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Lithuania joins Baltic neighbours in euro club

The new year means a new currency for Lithuania – it is joining the euro, following its Baltic neighbours Estonia and Latvia into the currency bloc.

Some Lithuanians fear price rises, but opinion polls point to growing optimism towards the euro. With Lithuania’s entry the eurozone now has 19 members.

Government officials believe the euro will not only boost investment but will also bring deeper integration with the West.

“Given the current geopolitical situation, now it is more relevant than ever,” central bank governor Vitas Vasiliauskas says.

Lithuania’s economic growth is “steady”, analysts say, at an estimated 3.1% for 2015. But there is concern about the impact of Russia’s economic downturn.

Lithuania’s giant eastern neighbour is an important trade partner, but sanctions over Ukraine have soured Russian-EU relations.

Once part of the Soviet Union, Lithuania will celebrate its 25th independence anniversary in March.

The small nation of 3.3 million is getting its fourth currency in 25 years – after the Soviet rouble, the 1991-1993 talonas and the litas.

“Even before the euro, prices in pharmacies went up – I’m afraid to think about what will happen now,” said pensioner Antanina Macijauskiene, selling home-made socks outside a shop in Vilnius, braving the winter cold in an effort to top up her pension.

A teacher, Zita Kriukeliene, remarked: “Our litas currency is emotionally connected with independence.”

Confused customers

But the view of successful entrepreneur Dovydas Braukyla is shared by many well-to-do Lithuanians who live in the cities.

“Further integration in a unified market will help boost trade and cut currency exchange costs,” he said.

An average pension in Lithuania is around 830 litas (£188; $291) and will now be 240 euros – a figure which some claim will feel like a big drop psychologically.

In late December there were some signs of panic – people were queuing up to deposit cash in bank ATMs or to exchange litas into euros.

Many people appear confused about the switch to the euro. From 1 January they still have two weeks to pay for things in litas, though they will get change in euros.

There have even been reports of customers storming some shops to stock up on food.

Cautious optimism

Small businesses are among the most worried, with some expressing fears of a cash shortage during the changeover.

But Danas Arlauskas, head of the Business Employers’ Confederation, says any problems will be temporary.

Finance Minister Rimantas Sadzius says the main challenges in 2015 will be the decline in consumer purchasing power in Russia, competition in the eurozone and weak investment in manufacturing.

Russia’s ban on most food imports from the West hurt the Lithuanian economy but it was cancelled out, at least temporarily, by a rise in exports of other Lithuanian goods.

Nerijus Maciulis, chief economist of Sweden’s AB Swedbank in Lithuania, says all three Baltic states recovered smoothly from the 2008 financial crisis and their paths to the euro were similar, standing out as fast-growing economies.

“In Lithuania we joke that we let Latvia and Estonia into the eurozone to see if everything was fine and then we followed.”

At the central bank, Mr Vasiliauskas says Lithuania’s entry completes the Baltic region’s economic integration and he expects it to become more attractive for foreign direct investment.

The mood is much darker in Greece, whose euro troubles have resurfaced, exacerbated by political instability. Some fear the risk of Greek “contagion” spreading in the eurozone has not gone away.

But economists here say Lithuania was affected by stagnation and contraction in the eurozone anyway, so joining the euro will not change the picture.

“It’s Greek citizens who should be worried which direction their economy is going to take in future,” says Mr Maciulis.

Source: BBC

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