Ex-diplomacy captain slags off the government

While many wannabes scramble to the limelight of Lithuanian politics, 62-year-old Povilas Gylys, who back in the 1990s was Minister of Foreign Affairs of Lithuania and a parliamentarian for two successive tenures, from 1992-2000, uttered this sentiment already a while ago – no more politics as usual. Since 2000, he has shunned the political stage, though, certainly, he remains the most sought-after bait for many power-hungry and fledgling parties and public movements. He instead devotes himself to academic work and his savvy students at Vilnius University’s Faculty of Economics. The professor is proud of his nearly one hundred scientific articles and monographs, however, he has not yet written the book many may look out for – on building an independent Lithuania. “Certainly, I’ve got something to say. While heading Lithuanian diplomacy, back in the ’90s, I dealt very personally with all political stardom – both Clintons, Francois Mitterrand, Helmut Kohl and other world leaders. I guess, once I retire some day, I should scribble down my memoir,” Gylys ponders. The Baltic Times sat down with the professor for an interview.

What deters you from politics? Don’t you miss it?
Frankly, I feel I’ve served my civil duty for Lithuanian politics. During Sajudis’ [national movement for restoring Independence] peak years, in 1988-1992, I sacrificed a lot – my scientific career and personal life. In the late 1990s, while being a high-ranking politician, an economist by profession, I started feeling a sort of knowledge shortage when it came to some very sensitive political-economic issues. Therefore, I decided to come back to my academic work at Vilnius University. The second reason that prompted my determination was all that never-ending besmirching while being on the political stage. It started to besmirch my scientific accomplishments and name. Honestly speaking, throughout the years of the withdrawal, I have been lured by many political parties, including the Social Democrat Party that I once belonged to, to make a comeback to politics. However, I do not give in to the cajoling. So far, I do not see any sense why I should be back in it.

How do you see Lithuanian diplomacy today?
Regrettably, it is not nurtured in a proper way. Obviously, we miss the subtle perception of the world. I believe the highly publicized President Dalia Grybauskaite’s refusal to go to Prague to meet U.S. President Barack Obama has been her huge mistake and a big setback for modern Lithuanian diplomacy. For us, a small country, to exhibit our caprices and whims, is an inexcusable thing, regardless of time and place. Our national interest is to have well-balanced relations with all countries, particularly with the United States of America. When we act like upstarts and hotspurs, especially on the international field, we do big harm to our country’s image.

In the fall of 2008, the then-Lithuanian PM, Gediminas Kirkilas, asked whether the country would deal with any severe aftermaths of the encroaching world economic crisis, replied, “The descent will be ‘mild.’ What was your reaction to this assessment?
I did want to see what steps he, and particularly the new right-oriented government, was going to take. Upon these steps the hardness and softness of the descent depended on. I did have some serious rebukes for Kirkilas’ economic policy. However, when he stepped down, the successive right-wing government’s extremely blundering and misguided decisions doomed the Lithuanian economy to a hard descent.

However, there is another widely circulated explanation for the Lithuanian economy’s hard descent – the absence of accumulated financial reserves. PM Kubilius often emphasizes this, juxtaposing Lithuania to Estonia, which had managed to accrue hefty financial reserves before the crisis.
No, it is not completely true. Let me clear up some things. Most European countries had not accumulated any financial reserves before the crisis. We have to put it straight - Kubilius’ completed so-called overnight tax reform has been the biggest blunder one can think of. My students, who learn about the macro economy, know very well: if there is a crisis, neither increase, nor decrease taxes then. Once Kubilius became head of the government, he scared everyone by shouting “crisis, crisis.” The tax increase followed the reckless frightening, bringing consumption to a halt. However, I want to underline something else that equally concerns all three Baltic countries – the Currency Board Model. It guarantees the countries’ coverage of national currencies with foreign currency and gold reserves by 100 percent, thus, for example, ensuring the pegged litas and euro exchange. However, not to delve into financial specifics, but the bottom line is that both countries’ [economies], Lithuania and Estonia, before the crisis, due to the Model and some other reasons, have both slumped by 15 percent. Estonia’s unemployment rate and GDP fall was similar to those in Lithuania. Believe me, the only Estonian advantage against Lithuania in the fall of 2008 was its well-developed propaganda campaign [on] how smart their economy and policies were.

You make me grin. Tiit Naber, Estonia’s ambassador to Lithuania, who I interviewed recently, pinpointed the accrued financial reserves as the most important reason for the country’s soft economic descent. He would certainly disagree with your reasoning.
Well, it is up to him. I stand on my words. The importance of their financial reserves cannot be overplayed. Admittedly, since they had targeted the euro long before the crisis’ start, they have been accumulating their budget surplus for quite some time which, I admit, ultimately allowed them to ease their budgetary hardships. It is something that the then-Lithuanian PM Kirkilas did not do [this] in the years of the economic boom. On the contrary, before the upcoming Seimas election, his government had spent insanely a lot of money, first, for social payouts. By the way, conservatives, who were quick to blame the Kirkilas-led government for everything, did participate in the decision-making, securing much higher maternity leave payouts.

