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Vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro
Euro changeover conference
Euro changeover conference, Riga
12 September, 2013
Distinguished Guests, Ladies and Gentlemen,
It is a great pleasure to be in Riga today to mark the enlargement of the euro area to its eighteenth member. Latvia is ready to adopt the euro, and will start using the common European currency on 1 January 2014.
The adoption of the euro is an important landmark for Latvia, the euro area and the European Union as a whole.
For Latvia, it is the result of the impressive efforts and determination of the Latvian people and authorities, which I would like to strongly commend today. Thanks to these efforts, in the midst of a deep global economic crisis, Latvia will enter the euro area from a strong position. It has a solid fiscal stance and one of the lowest public debt levels in the EU. Its economy is highly flexible, and it has shown its ability to operate and adjust under a fixed exchange rate regime for close to two decades.
For the euro area, the accession of Latvia underlines the vitality of the Economic and Monetary Union. For those not yet using the common currency, it shows that the euro area is open to all Member States that fulfil the conditions set by the Treaty. It demonstrates that sustained policy efforts and stability-oriented policies generate concrete results.
Latvia will be part of a reformed Economic and Monetary Union. Over the past few years its architecture and governance have been significantly strengthened. The functioning of the EMU now finally reflects the Treaty commitment that obliges the Member States to consider their economic policies as a common concern. As a result, we will be able to prevent the emergence of fiscal or macroeconomic imbalances better than before.
The set-up of the European Stability Mechanism as a strong joint financial backstop has allowed us to weather the storm and it will help us face the next ones better prepared.
The regulation of financial markets has been improved to ensure that pre-crisis excesses can be avoided in the future. With the set-up of the Banking Union, the next large project for the strengthening of the EMU, we will be able to ensure that the euro-area will have a stable banking sector, capable to serve the needs of the real economy.
And at the same time, euro area Member States are making important headway to strengthen the sustainability of their public finances and to pursue structural reforms for growth and jobs. As a result, we are seeing the first signs that the economy may be turning around. I am confident – if the governments consistently stick to reforms and commitments made, that we will see a sustained recovery next year that may translate into improved employment figures by the end of 2014. Clearly, there are risks, including political instability in some countries and back-tracking on structural reforms, but overall I think we have turned the corner and should be on the path of exiting the crisis.
Last week when the G20 summit took place in St. Petersburg, the discussion were of course overshadowed by Syria but there substantive discussion on the economic agenda which showed good progress and strong unity on a number of points which will help global confidence.
We are now witnessing a multispeed recovery in the global economy. The big change since the last summit was that growth prospects of advanced economies have increased and prospects of some emerging countries slowed down. It is not more the three speed recovery set out by the IMF at the Spring meetings with fast-moving emerging economies, a moderate recovery in the United States, and a stagnating Europe and Japan. There are clear worries on the slowdown in emerging market countries, but also on the solidity of their financial sectors.
The Euro area is not seen any more by the G20 to be at the epicentre of the crisis. There has been praise by our G20 partners, including by President Obama at the plenary session, for the decisions taken by European authorities since the last summit. But there is also the recognition that we need to stay the course of reform in particular on banking union [ (the communique contains a renewed commitment "to move ahead decisively and without delay towards banking union")]. Our G20 colleagues clearly expect us to continue to work with a sense of urgency on the Asset Quality Review, stress tests, bank balance sheet repair and the Single Resolution Mechanism.
Ladies and Gentlemen,
Let me now turn back to Latvia, and to what life as a member of the euro area will mean in terms of the policy challenges ahead. It will be essential to continue prudent fiscal policies and to implement ambitious structural reforms in line with the Country Specific Recommendations under the European Semester to ensure successful participation in the European Monetary Union. The use of macro-prudential tools to reduce risks from the growing non-resident banking sector is also important in this respect. The commitments given by Latvia to the Eurogroup in June are encouraging in this regard.
The Latvian authorities have already done a lot to keep public finances on a sustainable path, and the chosen strategy of fiscal consolidation has proved successful. I count on the Latvian authorities to maintain this culture of fiscal prudence also as a member of the euro area.
While I am glad to note that the economic growth is translating also into declining unemployment, it still remains very high. It is therefore necessary to do more to bring people back to work. Education and training systems can be made more responsive to labour market needs. Tackling social inequality, in line with the recent World Bank recommendations, remains a challenge and we will follow closely how this issue will be addressed in the 2014 budget.
Other important reforms concern for example the management of state owned assets, access to gas infrastructure, financing of higher education and health care, judicial and insolvency procedures, tackling financial crime and tax evasion, competitiveness and governance of ports. The list is long and ambitious, but necessary for Latvian people to be able to reach higher living standards in the medium term.
The coming weeks and months will be busy with preparations for practical changeover to the euro. We will be working closely with the Latvian authorities to ensure a smooth changeover.
Preparations are well on track, but further efforts are needed to ensure that all areas of the country, all businesses and banks are ready January when lats banknotes and coins will be replaced by euro cash.
Also, the concerns of many Latvians about possible abusive price setting need to be addressed. Looking back at previous changeovers, there has been no evidence for a significant price increase due to euro introduction. The Latvian authorities' initiative called "Fair Euro Introducer" will be helpful here. It invites businesses to join and commit not to misuse the changeover for their own profit, to respect the changeover rules and provide the necessary assistance to their clients before and after euro adoption. We are confident that any complaints of abusive price settings by certain retailers or service providers will be addressed quickly.
I am confident that Latvians will quickly learn to appreciate the benefits of the euro. It is natural to be worried about change, but we've seen before that support and acceptance of the common currency tend to increase quickly and substantially after euro adoption.
With the euro all Latvians will be saving on currency exchanges, lower transaction costs and favourable financing conditions for businesses and through better price transparency for consumers. Government’s borrowing costs should also decrease further, which means less money spent on servicing the public debt.
As a member of the euro area, Latvia will participate in decision-making on issues that already affect the country now due to the eight-year-old peg to the euro. Latvia will be at the core of European integration, determining its future together with its peers.
I am glad to note that the people of Latvia have decided that the backside of the euro coins should reflect the profile of the national symbol Milda. I am aware of her role as a symbol of freedom and continuity for the Latvian people through the past century. With the euro, she will travel to all corners of Europe and the world, telling the story of Latvia and its identity.