Lithuania and the euro

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The Eurozone:
  Eurozone countries in the European Union (18)
  EU state part of the ERM II, obliged to join the Eurozone (Lithuania)
  EU state part of the ERM II, not obliged to join the Eurozone, however, ongoing debate in this country (Denmark)
  EU state not obliged to join the Eurozone (the United Kingdom)
  Non-ERM II EU states obliged to join the Eurozone (7)
  Outside the EU with issuing rights by agreement (4)
  Outside the EU, using the euro unilaterally (2)

Lithuania is an EU member state, and as such also a member of the Economic and Monetary Union. Its currency, the litas, has been pegged to the euro at 3.4528 litas to 1 euro since 2002, and it has been part of ERM II since 28 June 2004, shortly after the country joined the EU on 1 May 2004.

Generally high inflation, which reached a peak of 12.7% in June 2008[1] (well above the 4.2% limit of the time),[2] has delayed Lithuania's adoption of the euro. In February 2013, the government of Lithuania approved a plan for euro adoption in 2015.[3] This would make it the last of the three Baltic States to adopt the euro, after Estonia (2011) and Latvia (2014). However, Lithuania has not yet met all the economic criteria necessary to join the euro.

Status[edit]

All members of the European Union, except Denmark and the UK, are required by treaty to join the euro once certain economic criteria have been met. In March 2006, Lithuania requested that the European Commission and the European Central Bank conduct an assessment on their readiness to adopt the euro. The Commission's report found that while Lithuania met 4 of the 5 criteria, their average annual inflation was 2.7%, exceeding the limit of 2.6%. As a result, the Commission concluded that "there should be no change at present to Lithuania's status as a Member State with a derogation."[4][5] Lithuania is the only country to be rejected in the attempt to adopt the euro.[6]

According to figures from the Bank of Lithuania, as of October 2013 Lithuania met 4 out of the 5 criteria, the exception being the government deficit of 3.2% of GDP, above the limit of 3.0%.[7] However, they project this to decline to 2.9% by the first quarter of 2014.[6][7]


Convergence criteria
Assessment month Country HICP inflation rate[8]
(12-months average
of annual rates)
[nb 1]
Budget deficit to GDP Debt-to-GDP ratio ERM II member[9] Long-term interest rate[10]
(12-months average
of 10yr bond yields)
[nb 2]
2012 ECB Report[nb 3] Reference values max. 3.1%[nb 4]
(as of 31 Mar 2012)
max. 3.0%
(Fiscal year 2011)[12]
max. 60%, or decreasing
(Fiscal year 2011)[12]
min. 2 years
(as of 31 Mar 2012)
max. 5.80%[nb 5]
(as of 31 Mar 2012)
 Lithuania 4.2% 5.5% 38.5% 28 June 2004 5.19%
April 2013 Reference values max. 2.5%[nb 6][nb 7]
(as of 31 Mar 2013)
max. 3.0%
(Fiscal year 2012)[14]
max. 60%, or decreasing
(Fiscal year 2012)[15]
min. 2 years
(as of 31 Mar 2013)
max. 4.81%[nb 6][nb 8]
(as of 31 Mar 2013)
 Lithuania 2.8% 3.2% 40.7% 28 June 2004 4.53%


  Criterion fulfilled
  Criterion potentially fulfilled: If the budget deficit exceeds the 3% limit, but is "close" to this value (the European Commission has deemed 3.5% to be close by in the past),[16] then the criteria can still potentially be fulfilled if either the deficits in the previous two years are significantly declining towards the 3% limit, or if the excessive deficit is the result of exceptional circumstances which are temporary in nature (i.e. one-off expenditures triggered by a significant economic downturn, or by the implementation of economic reforms that are expected to deliver a significant positive impact on the government's future fiscal budgets). However, even if such "special circumstances" are found to exist, additional criteria must also be met to comply with the fiscal budget criterion.[17][18] Additionally, if the debt-to-GDP ratio exceeds 60% but is "sufficiently diminishing and approaching the reference value at a satisfactory pace" it can be deemed to be in compliance.[19]
  Criterion not fulfilled


Notes
  1. ^ The 12-months average for the annual HICP inflation rate must be no more than 1.5% larger than the unweighted arithmetic average of the similar HICP inflation rates in the 3 EU member states with the lowest HICP inflation. If any of these 3 states have a HICP rate significantly below the similarly averaged HICP rate for the eurozone (which according to ECB practice means more than 2% below), and if this low HICP rate has been primarily caused by exceptional circumstances (i.e. severe wage cuts or a strong recession), then such a state is not included in the calculation of the reference value and is replaced by the EU state with the fourth lowest HICP rate.
  2. ^ The annual average for the yield of 10-year government bonds must be no more than 2.0% larger than the unweighted arithmetic average of the bond yields in the 3 EU member states with the lowest HICP inflation. If any of these states have bond yields which are significantly larger than the similarly averaged yield for the eurozone (which according to previous ECB reports means more than 2% above) and at the same time does not have complete funding access to financial markets (which is the case for as long as a government receives bailout funds), then such a state is not be included in the calculation of the reference value.
  3. ^ Reference values from the ECB convergence report of May 2012.[11]
  4. ^ Sweden, Ireland and Slovenia were the reference states.
  5. ^ Sweden and Slovenia were the reference states.
  6. ^ a b The reference values for HICP inflation and long-term interest rates are calculated based on the "calculation principle" outlined in the 2012 ECB Convergence Report,[13] with the input of forecasted data for the sliding assessment year 1 April 2012 - 31 March 2013.
  7. ^ The 3 best performing countries in regards to HICP inflation were Greece (0.614%), Sweden (0.843%) and Latvia (1.567%), with no outliers detected.
  8. ^ As Greece is part of a bailout programme, and suffered from elevated interest rates significantly above the eurozone average (15.40% above), this country was excluded from the calculation of the reference limit for long term interest rates, leaving just Sweden (1.61%) and Latvia (4.00%) as benchmark countries.

