Repeg to euro may be last move for litas

Lithuania opened a new chapter in its economic history on Feb. 2 by fixing the exchange rate of its national currency, the litas, to the euro, and ending an eight-year currency peg to the U.S. dollar.

Central bank officials said the litas-euro exchange rate might never change again.

With government approval, the Bank of Lithuania issued a decree on Feb. 1 setting the new official fixed exchange rate at 3.4528 litas to one euro, based on that day's euro-dollar exchange rate as announced by the European Central Bank. The rate would take effect from the following day and involved no devaluation or revaluation of the litas.

"With this exchange rate regime we can enter the European Union. I don't think any currency policy changes will be needed right up until we (adopt the euro as our national currency)," Bank of Lithuania Governor Reinoldijus Sarkinas told journalists.

Replacing the litas with the euro could not occur before 2007 or 2008, he noted.

Technically the change from a dollar peg ocurred without a hitch, though local residents and businesses had mixed feelings about possible consequences, especially in light of the recent euro weakness.

Exporters fear the common European currency is due to recover soon, making their products less competitive outside the euro-zone.

Vaclovas Sleinota, general director of electronics maker Vilnius Vingis, said the Lithuanian economy had been hurt by the strengthening of the dollar in recent years and would now get hit again by a rising euro.

"We're stepping on a rake in an open field. Officials say it's unavoidable, but we'll get bruised and feel the consequences for a long time to come," Sleinota said. "We should have repegged at a moment when the euro exchange rate was beneficial to us," he added.

As for the general public, a January poll showed just 52 percent of Lithuanians supported repegging the litas to the euro, while 24 percent were against it and another 24 percent were undecided.

An informal street poll conducted by The Baltic Times showed many people were uncertain how to react. "Nobody knew exactly what the new rate would be or what they should do to prepare, but everyone senses they could lose out," one man said.

Enthusiasm and strong opinions were scant, aside from one Vilnius teen, who rejoiced, saying, "Now we're European!" Other young people wondered if it would now be cheaper to travel in EU countries.

"Opinions are varied," Lithuanian Prime Minister Algirdas Brazauskas said, speaking to journalists after the government approved the new exchange rate. "But the essential thing is that the decision to repeg to the euro from this date was announced half a year ago, and we could not alter that. Such things are just not done. Everything was open and planned in advance," he said.

In any case, Lithuanians and those who deal with the country need to brush up on their math, given the new fixed exchange rate's precision to ten-thousandths of a litas. The days of simply remembering "four litas to the dollar" are gone.