“We see really great benefits in close cooperation,” Federal Bank board member Burkhards Balcs told reporters before the official inauguration ceremony on January 31 in Riga. “We really believe that it is personal contacts between central banks that promote dialogue and also strengthen mutual understanding, which in my view is extremely important in our joint efforts to protect price stability.”
The representative of the Federal Bank is Nikola Marcinko, who has become a financial attaché at the German Embassy in Riga with an initial term of office of three years, starting from February 2024. “He will report on developments in Latvia, Estonia and Lithuania related to economic and fiscal policy and financial stability,” Balcs described Marcinko’s task, adding that “he will also promote the trust-based relations of the Federal Bank with the central banks of the Baltic States and strengthen its relations with state institutions and local financial institutions”.
Burkhards Balcs, member of the board of the Federal Bank of Germany, and Nikola Marcinko, representative of the Federal Bank in the Baltic States
Photo: Alexander Velsher
The new representative of the Federal Bank was welcomed by the President of the Central Bank of Latvia, Mārtiņš Kazāks, who emphasized the long and “very special” relationship of the Bank of Latvia with the German Central Bank. “We are glad that you are here and we hope that our cooperation will be very, very fruitful,” he said in his speech, welcoming Marcinko, as well as the deputy governors of the central banks of Estonia and Lithuania, Ilo Kazikus and Asta Kunijoshis.
Marcinko was pleased with such a high-level reception in Riga. “I’m very excited,” he said during the inauguration ceremony, adding that he has a personal interest in the job after having held various positions at the Federal Bank, as well as working at the German Finance Ministry. “There is a close connection between the Federal Bank and the central banks here. Often, not on all issues, but often we agree and our views coincide. And this is simply a great basis for further contacts.”
Close collaboration past and present
Addressing many professionals from the financial and banking sector, members of parliament and representatives of the diplomatic corps, Kazāks shared his memories of the central role of the German Federal Bank in forming Latvia’s main monetary institution.
“When Latvia regained its independence in 1990, at first it established the Bank of Latvia on the model of the Federal Bank of Germany. Especially regarding the independence of the central bank, which is very close to our hearts,” he said.
The Bundesbank in Germany has been seen as a national icon for decades, highlighting its independence in conflicts over monetary policy with various chancellors and finance ministers. With a strong and thoroughgoing culture of stability, it was the guarantor of a strong currency and an institution trusted more than any other by the citizens of Europe’s largest economy. “Not all Germans believe in God, but they all believe in the Federal Bank,” this quip of then-European Commission President Jacques Delors in 1992 has become famous.
Member of the Board of the Federal Bank of Germany Burkhards Balcs (right), German Ambassador Kristians Helts (middle) and Latvian Finance Minister Arvils Ashradens
Photo: Latvian Ministry of Finance
The situation changed when the euro was introduced as the common European currency in January 1999. Since then, monetary policy decisions have been made by the European Central Bank (ECB) and the Bundesbank has only one vote out of many, but is still considered to play an important role in deciding the policy of Europe’s central bank. In its role as guardian of the euro, the ECB is currently struggling to curb high inflation and achieve its ultimate goal: to ensure price stability in the eurozone.
“Now it is important to closely observe the economic and financial developments in the Eurozone and draw final conclusions. The exchange of knowledge and experience between central banks is an important basis for this,” said Balcs in his speech in Riga, adding that this is also why the Federal Bank sent a representative to the Baltic States.
“Regular dialogue increases mutual understanding and allows us to move closer to the common goal of protecting price stability,” he said.
Latvia, Estonia and Lithuania are often considered allies and associates of Germany, which has a conservative and strict approach to fiscal and monetary policy issues. After the restoration of independence in 1991, all three countries have implemented reasonable and prudent policies, which have been centered on a balanced budget and a low level of public debt. This gave them the opportunity to introduce the euro, which is now the common currency of the Baltic states. Lithuania was the last of the three countries to introduce the euro in 2015, Estonia was the first to do so in 2011, but the euro has been in circulation in Latvia since 2014.
An economically and politically important step
Calling it an “exciting and inspiring perspective of relations between Germany and the Baltic states”, the German ambassador to Latvia, Kristians Helts, welcomed the Federal Bank’s decision. “With this new position, the Baltic States will be in the very exclusive club of German embassies around the world that have a representative of the Federal Bank. It is also a clear signal in these challenging times for Europe, for the Eurosystem, that we are trying to promote economic and institutional cooperation between our countries ” said the ambassador.
The new representative in Riga is part of the Federal Bank global networkwhich has 16 representative offices and representatives working in German embassies and consulates general in important financial centers.
“It has such cities as Rome, Sao Paulo, Mumbai, Madrid, and now also the Baltic states,” Latvian Finance Minister Arvils Ashradens said in his congratulatory speech, calling the sending of a representative of the Federal Bank to Riga “an important step to make the economies of the Baltic states more understandable in Germany “.
Highlighting the current geopolitical situation and Russia’s war against Ukraine, Asheraden said he considers the Federal Bank’s action a “great act of solidarity” and a signal of unity and togetherness. The representatives of the central banks of the three Baltic States also emphasized in their speeches the importance of expanding cooperation in order to strengthen economic partnership and resilience in order to face common challenges.
Member of the Board of the Federal Bank of Germany Burkhards Balcs (left), German Ambassador Kristians Helts (right) and Latvian Finance Minister Arvils Ashradens (middle)
Photo: Latvian Ministry of Finance
“The circumstances in which we meet today are, of course, rather special, and can be described by one short German word. And that German word is Turning point“, the Kazakh pointed out, talking about the famous word, which translates as “turning point” or “watershed”. The use of this word is remembered from the speech of German Chancellor Olaf Scholz after the Russian invasion of Ukraine, which was followed by a paradigm shift in German foreign and security policy.
“Turning point we should also be encouraged to create a new business model that would fundamentally separate us from Russia. And this model will further strengthen our sovereignty and prosperity,” said the head of the central bank of Latvia, adding:
“Even before Russia’s full-scale war in Ukraine, we in Latvia have realized in a harsh way that serving financial flows to and from Russia is poisonous and, looking at it more broadly, the business model, which is supposed to be a bridge between East and West, is an illusion.”
The Federal Bank, but not the German Bank
The arrival of the Federal Bank and its representative raised high hopes that other representatives of the German financial services and banking sector could operate in the Baltic States. The desire and expectations that commercial banks and credit institutions from Latvia, Estonia and Lithuania’s largest trade partners will enter the market were clearly expressed both in some congratulatory speeches and in private conversations at the inauguration ceremony.
German banks used to be active in the Baltic states, but now none of them are in the Latvian, Estonian or Lithuanian market, and many businessmen and policymakers are not satisfied with this.
“We are working on it and hopefully we will see some development in this area as well,” Florian Schröder, executive director of the German-Baltic Chamber of Commerce, told LSM, adding that “German investors’ interest in the Baltic States is increasing.”
Asked if this applies to commercial banks, Schroeder said: “If investment and commitments in the real economy expand, support from the financial side is also needed. It is a mirror, so I would expect some news in this area as well.” The executive director of the German-Baltic Chamber of Commerce also welcomed the Federal Bank’s involvement in the region: “I think it is an important signal of stability, as well as the deepening of cooperation with the Baltic States and commitments to them.”
2024-02-06 16:32:25
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