Directors and cameramen who shot both of these film hits in Soviet Latvia used rubles, of course. Now another currency is in use here – lats. But in nine months, they too will become a numismatic rarity. Latvia has completed practically all formalities for switching to the euro. The small country is not even stopped by the actual bankruptcy of Cyprus. And last week, as local media reported citing unnamed sources, the country's authorities received instructions from the European Central Bank that Latvian banks should not accept Russian money leaving Cyprus. Correspondents of Itogi, having settled on Jauniela Street, found out how the inhabitants of the 'Baltic pearl' themselves feel about the upcoming events.
Turned Away at the Gate
'Where do they learn!' – fumed a souvenir seller next to the Museum of the History of Riga and Navigation. An elderly Russian, who had lived in the city almost all his life, artistically parodied local tour guides: 'They ask her, what is this? She answers: "Swedish Gate. A medieval construction. 17th century!" What kind of Middle Ages is that?!'
Part of the Old Town, which is a UNESCO World Heritage site, the Swedish Gate can be considered a symbol of modern Latvia. It was carved through in 1689 by a wealthy merchant who was tired of paying a duty for bringing goods into the city. Now, it turns out, history is repeating itself. The Swedes are not joining the eurozone yet, but various Germans are not averse to cutting a euro breach on the border with Russia.
'The euro is good. You won't have to pay banks for transferring money from abroad,' a talkative border guard at Riga airport explained to us. But after a few clarifying questions, he admitted the idea has downsides. Everyone here talks about joining the eurozone: seasoned financiers – on forums and TV channels, and ordinary citizens – in kitchens and small markets. Moreover, while the former mostly approve of the government's actions, in the 'voice of the people' bewilderment prevails.
Euro-optimists, of course, 'live' on the very top floors of power. Deputy Head of the Bank of Latvia Andris Ruselis, for example, in a conversation with Itogi, was simply filled with optimism: 'Our country, starting from World War I, has been a bargaining chip in the hands of great powers. First the Russians pitted Latvians against Germans, then Germans against Russians. But the European project is peace throughout Europe. And a common currency only contributes to this.'
Andris Ruselis received us in an office on Valdemāra Street. A historic building. Built in 1904 specifically for the Riga branch of the State Bank of the Russian Empire. There were only 11 such branches in the empire, and it was in them that imperial rubles were issued, which in terms of reliability would put any of the modern reserve currencies to shame. Today, besides the Riga one, the Moscow office is also used for its original purpose – the headquarters of the Central Bank of Russia is located there. A particular source of pride for employees of both the Bank of Latvia and the Russian Central Bank is the grand staircase. 'Ours is better preserved. This is its original appearance,' the Latvians claim...
However, in Riga this is perhaps the only sign of former imperial grandeur. In an economic sense, today's Latvia is the backyard of the European Union. According to the Latvian Foreign Ministry, out of 2 million 300 thousand Latvian citizens, between 350 and 400 thousand currently live permanently abroad. There is a joke on this subject: 'Mr. Last Leaver! Don't forget to turn off the lights at the airport...'
No exact statistics on where exactly Latvians are leaving are published. Some sociologists claim that almost a third of the entire population has gone to work in Europe from Latvia. And the rapidly growing number of these 'emigrants' is precisely a powerful argument in favor of switching to the euro. Allegedly, banks will not charge Latvian migrant workers commissions for transferring funds back home.
Whether this will help the Latvian economy is a big question. In 2009-2010, at the height of the global crisis, it shrank by more than a quarter. 'At our bank, salaries were cut by 40%,' says Andris Ruselis. For the European Union, in turn, this will be a real 'litmus test'. Will the finance ministers of the eurozone countries be able to shame the eurosceptics who predict the imminent collapse of the monetary union? Until now, applications for eurozone enlargement were approved automatically. It was enough for the applicant to formally meet the Maastricht criteria on budget deficit and inflation. Thus, in 2001, Greece joined the monetary union, and 10 years later, Estonia. Latvia today also meets the euro norms de jure. But it's a different story: the republic's economy is weak, the standard of living is one of the lowest in the European Union.
The Cat's House
'In Greece – catastrophe. In Cyprus – catastrophe. But Germany and Belgium, countries of Central Europe, won. Why did this happen? Because, after joining the eurozone, poor countries bought French wines, German cars, Italian clothes, but could not offer their goods in the same quantity,' says local economist Jānis Ošlejs. He compares Latvia to a country of lemmings. These rodents are notable for committing mass suicide by jumping off a cliff following the leader when the population grows sharply. 'We have long been a lemming that fell off a cliff back in late 2008 and is now climbing up the other slope,' counters Latvia's Minister of Economy Daniels Pavļuts.
The paradox is that both experts are formally right. Despite the crisis collapse, last year's growth of the Latvian economy by 5.2% turned out to be the highest not only in the European Union countries, but also in Europe as a whole, including Russia. And one of the highest in the world. Only China is ahead. But it all depends on what level you take as a starting point!
“Personally, little will change for me,” says Valdis Kalnozols, owner of the well-known construction company in the Baltics bearing his name. He builds not only in Latvia. Several expensive car dealerships in the Moscow region are also his work. We met Valdis, by the way, in Riga at the opening of a new Japanese restaurant with the pretentious name “Yakuza.” “A female official at the city hall absolutely did not want to allow me to name the restaurant that,” laughs its owner, Pavel Gognidze. “Until I showed a document with the seal of the European Commission stating that this is a registered brand.”
