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Euro adoption date rests on budget decisions

  • 2009-12-10
  • From wire reports

VILNIUS - According to initial estimates released by Eurostat, third quarter GDP in Lithuania increased by 6.1 percent against the previous quarter, and decreased by 14.2 percent compared with the year-earlier period, reports news agency ELTA. This compares favorably with GDP growth of 0.4 percent in the euro area, and 0.3 percent in the EU27 during the third quarter of 2009 versus the previous quarter. Lithuania is scrambling to adopt the euro sometime between 2013 and 2015, reports LETA. Its parliament must approve next year’s budget proposal or risk fueling a deficit that will be “too big” as the country heads toward a record debt burden, said Lithuania’s President Dalia Grybauskaite at a press conference in Vilnius.
Lawmakers, who will have a final vote on the 2010 budget on Dec. 10, “must resist opposition calls to allow a wider deficit,” she said, adding that “If I see the budget is inflated, I certainly won’t sign it.”

The government will run a budget deficit equivalent to 9.8 percent of GDP this year and 9.7 percent in 2011, estimates the European Commission.
Grybauskaite said that Lithuania may have to delay euro adoption until 2015, as the country comes up short in meeting the euro’s convergence criteria. Parliament is to decide whether to approve spending cuts of 5 percent of GDP. The five-party coalition, which rules with a one seat majority, may need opposition support to pass the bill.
“The deficit can’t widen any more” than the government’s proposal, stressed Grybauskaite. Lithuania, which pegs its national currency, the litas, to the euro in the Exchange Rate Mechanism 2, may be ready to adopt Europe’s single currency as early as 2013, she said, if the country’s deficit can be contained.
Government debt is expected to rise to 49.3 percent of GDP in 2011, compared with 29.9 percent this year and 15.6 percent in 2008, reported the commission.
European Union finance ministers in July urged Lithuania, together with Latvia and Poland, to fix its government finances. Lithuania was given until 2011 to bring its shortfall within the European Union’s three percent threshold.
The government is cutting social benefits including pensions to keep the shortfall from growing as the deepest recession since the early 1990s depletes revenue. The government of Prime Minister Andrius Kubilius estimates the budget shortfall in 2010 will reach 9.5 percent of GDP.

“All political forces in Lithuania are equally responsible” for the fact “that Lithuania met the crisis unprepared, without any reserves,” said Grybauskaite. “This is why I [have] appealed to all politicians to take political responsibility, so that Lithuania would have a budget plan for next year, so that we don’t repeat the mistakes of other neighboring countries and this wouldn’t cost us three governments, or something even worse.”