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The town with two currencies

Monday, December 30, 2013 - 01:59

Dec 30 - Latvians living in the border town of Valka currently need to cross the street into Estonia to enter the euro zone so how will they cope when they too become part of the single currency. Sonia Legg reports.

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The border post isn't used any more but Valka still has a split personality. One half is in Estonia - the other is part of Latvia. When Estonia joined the euro Valka had to function using two currencies. Three years on Latvia is joining too. And the town's deputy mayor isn't entirely happy. (SOUNDBITE) (Latvian) DEPUTY MAYOR OF VALKA, VIESTURS ZARINS, SAYING: "I am not that optimistic. The main issue is unemployment. I don't see that the euro would solve this issue." The former soviet state has a population of just two million. Unemployment is 12% and it will be the poorest member of the euro zone. Adopting the single currency should encourage investment and lower borrowing costs. But Latvians rely heavily on Russia, particularly for energy, and they fear prices will rise. Martin Kazuks is Chief Economist at Swedbank. (SOUNDBITE) (English) CHIEF ECONOMIST OF SWEDBANK IN LATVIA, MARTINS KAZAKS, SAYING: "Very many fundamental risks are still up to us - what happens with the education system, regional development or the business environment? What happens with infrastructure?" Latvian drug maker Olainfarm employs 1,000 people. But filling skilled positions is a constant problem. Only half its senior researchers are local. Chief Financial Officer Salvis Lapins. (SOUNDBITE) (English) CHIEF FINANCIAL OFFICER OF OLAINFARM, SALVIS LAPINS, SAYING: "Ten years ago they were talking about pulp mill, we were talking about some huge Coca Cola factories for the entire Eastern Europe, what rot. That is simply not possible. If you need to hire a thousand people you don't have those people. I don't see any big company developing in Latvia in the next 50 years." There are other dangers too, including rising house prices. A controversial policy which offers European visa benefits to property investors has attracted many Russians. The European Commission fears Latvia could be the next Cyprus. The government insists it is monitoring the money but with elections due in October few expect any upset apple carts, especially with a new currency to deal with too.

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The town with two currencies

Monday, December 30, 2013 - 01:59