(Roundup) Lithuania joins euro zone after years' efforts

January 2, 2015 10:29 am 

VILNIUS, Jan. 2 — After mastering its twisty way to the euro zone, Lithuania has become the last of the three Baltic States to adopt the euro on Jan. 1, 2015.

"The euro will be a guarantee of our economic and political security. It will enable us to more rapidly develop viable economy, which creates new jobs and increases people's income," Algirdas Butkevicius, Lithuania's Prime Minister, was quoted on Thursday by ELTA news agency during the celebration of withdrawing 10 euros right after the New Year bell.

The 2015 New Year means big victory and celebration for Lithuania, which has become the 19th member of the euro zone, while trying to forget its first failed bid in 2006.

It was of March 16, 2006, when the government of Lithuania applied to introduce the euro in January 2007, despite European Commission warnings on the country's high inflation.

The country's officials believed that inflation would be balanced out by Lithuania's impressive economic growth of more than 8 percent on a yearly basis and by stable consumer prices.

Regardless of these hopes, only Slovenia of the two applicants was allowed to join the euro area on Jan. 1, 2007.

Lithuania missed its chance to adopt the euro by having 12-month average inflation of 2.7 percent, just 0.1 percent overstepping the then reference ceiling of 2.6 percent required to adopt the euro. Lithuania became the only country to be denied approval to adopt the euro after requesting a convergence check from the EU.

In 2007, Prime Minister of the time Gediminas Kirkilas stated that he hoped for adoption of euro at around 2010-2011.

These plans were thwarted by the global financial crisis which started in 2008 and made Lithuania to face its most cruel economic reality it ever expected as an independent country.

In 2009 Lithuania's GDP declined by roughly 15 percent, budget revenues fell and deficits exploded. Out of the euro zone, with export markets nearly shut-down, Lithuania did not have many choices.

The then conservative government of Prime Minister Andrius Kubilius, current opposition leader, took austerity measures in 2008. The cabinet cut salaries for employees in the state and public sector, lowered pensions, and raised some taxes.

"We are really suffering, and we would be very glad if a more coordinated and more effective approach from Brussels was implemented with respect to expanding the euro zone," Kubilius was quoted as saying by website "Emerging Markets" at that time.

Though the reforms were painful nearly for all the residents, Lithuania was later praised by international organizations as a reform-focused country.

"The reforms implemented in 2009 sought to improve efficiency and support growth by shifting the tax burden from direct income to consumption taxation, in common with reforms undertaken by other open economies," International Monetary Fund said in its statement in July 2010.

After tough reforms were implemented, Lithuania's economy has been growing sustainably.

Today, Lithuania is one of the fastest growing countries in Europe. Last year its GDP grew by 3.3 percent, whereas the euro area's GDP shrank by 0.4 percent.

"Quite remarkably, Lithuania managed to reboot its economy without any external support," Mario Draghi, President of European Central Bank, said in his speech given in the Euro conference in Vilnius in September, 2014.

The European Commission expects that Lithuania's economy will grow 2.7 percent in 2014 and 3.1 percent in 2015, to compare with 0.8 percent and 1.1 percent forecast, respectively, for the euro zone.

Lithuanian government has never abandoned its goal to join the euro zone, despite much longer delay that it could expect after the first try in 2006.

"We will seek to implement very ambitious plan, to adopt the euro in 2015," Algirdas Butkevicius, Prime Minister of the current social democrat coalition government, said in January 2013. His cabinet started its term in December 2012.

In February 2013, high level commission chaired by Butkevicius was created for coordination of the euro adoption. Assisting the businesses in preparations for the euro, communicating with the society about the new currency and protecting consumers from potential misuse of the changeover to the euro were among the main tasks for the commission.

At the beginning of June this year the European Commission and the European Central Bank announced that Lithuania meets the Maastricht criteria and is ready to join the euro zone on Jan. 1, 2015.

At the end of June the European Council supported the decision on the adoption of the euro in Lithuania on Jan. 1, 2015, and on July 16 the European Parliament approved it by an overwhelming majority.

"We appreciate the coming of the euro not only as an economic security guarantor but also as a possibility to pursue greater financial stability in our country and to further develop the economy in a sustainable and harmonious way," Prime Minister Butkevicius commented on that decision.

According to the International Monetary Fund (IMF), the adoption of the euro as of 2015 is proof of the success of Lithuania's economy, it will positively affect the economy and will consolidate even more Lithuania's place in Europe.

Lithuania expects new job creation, growth of personal income and increasing competitiveness of the country.

"The euro adoption crowns what has begun almost a quarter of a century ago, when Lithuania firmly and irrevocably chose the direction of euro integration," said Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania, in a conference on the euro adoption held in capital Vilnius in September, 2014.

"Having made a decade ago the free decision to become a member of the EU, with the single currency we will soon draw even closer to Europe," he added.

The irrevocably fixed conversion rate of the litas to the euro has also been approved: 1 euro = 3.45280 LTL. The ratio was the same as the official exchange rate between the litas and the euro fixed by the Bank of Lithuania even in February 2002, when the litas was pegged to the euro. These decisions have completed the procedure of Lithuania's acceptance into the euro area.

Lithuania's Baltic neighbor Estonia adopted the euro in 2011, while Latvia entered the bloc in 2014. (PNA/Xinhua)

LGI/JSD

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