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Latvia’s central bank governor Mārtiņš Kazāks has urged European policymakers not to be “naive” over the fact that the bloc is already “at war” with Russia.
Kazāks, a member of the European Central Bank’s governing council who is a contender to become ECB vice-president, stressed that central banks and the financial system needed to prepare for further escalation.
“It’s naive to think that we are not at war [with Russia],” he said in an interview with the FT. While the conflict was not unfolding “physically on our ground”, he pointed to cyber attacks happening “all the time”, sabotage of underwater cables in the Baltic Sea and violations of Danish airspace by suspected Russian drones.
“We need to be resilient to deal with that,” Kazāks said.
The 52-year-old trained economist, who has headed Latvijas Banka since December 2019, is one of the six contenders to become the successor to Luis de Guindos as ECB vice-president.
De Guindos’ non-renewable eight-year term will expire in May, and the finance ministers of the 21 Eurozone members may decide on his successor as soon as Monday.
Kazāks, who is competing with rivals including Finnish central bank governor Olli Rehn and former Portuguese governor Mário Centeno for the role, has been one of the more hawkish voices on the ECB’s governing council. He was early to warn of inflation risks after the Covid-19 pandemic and the start of Russia’s full-scale invasion of Ukraine in 2022.
Nato has in recent years strengthened its military presence in Latvia, a former Soviet republic with a sizeable Russian minority and a 280km-long border with Russia.
Over the past four to six years, Latvia’s central bank had worked on “various contingency planning issues”, said Kazāks.
One focus has been ensuring the ongoing availability of cash and digital payments in case of a crisis, obliging commercial banks to operate networks of “critically important” ATMs, including some equipped with their own electricity generators.
The country has also developed a system for “offline physical card payments” at pharmacies, gas stations and food retailers.
“We are in many cases best in the class and other countries are emulating our solutions,” he said, adding that “we are happy to share” them.
He said the central bank’s contingency planning related not only to the “risk of a Russian attack” but also to scenarios such as floods and other risks linked to climate change.
Kazāks said that should a euro member face military conflict on its own territory, this could lead to “financial stability issues” and problems in the banking system, as well as concerns over debt sustainability. “You might have spreads moving around,” he said.
However, the central banker stressed that those risks were “marginal” and could be addressed by the EU.
“We have in our hands to make this probability [of direct conflict with Russia] increasingly lower,” he said, both by supporting Ukraine in a way that Moscow “does not win in Ukraine” and by strengthening European military forces “to create a view in Russia that [any attack] is a high risk and not even worth contemplating”.
