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Introduction of the Euro in Lithuania 2015
His Excellency Ambassador of the Republic of Lithuania to Ireland Vidmantas Purlys
Joint Committee on the European Union Affairs, 11 March 2014
Chairman, members of the Committee,
I am delighted and honoured to speak at the Joint Committee on the European Union Affairs. Thank
you for the invitation.
Introduction
I would like to present my country’s plans and preparations for the introduction of the Euro in
Lithuania on 1 January 2015. Membership in the Eurozone is a long standing strategic priority for
Lithuania and a major objective of the Lithuanian government in 2014.
I would like to structure my presentation in three parts: first, I will outline key considerations
behind our strategy to join the Eurozone; second, I will run through Lithuania’s compliance with
regard to membership criteria (the Maastricht criteria) and summarize practical steps taken by the
Government in preparation for the introduction of the Euro; and, third, I would like to present a
broader economic perspective for Lithuania.
The Euro – Lithuania’s Strategic Goal
Lithuania aims at a sustainable fulfilment of the Maastricht criteria with a target date to adopt the
euro on 1 January 2015.
Our commitment to join the euro area is enshrined in the EU Treaty; Lithuania has been
participating and adhering to Exchange Rate Mechanism II (ERM II) commitments since 2004.
We believe that an enlargement of the euro zone would benefit not only Lithuania (via investment,
trade, and reduced exchange rate risk channels) but also the Economic and Monetary Union (EMU)
as a whole, and individual members of the Eurozone, including Ireland, as it would send a positive
signal to the markets about the vitality of the euro project.
Lithuania is an open, trading nation. The EU is Lithuania’s main trading partner. Two thirds of our
total exports go to the EU (30% to the Eurozone). 80% of the FDI comes from the EU (40% from
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the Eurozone). The loan portfolio is 69% Euro denominated. In terms of income convergence
Lithuania is making steady progress: real GDP per capita was 32% of the EU average in 1996, and
in 2012 it stood at 64% in terms of purchasing power parity.
The course of deepening Lithuania’s integration with the EU was also informed by strategic and
security considerations. Current aggression towards Ukraine highlights this imperative even more
strongly.
We are ready to assume all the commitments of euro membership, such as fully fledged
participation in the European Stability Mechanism and adoption of the provisions of the Treaty on
Stability, Coordination and Governance in EMU (“Fiscal Compact”). We are ready to work with
other EMU members to make the euro area stable and credible.
Enlargement of the euro area and recent reforms in EMU, which Lithuania contributed to during its
Presidency of the Council of the European Union, also prove the dynamism and credibility of the
euro project.
Lithuania’s prospective membership in the euro area serves as an anchor for prudent fiscal and
economic policies that the country focuses on in building a balanced and competitive economy.
Lithuania has demonstrated its ability to deal with the impact of the global downturn without
external assistance and has undergone a significant financial and economic adjustment in the recent
years.
Compliance with the Maastricht criteria
Currently, Lithuania fulfils the Maastricht criteria.
Positive Debt and Deficit Dynamics. Prudent fiscal policy underpinned by the Law on Fiscal
Discipline and the Stability and Growth Pact is at the core of Lithuania’s policy framework to
ensure macroeconomic stability. Over the past few years Lithuania has implemented substantial
fiscal consolidation measures bringing the after-crisis general government deficit from 9.4% of
GDP in 2009 to 3.2% of GDP in 2012. The forecast for 2013 is 2.5%, the Maastricht reference
value is 3%.
The general government debt (estimated at 39.5% of GDP in 2013) is one of the lowest in the EU
and is projected to decline in the medium term. The Maastricht reference value is 60%
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Lithuania continues to strengthen its fiscal framework, inter alia, through transposing Fiscal
Compact into its national legal system.
Moderate Inflation Rate. The annual average inflation rate fell sharply from the peak of 11.1% in
2008 to 1.2% in 2013. It has further moderated and is projected to remain stable with domestic price
pressures firmly contained. The forecasted inflation for 2014 is 1%, the Maastricht reference value
is 1.6%.
Stable Exchange Rate. Lithuania pegged the national currency litas to the euro at a fixed 3.45280
litas per euro exchange rate on 2 February 2002 under the currency board arrangement. As already
mentioned, Lithuania has been part of ERM II since June 2004.
