Keep Calm and Embrace the Euro!
Latvia will become the 18th member of the Eurozone on 1st of January 2014.
On January 1st, 2011 Estonia took the same step as the 17th member state. Alike most Estonians we are observing Latvia’s change of currency with great interest and support. Below are a few encouraging thoughts as well as experiences from our transition to the new currency.
It came to my surprise that although there had been lots of researches prior to the exchange date, I could only find a couple of studies conducted after the transition. The fact that the number of researches after the transition was small, as well as lack of media attention to the process after the transition indicates that the whole process in Estonia was relatively calm and easy. And it really was. After intensive speculations whether the prices will start an immense rise, daily media attention to the distribution of “eurocalculators” or a vast demand of buying the Euro coin sample packets, it just was not a topic any more after the currency transition had happened.
This does not mean that the Euro did not change anything.
First of all, the fact of change is the same in all countries, but the direction and feeling might differ quite dramatically. In Estonia the fixed exchange rate was 15,6466 Kroons per one Euro, in Latvia it is 0,702804 Lats per Euro. I’d like to emphasize the difference of those directions. In Estonia all goods and services became in nominal ca 15 times cheaper overnight. In Latvia the number on the price tag would increase 1,4 times. It will be interesting to see whether this changes the behaviour of consumers. In hindsight, for Estonians it was easier to continue the consumption on previous level and accepting the change of price tags as the prices felt “smaller”.
Secondly, during the first Euro-months some businesses noticed a small decrease in number of transactions. This changed back very quickly. Consumers started to look more for sale offers and percentage of card payments increased substantially. For a time it was complicated for some consumers to keep track of spending. I cannot say that the Euro did not enhance the prices at all, but I can say that the rise which occurred during and after the transition in Estonia is also linked to many other economic reasons, e.g. the transition happened at the end of the economic crisis in Estonia, it co-incided with the increase in energy prices, certain tax rises, etc..
Thirdly, Estonia received vast media attention from all over the world. As Estonia joined the Eurozone alone it was a good opportunity for marketing – there were lots of articles giving an overview of the country. The interest and trust of investors and entrepreneurs from other Eurozone countries showed a significant rise. A fun fact, elderly European tourists’ interest towards Estonia had an increase in numbers as well. One could expect all that happening in Latvia.
And last but not least, we are counting coins again. And we have discovered that coins have value. Most Estonians had given up the habit due to Estonian coins not having a remarkable value – biggest, the one-Kroon coin, was worth about 6 eurocents and the rest were banknotes.
After the change in Estonia, according to a survey conducted by the German-Baltic Chamber of Commerce, some Latvian and Lithuanian companies noticed a positive impact to their business. One could expecting a similar effect for the Baltic countries from the forthcoming change in Latvia as well.
The fact is that for euro-zone residents, visiting Latvia will get a lot easier without having to exchange currency. For southern part of Estonia it is very easy to go to Latvia for shopping. Riga is a popular tourist attraction for Estonians, especially during wintertime. It will become even more comfortable to visit Latvia as of next year. And without exchange costs the trade between two countries should also see an increase.
So all in all, I would recommend taking the change calmly and approach it with common sense. Paying with your plastic cards makes the transition simple and easy to survive. And as an Estonian I am happy to visit Latvia even more.