The essence of the conflict is that previously, in this very premises on Elizabetes Street, there was a favorite coffeehouse of Latvian government officials. Fortunately, the view from its window is appropriate. Opposite, across the road, stands a building considered a masterpiece of Riga Art Nouveau. It was built by the Russian architect Mikhail Eisenstein, father of the great Soviet film director. At one of the tables of the establishment, Defense Minister Artis Pabriks used to like to sit.
The same one who in December last year stated in an interview with the Christian Science Monitor that he still sees Russia as an enemy that cannot be trusted. This despite the fact that Russian business is the third most important investor in the country’s economy, second only to Germans and Swedes. And in another corner, Minister of the Interior Rihards Kozlovskis rested from his righteous labors. And now—oh, the grimaces of modern history!—the restaurant is named after Japanese gangsters, who, as is known, also have a knack for politics and business. “I’m not against it, let the politicians come. Why not Yakuza!” laughs Pavel.
Something similar in Riga’s history, by the way, has already happened. Quite nearby, in the Old Town on Livu Square, opposite the Large Guild building, stands a house built in 1910. Riga residents call it the “Cat House” because two metal cat sculptures are installed on the roof. And not ordinary ones. The owner, a wealthy Latvian merchant, was not admitted to the Large Guild. So he installed them in such a way that they faced the chamber building with their tails, clearly showing his attitude toward the official merchant class. Officials were clearly not pleased with such insolence. The matter was considered in court. And the court, interestingly, demanded that the merchant turn the cats around. However, everything remained in place.
Silence Is Consent
Restaurateur Pavel Gognidze is a journalist by profession. In his time, he won a competition to create content for the Russian-language version of the UEFA website. But life in Switzerland seemed too boring to him, and he returned home—to Latvia. He convinced European football officials that it was more profitable for them if the portal’s editorial office were located in Riga. The Japanese restaurant is his new project. It took him… a month to open it. He equipped the kitchen, remodeled the hall. “Sanitary inspection?” he was surprised at my questions. “I didn’t even go to them. Why?! They’ll come themselves when necessary.” In Moscow, when opening a new restaurant, one must coordinate with officials the technical report on the premises, the technical project, the remodeling project, and so on and so forth. In Riga, it’s simpler. The landlord’s consent is enough.
And the official? Here he has no interest at all. The system operates—Silentium videtur confessio. Translated from Latin: “Silence is consent.” If an entrepreneur who has submitted an application for a permit does not receive written objections from the responsible department within the legally established period, it is considered that they have the right to proceed with the specified activity.
It is clear that the Latvian government ventured into such liberalism not out of a good life. “If your country’s economy, God forbid, had at some point fallen by 25%, I think Russia would also have fewer discussions about reducing administrative barriers,” local entrepreneurs joke. However, this is probably due to their ignorance of Russian realities.
Be that as it may, business in Latvia seems to be doing well. Why does it need the euro? As public opinion polls show, the majority of Latvians are against changing currency. According to TNS, only 35% of economically active residents support the introduction of the euro. And even the officially announced transition to it as of January 1, 2014, is liked by only 10%. The rest believe it is necessary to wait a few more years. But here is what is interesting: sociologists point to a direct correlation between “euroscepticism” and the education level of respondents.
Among residents with primary or incomplete secondary education, 56% of respondents do not support the transition to the euro. But among those with secondary or higher education, there are significantly fewer opponents of the single European currency—35% and 33%, respectively. Perhaps, in order to have more supporters of the monetary union, the government should pay attention to education reform? “A wedge has been driven into this system,” say local wits, translating the name of Education Minister Roberts Ķīlis into Russian. By the way, the surname of Finance Minister Andris Vilks, as he explained to Itogi, translates as “wolf.” “When four years ago I had to pursue a tough policy of budget savings, they said—the wolf is cutting the flock of sheep,” recalls the chief Latvian euro-optimist.
In the commercial sector, salary cuts reached up to 60%. Unemployment in the country rose to double-digit levels. And this trend has not yet been broken. “My parents have a pension of 180 lats (about 2600 UAH—editor’s note). Just for utilities they pay 145 lats,” says Roman. We met him on the banks of the Daugava. He himself is Russian, a builder by profession. He has a “non-citizen of Latvia” passport, with which he travels to Stockholm to work on construction sites. Fortunately, the ferry from Riga departs for the Swedish capital every evening. “They introduce the euro, and prices will increase,” our interlocutor is convinced.
The so-called rounding syndrome, which has caused additional inflation in the eurozone, is not only remembered by ministers in Latvia. “We will hardly be able to avoid this, especially in the service sector,” says Minister Vilks. But he predicts that the price increase at the time of the transition to the euro will not exceed 0.3%, and not 5-10%, as his opponents scare.
However, the skeptical mood of society can play a bad trick on the government. “It is a myth that everything depends only on meeting the Maastricht criteria. The negative attitude of Latvian society towards the euro can also influence the EU’s decision,” predicts the head of the European Commission representation in Latvia, Inna Shteinbuka. And perhaps, we add on our own, become a reason for eurozone countries not to take on additional risks. Greece, Spain and Italy may be enough for the monetary union even without Latvia.
Konstantin UGODNIKOV.
Riga – Moscow.