Agne Limante, PhD (Vilnius University), MA (King’s College London)
Lecturer at Vilnius University and European Humanities University
The new year for Lithuania also means a new currency – on 1 January 2015 this small Baltic state became the 19th member[1] of the Eurozone and will replace its Litas with Euros. Though many countries have hardly ever changed their currency or considered such change as a huge challenge, for Lithuanians it is not exactly so – the Euro will be the eighth currency during the last hundred years and the fourth during the last 25 years. Since fall of Soviet Union in 1990s, Lithuania changed ruble to the temporary talonas, in 1993 reintroduced Litas and now is turning to Euros. Nevertheless, change to Euros is seen as an important step having political and financial effects.
Obligation to switch to Euros
One might raise a question why countries would join Euro now when we hear so much criticism towards it. The economy of Eurozone is not at its peak. The first obvious answer lies in international obligations of the country. It has to be remembered that European Union Treaties, to which Lithuania subscribed when acceding to the EU, requires the country to switch to the Euro.[2] With exception of Denmark and the United Kingdom, which have negotiated opt-outs and are allowed to keep their national currency, the remaining 26 members of the EU are obliged to join the Euro after meeting Euro convergence criteria (also known as the Maastricht criteria).[3]
From the group of 10 countries, including Lithuania, that joined the EU with the big-bang enlargement of 2004, three countries – Poland, the Czech Republic and Hungary – remain outside Eurozone. Lithuania originally set 2007 as their target date for joining the Eurozone, however, the country did not fulfill the average annual inflation rate requirement and the introduction of the Euro was postponed.
Political and economic issues
There are also political reasons encouraging Lithuania to change its national currency to that of the European monetary union. Introduction of Euro in Lithuania is considered not only as a target itself, but also as a mean to reach other targets: economic growth, influence in decision-making in the Eurozone, as well as an additional step for greater protection from external threats, especially Russia’s neighbourhood – it is no secret that Lithuania has been very cautious about its Eastern neighbour and relations with it since the fall of Soviet Union.
This in mind, it does not come as a surprise that change to Euros comes together with other moves intended to shift the country away from Russia. In October 2014, Lithuania introduced its long-awaited vessel “Independence” – a floating liquefied natural gas (LNG) import terminal. The name of the vessel, though not exactly politically correct, clearly reflects Lithuania’s strive for independence from Russia’s gas: “Independence” can store 170 000 m³ natural gas and can supply all of Lithuania’s need. In September 2014, another step was taken – concerned by situation in Ukraine, NATO summit meeting in Wales, reacted to Lithuania’s request to strengthen NATO’s military presence in this Baltic State.
Economic benefits are also to be expected from joining the Euro. Local businesses and investors believe that economic regulation and policymaking will become more stable and predictable. The companies will save on currency conversions – other EU countries are the main trading partners of Lithuania’s businesses. Lithuania’s banks, on the other hand, will gain access to European Central Bank’s funding in case of an emergency – something that seems important considering the recent financial crises in Europe. Furthermore, the Government’s cost of borrowing is expected to be reduced.
It is also important to note that since the re-establishment of its independence, the country is seeking a strong as possible integration to Western Europe and closer links to European culture. As noted by the Commissioner for Economic and Monetary Affairs, Jyrki Katainen, being part of Europe has been – and remains – a central part of Lithuania’s national identity: joining the Euro area will further strengthen this course.[4]
Processes for introducing Euro in Lithuania
Process towards introduction of Euro[5] in Lithuania began with accession to the EU – as stated above, 2007 was the original target deadline for change of currency. The country worked to improve its economy and fulfill established convergence criteria
The more visible process started in summer 2013 when on 26 June 2013 Lithuania’s National Changeover Plan was approved by the Government of Lithuania.[6] This plan was further elaborated by the Action Plan for the Implementation of the National Changeover Plan.[7] Both documents have been prepared having regard to the practice of other EU Member States that have recently adopted the Euro (especially Latvia’s, Estonia’s and Slovakia’s examples), with the decisions adopted at European and national levels, as well as by evaluating the experience gained through the re-introduction of the Litas in Lithuania in 1993.[8] The National Changeover Plan provided for the adaptation of national legislation to the changeover, formed the Commission for the Coordination of the Adoption of the Euro and several specific working groups, established main principles of changeover (continuity of contracts and financial instruments, consumer protection and safety, etc.), set main time periods for the adoption of the Euro and regulated other linked issues.
