Bloomberg News

Krugman Wrong to Say Euro Is a Trap, Lithuania’s Sadzius Says

March 28, 2013

The benefits of joining the euro outweigh any costs for rescuing members in crisis, Lithuanian Finance Minister Rimantas Sadzius said, rejecting economist Paul Krugman’s view that the European currency is a “trap.”

“I beg to differ with Mr. Krugman,” Sadzius said today on Ziniu radio in Vilnius, the Baltic nation’s capital. “The euro zone, as a community of highly developed world-leading economies, has proved its resilience precisely in dealing with the problems” of Cyprus, Greece, Italy and Spain, he said.

Krugman, a Nobel laureate, criticized Poland’s euro ambitions in a New York Times article this week, saying joining the common currency “is at best a gamble, with a potentially terrible downside.” Lithuania, which seeks to adopt the euro in 2015, views outlays for the switch as an investment that’s sure to pay off in economic growth, according to Sadzius.

Besides the logistical costs of the change, Lithuania would have to put an initial 800 million euros ($1 billion) in the European Stability Mechanism and pledge state guarantees for possible loans to solve crises in economies of the current 17- nation currency union, the minister said.

With per capita income that’s just two-thirds of the European Union average, Lithuania stands to benefit from faster convergence with other EU economies no matter how they’re performing, according to Sadzius.

“Our booms don’t reach the level of their busts,” the minister said. “Getting the euro, if we can qualify, would give our economy a nice push.”

Lithuania’s government has said the main hurdle to adopting the euro at the start of 2015 was slowing inflation to below an EU limit. It would probably be the last of the three Baltic countries to join. Estonia made the switch in 2011 and Latvia plans to follow suit next year.

The Lithuanian litas exchange rate has been pegged at a rate of 3.4528 to the euro in a currency board since 2002.

To contact the reporter on this story: Bryan Bradley in Vilnius at bbradley13@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


Reviving Keynes
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus