 world turmoil and our own at times immature policies. Since then Latvia has been enjoying the fastest growth rate in the EU, with our GDP expanding at 4%-5% rate annually, and we can expect our GDP back to pre-crisis levels already next year. Policy choices that enabled this performance have also allowed Latvia to meet the Maastricht criteria and to become, as we know, the 18th member state of the euro area. Latvia is currently busy completing the outstanding practical preparations for the euro changeover. But our focus today is on our future challenges, which could be conveyed by two words – opportunities and responsibilities. As it was already mentioned by previous speakers, the introduction of the euro does not mean only entrance of a new European currency in everybody's daily life. In the first place, it means a full-fledged participation in the Economic and Monetary Union. It means a profound and irrevocable integration of Latvia into Europe – not only economic but also a deep political integration. We should also remember the difficult history of our country in order to appreciate the importance of this event, which puts us among the most advanced nations of the European Union. The euro as a trusted and widely used world currency will provide the stability to our small and open economy that can hardly be attained by a small and independent currency despite all our great and completely natural love of the lats. The introduction of the common currency will create more favourable conditions for us, for our foreign trade, facilitate investment, and also create new jobs and stimulate future growth. However, the euro itself – and that can be said about any currency in the world – is not a wand. The euro just establishes a solid basis for further structural reforms that are still necessary for our economy. The euro will provide excellent opportunities for economic development, but it will first and foremost depend just on ourselves, both on policy makers and on businesses, how we are able and capable to use them to the benefit of our growth, people and the future of our country. A full-fledged participation in the Economic and Monetary Union also creates new and very serious responsibilities for us. And we know that. The euro is the common currency of the euro area where monetary policy decisions are taken in common interests – for the benefit of Europe as a whole. As the Governor of the Bank of Latvia I can assure you that we share the values and philosophy of the Eurosystem and also the European Central Bank, and our principles and working methods are fully compatible with those of the Eurosystem. Moreover, Latvia has been living with a pegged currency for more than 20 years, and already since 2005 the lats has been pegged to the euro. Therefore, becoming a part of the euro club will not come as a totally new challenge or surprise. And I am fully confident that the Bank of Latvia will become an active and responsible participant of the Eurosystem and make its contribution to the common goals.
  3. 3. 3 Ladies and Gentlemen! We together with our Government have one more responsibility, and maybe this is the most important obligation for the coming years – to prove our people, all citizens of Latvia, especially those who are not yet fully convinced, that really the decision to join the single currency at this not-so-easy moment of the European history has been far-sighted, correct and beneficial for our country. I am absolutely sure that together with our friends and colleagues in the euro area we shall accomplish this task with excellence. Our today's Euro Conference can be also considered a symbolic opening event of a joint communication effort by the government and the central bank about the new page in our history that will be opened on the 1st of January 2014 – life with the euro, future with the euro. While it is of utmost importance to make every single person in Latvia familiar with the new currency and all aspects of its practical introduction, this communication should not omit also explaining the economic implications of the euro for the local economy. I am convinced that by thoroughly explaining the modalities of the changeover – the "what, when and how" –, and also the arguments behind Latvia joining the euro area – the "why" questions of the process –, we shall see an increased level of support to the new currency. As one of the main concerns of the society – rational or not so rational, but, nevertheless, very natural – is the potential rise in prices after the introduction of the euro, the communication process calls for a strong analytical effort as well. We shall have to disentangle different price developments at the beginning of the next year and see what are the direct effects of euro introduction on the prices and what are the other effects of price increases we might see at the beginning of the next year. A wider understanding of these developments will play a crucial part in the evaluation of the new currency by the population at large. Ladies and Gentlemen! I would like to conclude by thanking all those who are here today to discuss these issues, especially Mr. Mario Draghi and Olli Rehn who have come here today despite their very busy schedule, and equally all those who have already invested considerable effort to complete the practical preparations for the advent of the euro to make the transition as smooth as possible. ***