Lithuania adopts the euro

By Markus Salzmann
5 January 2015

Lithuania became the third and last Baltic state to introduce the euro at the start of the year. Latvia and Estonia have already switched their currency to the euro. The European single currency now comprises 19 states.

The project of introducing the euro, pushed by Brussels and the right-wing Lithuanian government, is opposed by a majority of the population. Polls show that currently only 26 percent of Lithuanians are in favour of joining the currency union; 49 percent, almost twice as many, are against. 57 percent wanted a referendum on the new currency, while 64 percent believe that adopting the euro will have no benefits.

Prior to adopting the euro, Lithuania also ratified the treaty on the European Union’s (EU) permanent bailout fund, the European Stability Mechanism (ESM). The parliament adopted the law on participating in emergency loans to indebted EU states, as reported by the daily Lietuvos Rytas. Over five years, Lithuania will deposit €327 million into the ESM. The ESM currently controls paid funds totaling €80 billion, and €622 billion to be called upon in an emergency.

This is the second attempt by Lithuania to introduce the euro. Originally, the government in Vilnius intended to adopt the euro in 2007, but due to high inflation, other EU states opposed the move. During the economic crisis after 2008, the EU imposed a strict austerity programme on the small Baltic state which has almost 3 million inhabitants. In 2009, the economy collapsed by 15 percent, unemployment rose sharply and, as a result of the austerity measures, social welfare was drastically cut.

The austerity measures had dire consequences for the population. The Baltic state has one of the highest emigration rates in Europe. Average monthly earnings are approximately 580 euros, even though in recent years, prices have aligned themselves with Germany and other western European countries.

Poverty rose significantly following the cost cutting programme. With a poverty rate of 20.6 percent, the risk of being poor is only greater in Greece, Romania and Bulgaria. Youth unemployment, at 34 percent, is not far behind the rates in Greece and Spain.

By European standards, life expectancy is extremely low. 40 percent of Lithuanian men do not live to be 65. This can be linked to the disastrous state of the healthcare system and a very high suicide rate.

After Latvia and Estonia joined the euro, one and four years ago respectively, prices in both countries rose dramatically. According to the most recent poll, 84 percent of Lithuanians believe that drastic price rises will now result. This fear is more than justified. A study by the Skandinaviska Enskilda Bank showed that firms began increasing prices last April, and this trend will persist well into this year.

Contemptuous of the consequences for the population, EU officials welcomed the euro’s introduction. “We look forward to another member in our common European currency,” said German Finance Minister Wolfgang Schäuble, who also called for the maintenance of austerity in Lithuania following the euro’s adoption.

Lithuania’s political parties have been conducting a months-long campaign to win support for the euro. Prime Minister Algirdas Butkevicius of the Lithuanian Social Democratic Party (LSDP) stated that the euro would not only guarantee economic security, “but also an opportunity to continue with greater financial stability in our country.”

Lithuania conducts more than 60 percent of its foreign trade with countries in the Baltic Sea region. Germany is currently its second largest trading partner. Approximately 1,200 German firms are currently active there with over a billion euros in investments. According to a survey by the German-Baltic chamber of commerce, more than three quarters of these companies promoted the introduction of the euro.

The adoption of the euro is being used by the Lithuanian ruling elite to build closer ties to Germany and the west in order to reduce dependence on Moscow. “The euro is an instrument for integration. The closer we are to the west, the further away we are from the east,” explained Vitas Vasiliauskas. “As chairman of the central bank I shouldn’t involve myself in geopolitical debates, but those are the facts,” he added.

Vasiliauskas is deputy finance minister and one of the architects of the austerity measures in Lithuania. He is seen as a ruthless advocate of austerity policies within the EU and has demanded the exclusion of countries like Greece on several occasions.

The Lithuanian central bank recently reduced its forecast for economic growth from 3.3 percent to 3.1 percent, mainly because of the poor economic prospects in Europe and the western conflict with Russia. Analysts predict that it will likely be two percent at most in 2015. In November, Butkevicius declared that in the event of a significant deterioration in economic relations with Russia, Lithuania’s GDP could drop by four percent.

The Butkevicius government emerged victorious from the 2012 election, after the right-wing government of Andrius Kubilius was punished for its harsh austerity policies. The government had cut pensions and pay in the public sector by between 20 and 40 percent. These policies were mostly kept on by the new government.

Along with the LSDP, the other coalition partners are the Labour Party (DP) of the Russian millionaire Victor Uspaskich, the right-wing Party for Law and Justice (DT) and the party of the Polish minority (LLRA). All of these parties are committed to a right-wing, neoliberal programme.

The right-wing development in the country deepened with the intensification of the Ukraine conflict at the beginning of 2014. Along with Latvia and Estonia, Lithuania took an extremely hostile stance towards Russia, demanding that western powers take a harder line against Moscow.

A campaign in the Lithuanian weekly magazine Feidas was significant in this regard. A NATO soldier was named its man of the year. Chief editor Algimantas Sindeikis stated that “It looks as if there is no longer a political solution to the conflict between the West and Russia. We’re at an impasse, all diplomatic efforts have been exhausted. ... Only a soldier can stop another soldier. His presence allows us to secure peace and avoid war. The absence of soldiers and a lack of preparation would be a huge incentive for the Kremlin to wage war on us. For that reason we extend our thanks to the NATO soldiers.”

On the issue of CIA secret prisons, the existence of which has now been confirmed, leading Lithuanian representatives also made clear that they will continue to work closely with the US. It is believed that two CIA prisons were located near the capital Vilnius. Human rights activist Meta Adutaviciute commented, in the wake of the publication of the Senate report in Washington, that Saudi Arabian Mustafa al-Hawsawi had been interrogated there, and that Lithuanian ministers knew about it.

Then Lithuanian Prime Minister, Adamkus, allegedly had knowledge of the affair, and the Lithuanian general state prosecutor has been conducting preliminary investigations for some time. State prosecutor Irmantas Mikelionis stated that the full report had been requested from the Americans. Both President Dalia Grybauskaite and Adamkus have noted that, regardless of the conclusions of the investigations, relations with the US would not be affected.

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