[LINK] "Euro zone hopes Latvia is no Cyprus on the Baltic"

[rfmcdonald]

The relationship between Russia and Latvia, as I mentioned earlier here, is predicted on any number of things: the continued participation of post-Soviet, European Union member-state Latvia in a Russophone cultural sphere; the presence of a large Russophone minority; Latvian tourist attractions; and, Latvian financial institutions. As Latvia prepares for Eurozone entry while watching the ongoing catastrophe in Cyprus, Alan Wheatley and Aleks Tapinsh's Reuters article points out that Latvia and its financial institutions are being subjected to the kind of close inspection that their Cypriot counterparts were not.7

[T]he euro zone, Germany in particular, is worried that low-tax Cyprus has become a conduit for money-laundering by Russians, who in turn have been withdrawing cash from the island's banks in case they are asked to contribute to the bailout, possibly via a tax on deposits.

Some of that money is washing up in Latvia, which has long catered to Russians and other foreigners.

As Latvia waits to hear whether its application to join the euro in January 2014 is accepted, its large offshore banking sector is thus under the microscope.

"It's very important to explain to our partners in the euro zone that, in the case of Latvia, this doesn't create any new risks similar to Cyprus," said Roberts Zile, a former finance minister and now a member of the European Parliament.

Cyprus's banks have assets worth more than eight times the island's gross domestic product, dwarfing the equivalent figure for Latvia of 130 percent. But half of Latvia's bank deposits are held by non-residents, compared with 37 percent for Cyprus.

A senior banker said he looked on offshore banking in Riga with "scepticism and suspicion" but acknowledged that Latvia's EU membership and low taxes gave it a comparative advantage as an asset manager, especially serving Russian clients.