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Wages in Lithuania to grow, but could prevent euro adoption

  • 2013-04-03
  • From wire reports

Lithuania continues to inch towards euro adoption planned for 2015.

VILNIUS - The Lithuanian economy should grow most of all in the entire European Union this year, says Nordea Bank Lithuania chief economist Zygimantas Mauricas. He says that Lithuanian businessmen who in 2008 failed to spot the upcoming global crisis from the U.S.A this time should not fail again to spot the growing tide of economic growth in the States and put an end to the “investment famine.”

What helped Lithuania recover after the crisis was the so called internal devaluation. It means that wages in the country lately were growing slower than the economic level, but the currency was not devaluated. This helped Lithuania restore global competitiveness and grow exports volume to a record extent.

However, Mauricas says that it is precisely the internal devaluation that could now slow down economic growth in Lithuania. Therefore, the time has come to increase wages. The economist says that since the country’s economy was growing faster than the average wage for the last three years, there is enough room for a sustainable wage raise. Mauricas predicts that in 2013 Lithuania’s wages will increase by 6 percent, in other words, they will increase slightly faster than the projected inflation of 3 percent, yet, slower than labor productivity.
“However, even such growth could prevent euro adoption because increasing wages will inevitably increase inflation too, which could be the reason why Lithuania in 2014 might fail to meet the Maastricht criteria,” said the expert, adding that a possibility is rather high.

Economist Gitanas Nauseda, advisor to the SEB bank president, thinks that there is a 60-70 percent probability of Lithuania introducing the euro in 2015. “I have never before given a bigger probability than 50 percent. But today I believe that the probability of success stands at some 60-70 percent,” he said on Thursday in a press briefing after the presentation of the SEB bank publication Lithuania’s Macroeconomic Review.

Nauseda says that euro adoption could be only prevented by such actions as raising taxes on consumption several months before the end of the control period, increasing transport tariffs, as well as heating, electricity, gas prices during the decisive months, or a radical raise of the minimum monthly wage which would inevitably make the inflation rate grow.
SEB bank says that the Government’s plans to introduce the euro by 2015 does not reflect the aspirations of the public majority so far. SEB bank analysts point out that Lithuanians would like to keep the national currency for a while, even though they prefer to issue deposits and take out loans in euro. In order to change public opinion one must explain the benefits of the euro to the people and honestly inform about the related issues and risks.

Eurobarometer surveys show that since Sept. 4, 2004, the number of people who disapproved of the euro was always more than of those who approved. The only exception was observed in September 2009, when the threat of global financial crisis was in particular worrying. The euro area economy did not blossom as well at that time, but other reasons impacted such change in opinion: 15-16 percent decline of GDP was expected in Lithuania and almost the same decrease in wages and high unemployment and maybe even the devaluation of litas.
However, when the situation in the country has returned back to normal, attraction towards the euro began to fade. Also an intensified eurozone debt crisis in 2010 had an impact on public views.