Latvia. According to Countryaah, Latvia was given a clear sign in the euro zone during the year in January 2014. It was a political success for the government, which had the euro accession as the main target for its economic policy through a deep banking and budget crisis.
The country met with a good margin the conditions for entry into the euro zone. Budgetary tightening and public wage cuts had reduced the high budget deficit to 1.2% of GDP at the beginning of 2013, inflation was low and central government debt represented about 40% of GDP. However, a majority of the population was against the euro, but the government rejected the opposition’s demand for a referendum.
Just before New Year, Latvia paid off the last of its loan to the International Monetary Fund (IMF) from 2008. This happened prematurely, and the cuts that made the repayment possible may have gone too far in reducing the social protection network, the IMF indicated at the beginning of the year. According to Eurostat (EU Statistics Office), Latvia had the EU’s greatest economic inequality and was the EU’s third poorest country.
The economy had not recovered the GDP loss from the crisis, but 2013 was the second consecutive year when Latvia had the EU’s highest growth rate, around 4%. However, with continued high unemployment of about 12%, the emigration of labor continued, and most of the emigrants were young. The population decline meant that schools were closed down, the number of students at universities and colleges dropped sharply, and agricultural land was abandoned.
In June, the Financial Supervisory Authority sentenced a Latvian bank for money laundering, after the bank received money from the tax fraud revealed by the Russian lawyer Sergei Magnitsky. Several banks in Latvia were charged with the same crime. Half of the money invested in Latvia comes from foreign depositors, mainly from the Russian Federation and former Soviet republics. Latvia was described during the year as a first stop for money launderers in the EU, where money can then be transferred between banks in different EU countries.
In the June local elections, the Russian-speaking mayor Nil Ushakov was re-elected in Riga. His party Harmonic Center took alliance with a local Riga party 58% of the vote. National Alliance and Prime Minister Valdis Dombrovski’s Party Unit both ran a nationalist election campaign, pointing out Ushakov as a threat with ties to the Russian Federation. 51% of Riga’s residents are Russian-speaking, but many of them lack citizenship and voting rights.
During the year, the NATO Defense Alliance conducted a military exercise in Latvia. The intention was to test the ability of NATO’s rapid response force to respond to a crisis in the Baltic States. Latvia and the other Baltic countries had demanded a clearer readiness from the alliance to defend the Baltic against any possible attack. The NATO exercise came after the Russian Federation and Belarus held much greater maneuvers that troubled the Baltic States.
Prime Minister Dombrovski’s coalition suffered from internal contradictions with open arguments and the change of a number of ministers. Despite this, the government held together, and Dombrovskis broke the record during the year as the longest democratically elected head of government in Latvia’s history, four and a half years.
A political battle was fought over the government’s controversial program of residence permits for investors. Since 2010, almost 7,000 foreigners had been granted five-year residence permits in the EU country Latvia after investing a total of EUR 600 million in real estate in Latvia. According to critics, the system is being exploited by shady businessmen from the former Soviet Union who want to enter the EU, and the National Alliance in the government wanted to stop it. An annual quota of 700 temporary residence permits for investments over EUR 150,000 and 100 permits for investments above EUR 500,000 were decided upon.
Latvian nationalists gathered names during the year with demands to Parliament that the large so-called victory monument from the Soviet era be removed from Riga. There was a hot public debate, and a survey of Riga’s residents showed that more than three-quarters were against the proposal. The government recalled Latvia’s settlement with the Russian Federation from 1994, when both countries pledged to preserve and maintain memorial sites on each other’s territory.
In November, 54 people perished in Riga as the roof of a supermarket collapsed. In the aftermath of the disaster, Prime Minister Valdis Dombrovskis announced his departure, saying he took political responsibility for what had happened. The president and the government parties disagreed about who would succeed Dombrovskis, and by the end of the year ruled an expedition minister.