Lithuania will be allowed to join the euro dance

By bne IntelliNews June 5, 2014

Mike Collier in Riga -


Baltic state Lithuania gained an all-important rubber stamp from the European Commission on June 4 to adopt the euro and drop its litas as its currency from January 1, 2015. The move all but guarantees euro adoption will proceed exactly as it did in Estonia in 2011 and Latvia in 2014, creating a single Baltic currency corridor extending all the way from the Polish border to northern Finland.

With the experiences of both Estonia and Latvia to draw on, Lithuania should complete the remaining formalities with ease: barring some major surprises with economic data, approval votes from EU finance ministers and the European Central Bank should be regarded as mere formalities.

Unveiling the verdict, EU Monetary Affairs Commissioner Olli Rehn said: “Lithuania’s readiness to adopt the euro reflects its long-standing support for prudent fiscal policies and economic reforms. That reform momentum, driven in part by Lithuania's EU accession ten years ago, has led to a striking increase in Lithuanians’ prosperity: the country’s per capita GDP has risen from just 35% of the EU28 average in 1995 to a projected 78% in 2015."

Rehn also rehashed the pro-euro arguments that will be repeated mantra-like in Vilnius for the remainder of the year – just as they were in Riga and Tallinn – to try to win over public opinion that remains at best lukewarm, with only 40% of Lithuanians in favour of the move according to the most recent polls: "The Economic and Monetary Union remains an attractive community to be in. The euro area today has more effective economic policy coordination, a robust financial firewall to safeguard stability and, from this year, a banking union. All of these Lithuania is committed to participating in and to further strengthening. Thanks to the efforts of the past five years, this ship is far better placed to navigate rough seas than it was at the outbreak of the crisis,” said Rehn.


The thumbs up from Brussels rights what many Lithuanians feel was a definite wrong eight years ago when the country was refused euro entry because it failed to meet the inflation criterion by a mere 0.1%. Meanwhile countries such as Greece were waved into the single currency bloc by using the simple expedient of cooking their books.

“Over the reference period from May 2013 to April 2014 the 12-month average rate of inflation in Lithuania was 0.6% - well below the reference value of 1.7% for the criterion on price stability. In 2013 the general government budget balance showed a deficit of 2.1% of GDP and was below the 3% threshold, meanwhile, the general government gross debt-to-GDP ratio stood at 39.4% - well below the 60% reference value. Lithuania also fulfils the criterion on the exchange rates - the Lithuanian litas has been participating in the ERM II since the 28 June 2004 and Lithuania has not devalued its currency’s central rate against the euro. The average long-term interest rate in Lithuania in the year to April 2014 was 3.6%, below the reference value of 6.2%.” said Swedbank in a commentary.

However, the Swedish-owned bank, which is the largest in the Baltic region, warned that, “a few challenges” remained before Lithuania could flop over the finish line.

“Similarly to the case of Estonia and Latvia, the ECB has expressed concerns about the sustainability of price stability in Lithuania, given the possibility of higher wage pressures, as well as the continuing catching-up process with the developed EU countries. According to the ECB, improvements in the functioning of the labour market, productivity enhancing structural reforms, reduction of energy intensity and dependency on energy imports, reduction of the shadow economy and corruption, an increase in the public administration efficiency, stronger counter-cyclical policy instruments, and higher confidence in the soundness of the financial sector, would help to achieve an environment conducive to sustainable price stability,” Swedbank said.

The final decision on Lithuania’s admittance to the euro area will be adopted by the EU Council on July 22 or 23.

If and when Poland ditches the zloty as – in theory at least – it is bound to do at the earliest opportunity, the euro will form an unbroken chain from Gibraltar to well beyond the Arctic circle.


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