“Joining the eurozone will be a significant geopolitical step for Latvia, which will decrease its reliance on Russia

“Joining the eurozone will be a significant geopolitical step for Latvia, which will decrease its reliance on Russia. However, it should be accompanied by diligent work in improving the banking sector as well,” today claimed ECR member Roberts Zile.

“Of course, I welcome that Latvia has come not only one step closer to the eurozone, but is now also almost in it,” said R. Zile, referring to the European Commission’s and European Central Bank’s (ECB) convergence reports which were published today. The reports express support for Latvia to join the Eurozone. “At the same time the ECB report clearly indicates that long-term problems for the country might arise, if the banking sector continues to rely on non-resident deposits,” claims R. Zile.

R. Zile, who is currently shadowing the European Commission proposal for Latvia to join the eurozone in the European Parliament, continuously insists that non-resident deposits in the country are a real problem, and not one that has been artificially created, as some claim.

“If non-resident deposits really would not be a problem in Latvia, the European Commission and the ECB would not persistently mention them in their reports on the readiness of Latvia to join the Eurozone. The ECB even estimates it to be a “serious risk to financial stability [in Latvia],” points out R. Zile. “Therefore it is surprising that, for example, the Minister of Finance of Latvia assess the risks connected to non-resident deposits as “very minimal” for Latvia and claim that the concerns over them are connected to attempts of other countries to “divert attention from their own economic problems”.”

“I think that our Minister of Finance will find it very difficult to work with this sort of attitude in the Eurogroup meetings and achieve influence for Latvia in the Eurogroup. I believe that the concerns highlighted in the ECB report should not be perceived as placing blame, but instead as an opportunity for Latvia to improve its banking sector,” stated Zile.

R. Zile recognized that, due to the eurozone’s movement towards a banking union,Latvia will see a decrease in the amount of risks in the banking sector after joining the currency union. The first step towards the banking union is the introduction of the Single Supervisory Mechanism under the auspices of the ECB as of 2014.

“The Single Supervisory Mechanism would open doors to better supervision of banks inLatvia, especially as the possible harm caused by the banking sector to the country and to the EU as whole will be scrutinized on the European level. However, even more significant are the next steps – the creation of the Single Resolution Mechanism and the Common Deposit Insurance Scheme. They could finally sever a vicious circle between the insolvency of banks and the insolvency of the country.”

Besides, it is important for Latvia, as a fully-fledged member of monetary union, to get an access to the eurozone rescue fund or the European Stability Mechanism, admits R. Zile.