OREANDA-NEWS. November 05, 2014. Before the adoption of the euro, fewer than half of the people of the Baltic States (43 per cent of the respondents in Estonia, 42 per cent in Latvia, and 37 per cent in Lithuania) thought the euro would have a positive effect on their personal wellbeing.

After the adoption of the euro, management of daily financial matters has become more convenient for some families, as revealed in the new Baltic Household Outlook prepared by SEB.

It is obvious that the common currency allows costs to be cut when travelling to other Eurozone countries or purchasing goods there, as conversion costs are no longer added. Also, it is easier to compare prices. However, the statistics from Estonia show that in 2011, Estonian families did not start travelling more than before.

After the euro changeover, there is no need to consider the currency risk related to the assets and liabilities that are now in euros. Before taking a loan or depositing money, families had to choose whether to get a higher interest on the savings and pay lower interest on the loans or to be protected against currency risk. Compared to people from the other Baltic States, a significant majority of Lithuanians preferred taking loans in their domestic currency. Whereas the interest rates of euro loans are generally lower and also more stable than those of loans in litas, the preference for loans in litas can be explained by the fear of the currency risk, regardless of the fact that the exchange rate has not changed since the lita was pegged to the euro. So, the euro changeover will eliminate one factor causing insecurity. However, the adoption of the euro did not change the behavioural patterns and preferences of Latvian and Estonian families when taking loans and investing money.

The interest rate of the loans given out in domestic currency started falling in the Baltic States as soon as final confirmation of joining the Eurozone was received. The adoption of the euro had no effect on the interest rates of loans taken in euros. Upon comparing the loan interests of the three Baltic States in the conditions where Estonia and Latvia are already part of the Eurozone, but Lithuania not yet, it appears that in August, the average interest rate of new home loans with floating interest rates was the lowest in Lithuania (2.01 per cent) compared to 3.26 per cent in Latvia and 2.46 per cent in Estonia.

“The experience of Estonia and Latvia in the euro changeover shows that the euro has no direct significant effect on the economic situation and daily financial matters of families. The financial situation of families may be influenced by the changes in the economy of the entire country resulting from joining the Eurozone. There are many other factors in addition to the euro that change the financial behaviour of families, that is, make them save more, invest and take loans,” Triin Messimas, SEB Estonia Development Manager of Private Loans, commented.