The European Commission has given the small Baltic state of Latvia the go-ahead to join the eurozone next year. Skeptics are concerned that might boost the influence of the country's wealthy Russian minority.
At the Amberpines showroom in the Latvian capital Riga, wallpaper samples decorate one corner, a wall is covered in glazed multi-colored tiles, and a fire crackles in a wood-burning stove set up in front of tall stacks of firewood. Real estate agent Тamara Raine is working at her laptop computer, answering customer requests. Three years ago, the government gave foreigners the opportunity to acquire a permanent residence permit if they bought real estate - which saved her agency from bankruptcy
"When the crisis hit, we had problems selling apartments, just like everyone else," she says. "Latvia's Law on Foreign Investment was a great help." Latvians were deeply in debt during those years and in no position to invest, "so we concentrated on foreigners."
Attractive perk for foreign investors
Foreigners, in this case, refers mainly to Russians. As a former Soviet republic, Latvia has a large Russian-speaking minority. Raine's business model is based on rich Russians who buy a condominium or vacation home on the Baltic Sea in Latvia.
Among them are Yelena and Sergei, both doctors from Moscow, who bought a home in the Amberpines vacation village project in Riga's seaside resort of Jurmala. The advantages are obvious, says Sergei. He and his wife enjoy the area, everyone speaks Russian, and there is no trace of the resentment against Russians that lingered after Latvia declared independence from Russia in 1990, when many Latvians refused to speak Russian at all. Added to that comes the permanent residence permit: "If we want to travel in Europe, we no longer need to go through the elaborate process of applying for a visa."
A magnet for Russian money
...right on the scenic Baltic Sea in Latvia
Critics, however, say this very generosity that applies to all foreigners who invest more than 100.000 lat (140.000 euros, $182 800) in real estate as a weak point. There is concern the Law on Foreign Investment could enhance Russia's influence in Europe, or let the country's banking sector develop in the same way as the banks in Cyprus.
Inna Steinbuka, who heads the EU Commission's Latvian office in downtown Riga, does not share these concerns: "Russians can buy real estate or invest in Latvia because we have liberal investment rules," she says, but adds the flow of assets by non-Latvians to the country's GDP is not high. "It may be higher than in neighboring countries, but it is much lower than the European average. Whereas in Cyprus, the banking sector held assets equivalent to seven times the nation's GDP, in Latvia, it's not even 1.3 times."
Euro boosts economic growth
Latvia is still grappling with tax evasion, corruption and money laundering - but apart from those issues, the EU has now confirmed that the country fulfils the Maastricht membership criteria required to adopt the single currency next year.
Its public debt is around 40 percent of GDP, inflation is at less than two percent and people are buying government bonds that were unmarketable just four years ago. Latvia also posted the fastest economic growth in the EU with more than five percent over the past two years.
According to Andris Strazds, chief economist for Latvia at Bank Nordea, the benefits of introducing the euro are evident. "Studies show that membership [in the eurozone] could increase revenue from foreign sales by ten to 15 percent in a few years." It would no longer be necessary to convert lat into euros - "and that means fewer expenses for the economy."
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