Lithuanian Prime Minister Andrius Kubilius said his country will join Europe’s common currency when the euro area is ready for expansion, signaling that Europe’s sovereign debt crisis may alter his government’s euro adoption plans.
Lithuania will apply for the euro “when we’re ready and when the euro zone is ready,” Kubilius said in a radio interview with Lietuvos Radijas today. “The euro remains our strategic goal. Nevertheless, we’d like to see a clearer and more stable situation in the euro zone at the time when we adopt the euro.”
Kubilius dodged giving a specific target date as to when Lithuania will switch currencies, evading previous statements that the government aims to join the euro in 2014. He said the country will meet all the requirements for euro adoption next year, including the inflation target as declining oil prices help curb consumer-price growth.
Europe’s debt crisis is cooling Baltic enthusiasm for euro entry. Lithuania, which in 2006 became the only nation rejected for euro adoption, and Latvia have previously pledged to follow fellow Baltic state Estonia, which introduced the currency in 2011.
Kubilius’ comment follows a statement from Latvian Prime Minister Valdis Dombrovskis on Aug. 23 that Latvia’s government will decide on a euro adoption timetable in spring 2013. This contrasts with earlier statements by Latvian officials to switch currencies in 2014.
The euro area needs a system of control or sanctions for countries that violate the euro bloc’s rules on budget deficits, inflation and debt, Dombrovskis said in an interview with Latvijas Radio.
Latvia cut its value-added tax by 1 percentage point to 21 percent in July to slow inflation and qualify for euro entry. Both Latvia and Lithuania fix their currencies to the euro.
Kubilius reiterated that the Lithuanian budget deficit will narrow to 3 percent of gross domestic product this year before shrinking further to 2 percent of GDP in 2013, in line with euro adoption plans.
The Nasdaq OMX Vilnius Index (VILSE) fell 0.47 percent at 3:04 p.m. in Vilnius today, heading for the biggest daily drop in two weeks. The yield on Lithuania’s 2022 dollar bond was little changed at 4.07 percent today and up from the lowest on record of 4.06 percent on Aug. 23.
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