Bloomberg News

Lithuania Leader Says Europe’s Crisis May Delay Euro Plan

May 22, 2012

The European Union, battling with its sovereign debt crisis, may not be ready to expand the euro area to the east in 2014 when the Baltic nations of Lithuania and Latvia prepare to switch currencies, Lithuanian President Dalia Grybauskaite said.

If Europe is ready, “of course we will join,” Grybauskaite said in an interview yesterday with Bloomberg News in Chicago. “It’s not only about Lithuania. It’s about Europe. Will Europe be ready to enlarge in 2014 because still we are seeing pending a lot of difficulties in the south of Europe, probably new elections in Greece.”

The Baltic nations of Latvia and Lithuania are next in line to switch currencies to the euro, while other governments across eastern Europe including the Czech Republic, Poland and Hungary are slowing preparations for the changeover as the euro region grapples with the debt crisis. Doubts are mounting on whether Greece can remain in the 17-nation currency zone as it prepares for June 17 elections following an inconclusive May 6 ballot.

Both Latvia and Lithuania peg their currencies to the euro with the official government goal of joining Europe’s monetary union in 2014.

The yield on Lithuania’s 2021 dollar bond rose 0.03 percentage point to 5.62 percent as of 10:57 a.m. in Vilnius.

Fiscal Discipline

Lithuania is committed to fiscal discipline and to investing in growth, said Grybauskaite. She declined to give a specific timeline for Lithuania’s full integration into the euro region.

“It’s not about the dates; it’s about the philosophy, about the behavior, about what is useful for Lithuania,” she said. “Lithuania is doing this phase because of usefulness for ourselves. It’s not because we want to change our banknotes.”

Eastern European nations pledged when they joined the EU that they would eventually adopt the euro. Of the EU’s 10 former communist members, Slovenia, Slovakia and Estonia have adopted the euro. Romania plans to switch in 2015, while Hungary may follow in 2018. Poland plans to join the exchange-rate mechanism, the euro’s waiting room and a condition for the switchover, next year.

Euro Aspirations

To join the euro, countries must meet targets on inflation, budget deficits, debt, long-term interest rates and exchange- rate stability. Lithuania in 2006 became the only nation rejected for euro adoption after it missed the inflation target by 0.1 percentage point.

The government plans to cut the budget deficit to within 3 percent of gross domestic product this year from 5.5 percent last year to muster the euro adoption criteria. The country also needs to slow inflation at 4.1 percent in April, while the threshold for joining the euro was 3.1 percent last month.

Lithuania’s economy probably will expand quicker than the government projected this year, Grybauskaite said. The economy may grow about 3 percent this year, she said, beating the government’s official estimate of 2.5 percent.

The economy advanced at a faster rate than forecast in the first quarter, expanding a preliminary 3.9 percent, as domestic demand strengthened. Economic output rose 5.9 percent in 2011, the second-fastest pace in the 27-member European Union behind Estonia.

Lithuania has agreed to contribute $500,000 per year for three years for Afghanistan’s security forces after 2014, Grybauskaite said.

The U.S. has been trying to raise about $1.3 billion from NATO allies and partners toward the $4.1 billion a year needed to help fund the Afghan security forces after 2014. NATO has agreed that all combat forces will leave Afghanistan at the end of 2014, when Afghans will be in charge of their own security.

Lithuania’s parliament approved having the country’s combat forces stay in Afghanistan until the end of 2013. Lithuania will be “present but in different form” through the end of 2014, Grybauskaite said.

Lithuania has 245 troops in Afghanistan, according to information provided on the International Security Assistance Force website.

To contact the reporters on this story: Roxana Tiron in Washington at rtiron@bloomberg.net; Milda Seputyte in Vilnius at mseputyte@bloomberg.net

To contact the editors responsible for this story: John Walcott at jwalcott9@bloomberg.net; Balazs Penz at bpenz@bloomberg.net


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