Cyprus for two weeks has been on the front pages of the newspapers and news headlines. The new tax has been adopted yet, and this decision has created a big problem for Europe. The main question is - where will flow the contributions of all those who dissapointed in Cyprus as a reliable and convenient money vault.
Unexpected announcement
Then thunder was made by the representative of the central bank of an EU. Latvia has been banned from Russian money that flow away from Cyprus. The essence of the prohibition is as follows: "Or you do not take Russian money from Cyprus, or say goodbye to the hope to join the Eurozone". Serious and unexpected statement, is not it?
The statement was voiced by the Latvian radio, which immediately made me doubt its reality. Doubts increased when the prime minister of Latvia Dombrovskis has refused to confirm the information. He was quick to assure everyone that between the economy of Latvia and Cyprus there is a significant difference. He said that Latvia in principle can not be described as a financial center in contrast to Cyprus and Ireland.
But the seed of doubt has fallen on fertile ground. Because the rumors that the money of Russian investors would flee from the sinking Cyprus to Latvia appeared almost immediately after alarming reports of the impending reform. One of the first who spoke of a possible influx of non-residents in the Latvian economy was Latvian investor and banker Girts Rungainis. MEP from Latvia Inese Vaidere has the same opinion. The only difference is that Ms Vaidere suggests to take great care to the verification of funds and take only "clean" money.
What's your evidence?
But the threats are threats, rumors are rumors, denials are denials, but still it’s worth investigating whether there is a subject of conversation? Why should the Russian investors rush to withdraw money to Latvian banks?
As for the semi-mythical threats from the ECB, Latvia has a lot to lose. President has approved the adoption of the Latvian Saeima law on the introduction of euro in Latvia. In order to enter the European Union and have the right to become a member of the eurozone Latvia had to perform complicated requirements of the European Commission. For example, Latvia was forced to reduce its budget deficit to 3% of GDP, which was very difficult.
It becomes clear that the entry into the euro zone is a long term goal for the government of Latvia. Hardly anyone wants to risk now, when the country is just a few steps away from achieving this goal. Even if on the other end of the scale is several billion euros of investment.
And yet, with what could Latvia attract Russian investors, in addition to its convenient location and long-standing economic ties between the two countries? Latvia for several years consistently pass laws, simplifying management of economic activities in the country.
Back in 2010 a law was passed allowing a residency permit in Latvia (http://ee24.ru/trend/po-tu-storonu-shengenskogo-zabora/) in return for investment in the local property market. Such a way to get a pass to the Schengen area is very popular among the citizens of Russia and CIS countries.
In 2013 on the territory of Latvia tax incentives were introduced for local companies, working with foreigners. They are exempt from a number of taxes related, in particular, to the sale of shares in subsidiaries. In 2014 all the taxes paid by non-residents on loans and loans from local banks will be canceled. Also this law itroduce the duty-free use of patents, trademarks and other intellectual property. In addition to the tax advantages Latvia has a reduced rate of VAT and income tax for all foreign investors.
All these activities of the Latvian authorities made Latvia a very good place for investment. Including Russian investors. Accusations by the ECB do not seem far-fetched now.
Experts believe in Latvia
Experts believe that Latvia should use the circumstances and attract investors' money by its image of politically and economically stable country. Some experts claim that at the moment for Latvia it’s more profitable to focus on Russian investors, rather than on entry to the eurozone. Some experts, however, express doubts about the hype created around Latvia. They believe that the government will not risk the Eurozone, and the conditions in Latvia is not sufficiently favorable to the exodus of capital in this country.
In any case, today the Russian money is a strategic resource for the Latvian economy, no matter if they are invested in real estate, banks, or simply spent during the summer holidays.
"In any case, we expect further growth in the interest of Russian investors in the Latvian real estate and deposits in banks in Latvia", - says ee24.ru project manager Anastasia Grishina.
If we reduce everything to a common opinion, it turns out that, most likely, some of the money will flee from Cyprus to Latvia, but this won’t prevent the country from joining the euro zone.
Text - Ivan Ulitin.
ee24.ru