Legal Convergence. Aiming at full harmonization of national legislation with the requirements of
EU law, the amendments to the Law on the Bank of Lithuania and the Law on National Audit
Office have been adopted by the Seimas (Parliament of Lithuania). As a result, Lithuania’s national
legislation is in line with the legal convergence requirements under the Treaty of Functioning of the
European Union (TFEU), the Statute of the European System of Central Banks and of the European
Central Bank.
Development of Long-Term Interest Rates. Over the past few years the long-term interest rates in
Lithuania have gone down (from 14.0% in 2009 to 3.83% in 2013), attesting to the increased
investor confidence in Lithuania’s fiscal policy and the stability of the financial market. The
Maastricht reference value is currently 5.4%.
Practical Preparations for Euro Adoption
The National Euro Changeover Plan and the Information and Communication Strategy were
approved on 26 June 2013 and updated on 4 December 2013. On the same day the Government of
the Republic of Lithuania approved the Action Plan for the Implementation of the National Euro
Changeover Plan. The plan paved the way for the preparatory works by public and private
institutions and includes provisions relevant to the dual display of prices, conversion of litas to euro
and rounding, adaptation of information systems, and other measures. The implementation of the
Plan and Strategy is coordinated by the special Commission (chaired by the Prime Ministers),
which is supported by the set-up of designated working groups.
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The information campaign is divided into stages and is focused both on informing the public about
the practical aspects of euro introduction and on explaining the functioning of the euro area and
implications of joining it in broader context.
Broader Economic Outlook
Let me now turn to the broader economic outlook. Since 2011 Lithuania has remained one of the
fastest growing economies in the EU. In 2012 Lithuania’s GDP rose by 3.7% (the third highest rate
in the EU), while in 2013 the real GDP growth was 3.2%. Growth is forecasted to be above the EU
and euro area average in 2014-2016. The growth profile is balanced among the macroeconomic
categories (consumption, investments, and exports). In particular, investment is rebounding and net
export continues to be one of the main drivers of growth. The growth pattern is much healthier than
in the pre-crisis period with wages rising in line with productivity, the current account staying close
to balance and the crediting of the economy is more strictly monitored under the Responsible
lending guidelines issued by the Bank of Lithuania in 2011.
The improved economic situation manifests itself in the labour market. In 2013 the unemployment
rate was 11.8% (1.6 percentage point lower than that in the previous year) and it is projected that it
will continue to decline in the medium term.
The financial stability framework is robust (the banking sector is liquid and well capitalized), and
steps have been taken to further strengthen macro-prudential policy, including the adoption of
responsible lending regulations.
Structural reform
Resilience and flexibility of the Lithuanian economy is underpinned by the structural reform agenda
focusing on restructuring the energy sector, reforms in the labour market that increase
competitiveness and those in company law that bring improvements to the business climate.
Energy sector reforms include: a programme of apartment block renovation; alternative supply of
electric power through interconnectors with Poland and Sweden; the Liquefied Natural Gas
Terminal (LGT) on the Baltic Sea to become operational by 2015; EU Third package for Electricity
& Gas markets (the directives were transposed into national law in 2011 (natural gas market) and
2012 (electricity market).
Reforms to improve competitiveness and business environment include: amendments to the Labour
Code (aimed at reducing administrative burden for business); insolvency procedures (Law on
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bankruptcy of natural persons and changes to the Law on enterprise bankruptcy were adopted in
2013); and territorial planning.
Reforms to tackle the shadow economy include: limiting payments in cash to 10 thousand litas
(almost 3 thousand euros), expected to come into force from July 2014; and improved tax
administration.
Improvement of the business environment has been recognised by international organisations. The
Doing Business 2014 report, as compared to the same report for the year 2013, states that Lithuania
improved its global ranking by 10 positions, and now ranks 17th.
Concluding remarks
In conclusion, I would like to mention that Lithuania values Ireland’s support during the process of
becoming the 19th member of the Eurozone. Ireland and Lithuania are like-minded countries, active
and responsible members of the international community. Co-operation on a bilateral level and in
the international fora is close. In this context, I would like to recall our joint work as troika
members in the OSCE in 2011-2012; as trio members of the Presidency of the Council of the
European Union in 2013; and currently in the UN, where Lithuania sits on the UN Security Council
and Ireland is member of the UN Human Rights Council.
Thank you for attention. I look forward to your questions and comments.