However, the sitting premier, Kubilius, boasts of having stopped Lithuania’s bankruptcy. Do you share his notion? Was there any other way to deal with the crisis back in 2008? What would you have done if you had been the premier then?
Well, I do not know whether he pertains to brag about something that he has not done. His spearheaded tax increase has done colossal damage to Lithuania’s economy, crippling consumption and prompting a 15 percent GDP fall and 300,000 jobless people in the country. I disagree with those economists who claim signs of market recovery. I looked up the current months’ statistics – they are worse, compared to last year’s respective data. Well, what happens is that some people juggle [around] with certain increasing fluctuations in some months, but we just cannot yet speak of a recovery overall. On the contrary, I still see a continuing fall, not as swift as two years ago, but there is a downward trend still. We will be able to speak about recovery when the unemployment rate will fall, consumption will grow and taxes will be better collected. Sadly, current politicians play tricks with the public – they adopt a meager budget plan and then they trumpet that they have surpassed it. That is exactly what Soviet-era politicians did! What would I have done in the fall of 2008? Certainly, I would not have hiked up the taxes. If politicians are really smart, they should follow one axiom – do not harm the economy. The world recession is the outer cause to have affected our economy. No doubt about that. However, I consider the inner causes to have been of greater importance – panicking of the then-Kubilius government, which led to the unreasonable tax hike and the consequent aftermath. In addition, to come back to the previous topic, the Currency Board Model, we did not quite well follow it, as we had a blown-out real estate bubble, in which billions of euros flowed into Lithuania, all being uncovered by our own currency. Alas, Central Bank chief Sarkinas did nothing about that. Regrettably, few people speak about that in Lithuania.

Well, let me advocate Kubilius’ tax hike policy now. Greece and Ireland have done exactly the same! Some respectable institutions praised Kubilius for taking these actions. Who is right?
There is a big difference between them and us, which matters here a lot. We still have our national currency and the countries you mentioned do not. They cannot devalue the euro, while we can with our litas, though many see it as a catastrophe in Lithuania. The bottom line is that if the Greeks had their drachma now, they would have the possibility to devalue it, letting them gain advantage in export markets. In this case, their economy would be enlivened – all small countries depend heavily on exports.

Are you against euro introduction in Lithuania?
No, I do not mean that. However, with the developments in Greece, Ireland and, most likely, the same scenario in Portugal and Spain, our political leaders have to sit down and contemplate what kind of a strategy we need to assume. We need, first, to answer the question on how quickly we need the euro in Lithuania. Sadly, we do not have either fiscal nor monetary policy in Lithuania. Once we shape it up and adopt it, we should come back to the question of euro introduction. What I see now is we are just crawling semiconsciously to the eurozone. Well, we will creep into it some day, but I do not want to predict. However, what consequences we will endure when finally we crawl in?

Can you name them?
Greece’s scenario may be the one we might deal with after euro introduction. Greeks and Irishmen have no luxurious possibility anymore to devalue their national currencies, as they have been replaced by the euro. Obviously, with the size of the downturns, devaluation would be the best option for their interests now. However, it is too late to think about this. I understand well that, for many people, a litas devaluation sounds horrible. However, many leading Western economists consider it as a necessary option in certain economic circumstances. Nationally, currency devaluation does not necessarily mean a big setback for the country. A while ago, Argentina was dealing with the same kind of crisis as the world today. What they did was they devalued their currency; thereafter, it saw its GDP growing more than 10 percent annually for six consecutive years. I am not saying that Lithuania had to do the same, but it at least had to deliberate this as a possible option. Unfortunately, because of political, but not economic reasons, it has never been on the government’s agenda. I do miss sanity a lot in decisions of both our government and the Ministry of Finance. In most cases, they are acting like ordinary cashiers.

What were the political reasons that our government did not put the proposal on the table?
The government was smart enough to understand that litas devaluation would pose a great monetary risk to those who have taken out their mortgages in euros. Owners make up a forceful army of 700,000 people in Lithuania. Upon the monetary risk, they can ignite a revolution in the country. Lithuanians are not Argentineans, who accepted the devaluation matter-of-factly.

The current government has pledged to retrieve one billion litas from the black economy this year. Do you think this is realistic?
I do not believe that at all. One can say that, but the government has not laid it out in any way. Considering that 40 percent of Lithuanians satisfy only their essential needs, the number of people involved in the black economy, I assume, must be very high. We are literally talking about hundreds of thousands of people. I include in the number those people who are partially in the black economy as well.

You sound quite pessimistic. How do you evaluate President Grybauskaite’s recent statement, “The worst times for Lithuania are over.”  Does she not make sense out of the current situation?
Her statement is kind of psychotherapy for the nation. They are quite popular in high politics, but no one, even the president, should disregard the reality. She should have waited a bit longer for such a cheerful assessment, as some prominent world economists caution about a so-called double-dip recession. I support its likelihood at 30 percent. My assumption is substantiated – just look at what goes on in Ireland and Greece. If Portugal, Spain and some other countries will get into deeper trouble, markets may fall globally into disarray again. If we avoid that, we may recover eventually in terms of exports. However, when it comes to the domestic market, there is sheer stagnation. Just imagine – 40 percent of households satisfy only their survival needs, buying only bread and macaroni. [Near term] only exports can pull us out of the deep hole, not some Kubilius and his government.