Lithuanian euro design[edit]

The proposed design of the Lithuanian euro coins share a similar national side for all denominations, featuring the Vytis symbol and the name of the country, "Lietuva".[20] The design was announced on 11 November 2004 following a public opinion poll conducted by the Bank of Lithuania.[20] It was created by the sculptor Antanas Žukauskas.[21] The only difference between the coins is that the one and two euro coins have vertical lines on the outer circle, the fifty, twenty and ten cent coins have horizontal lines on the outer circle, and the five, two and one cent coins have no lines on the outer circle.[20] In January 2014 it was announced that all coins will have "2015" printed on them to display the year of Lithuania's euro adoption. The Lithuanian Mint has been chosen to mint the coins.[21][20] Lithuania's parliament is expected to approve a euro changeover law in the spring of 2014,[citation needed] and will subsequently be subject to an assessment by the ECB and the European Commission for its compliance with all euro adoption convergence criteria in its biennial report in May/June 2014. If approved, Lithuania will adopt the euro on 1 January 2015.

Public opinion[edit]

A poll by Eurobarometer in April 2013 found that 41% of Lithuanians supported switching to the euro, while 55% were opposed. This was a decrease in support of 3% from a year earlier.[22][6]

References[edit]

  1. ^ ECB: Inflation and the euro
  2. ^ "SEB: no euro for Lithuania before 2013". The Baltic Course. Retrieved 22 December 2008. 
  3. ^ "Lithuanian government endorses euro introduction plan". 15 min. 2013-02-25. Retrieved 2013-03-03. 
  4. ^ "Commission assesses the state of convergence in Lithuania". European Commission. 2006-05-16. Retrieved 2014-01-12. 
  5. ^ "Euro zone: Slovenia in, Lithuania on hold". 2006-05-16. Retrieved 2014-01-12. 
  6. ^ a b c Milne, Richard; Spiegel, Peter (2013-12-30). "Lithuania shows rare enthusiasm for eurozone membership". Financial Times. Retrieved 2014-01-12. 
  7. ^ a b "Euro adoption criteria and their implementation". Bank of Lithuania. Retrieved 2014-01-12. 
  8. ^ "HICP (2005=100): Monthly data (12-month average rate of annual change)". Eurostat. 16 August 2012. Retrieved 6 September 2012. 
  9. ^ "What is ERM II?". European Commission. 31 July 2012. Retrieved 8 September 2012. 
  10. ^ "Long-term interest rate statistics for EU Member States (monthly data for the average of the past year)". Eurostat. Retrieved 18 December 2012. 
  11. ^ "Convergence Report May 2012". European Central Bank. May 2012. Retrieved 2013-01-20. 
  12. ^ a b "European economic forecast - spring 2012" (PDF). European Commission. 1 May 2012. Retrieved 1 September 2012. 
  13. ^ "Convergence report 2012". European Central Bank. May 2012. Retrieved 2013-01-15. 
  14. ^ "Government deficit/surplus data". Eurostat. 22 April 2013. Retrieved 22 April 2013. 
  15. ^ "Government debt data". Eurostat. 22 April 2013. Retrieved 22 April 2013. 
  16. ^ "Luxembourg Report prepared in accordance with Article 126(3) of the Treaty" (PDF). European Commission. 12 May 2010. Retrieved 18 November 2012. 
  17. ^ "EMI Annual Report 1994" (PDF). European Monetary Institute (EMI). April 1995. Retrieved 22 November 2012. 
  18. ^ "Progress towards convergence - Nov. 1995 (report prepared in accordance with article 7 of the EMI statute)" (PDF). European Monetary Institute (EMI). November 1995. Retrieved 22 November 2012. 
  19. ^ "Progress towards convergence - November 1995 (report prepared in accordance with article 7 of the EMI statute)" (PDF). European Monetary Institute (EMI). November 1995. Retrieved 17 March 2013. 
  20. ^ a b c d "Projects for Lithuanian euro coins already bear the year 2015". Bank of Lithuania. 31 January 2014. Retrieved 9 March 2014. 
  21. ^ a b "Euro Banknotes and Coins". Retrieved 2014-01-12. 
  22. ^ "Introduction of the euro in the more recently acceded member states". Eurobarometer. 2013-04. p. 66. Retrieved 2014-03-27. 

External links[edit]