Many laws were amended to take into account the change of currency. For example, from a company law perspective, there were important changes related to required share capital of limited liability companies with the change to the Euro decreasing minimum required capital. The currency change also clarified the situation for contracts listing sums in Litas and re-calculated salaries of employees to Euros.
On 23 July 2014 the General Affairs Council of Ministers of the European Union adopted the final decision on Lithuania’s membership of the Euro area from 1 January 2015.[9] The Council also adopted regulations setting a permanent conversion rate for the Litas to the Euros. Practical preparations intensified in Lithuania: the government ran many information campaigns,[10] commercial banks started informing their clients about exchange of currency and how should it happen. Companies identified prices in both currencies. Meanwhile, civil servants at government and municipal level were trained on the Euro adoption, and Euro coins were minted.
Weighing the fears and worries
Even though the public in general is supportive of Euro, some fears remain. Many people are worried that Euros will raise the prices and costs of living will get even higher while the income level will stay the same. The Government of Lithuania, on the EU’s advice, sought to implement precautions to prevent price hikes, but the question of their longer-term effectiveness still remain in people’s minds.
However, fears have not always been consistent. Preparation for the Euro accession gave incentive for many to spend their Litas (especially cash) buying real estate. The price of real estate rose but the number of sale-purchase transactions stayed high. From the other perspective, sellers were not sure whether they should use this chance to sell their property or risk keeping it and hope that the prices will increase with the Euro accession. As always, one had to think hard which card to play in this fluctuating market.
Knight on horseback running through the ages
Like all the Eurozone countries, Lithuania will issue Euro coins with their chosen national signs. Lithuania decided to continue with its long-living symbol Vitys, an armoured knight on horseback, which is featured on country’s coat of arms and was also on its national currency Litas.
And this is quite symbolic. In Lithuania the earliest coins featuring the knight come from the last quarter of the 14th century, the symbol remembers times of Grand Duchy of Lithuania, when the country was much larger in its territory expanding towards Russia and Central Europe. After so many ages the knight returns to Europe, not as a fighter or expansionist, but as a sign of unity with other European countries – financially, politically and culturally.
Win or lose?
At this point is hard to project whether introduction of Euro in Lithuania will be a successful step, especially from an economic perspective. At present, Lithuania’s economy seems to stand better than that of many EU economies. However, this may be a temporary situation, as many factors, including its geopolitical situation, influence the country’s success. However, Lithuania does not seem to rest on its laurels – the country has undergone many ups and downs and uncertainty of what the future may bring. This is part of the Lithuanians’ mentality and is a driving force of the country’s development. Head of the Central Bank of Lithuania, Vitas Vasiliauskas, is quoted as saying Lithuania should not relax: “The Euro gives you a lot of opportunities. At the same time you must move forward with reforms”.[11]
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[1] Together with Lithuanians, around 333 million EU citizens will use Euros as their currency.
[2]The adoption of the Euro and its use in the Eurozone is regulated by the following EU Council Regulations: (1) Council Regulation (EC) No 1103/97 of 17 June 1997 on certain provisions relating to the introduction of the Euro (OJ 2004 Special Edition, Chapter 10, Volume 1, p. 81); (2) Council Regulation (EC) No 974/98 of 3 May 1998 on the introduction of the Euro (OJ 2004 Special Edition, Chapter 10, Volume 1, p. 111); (3) Council Regulation (EC) No 2866/98 of 31 December 1998 on the conversion rates between the Euro and the currencies of the Member States adopting the Euro.
[3] Though, as Swedish example shows, country which is not willing to join Eurozone, can intentionally avoid fulfilling the adoption requirements by not joining ERM II, which is voluntary.
[4] Speech of Vice-President, Commissioner for Economic and Monetary Affairs, EC Jyrki Katainen at Euro changeover conference, 25 September 2014, Vilnius
[5] Related EU and Lithuanian legal acts are available at EU Commission website: http://ec.Europa.eu/economy_finance/Euro/countries/lithuania_en.htm
[6] Approved by Government of the Republic of Lithuania, Resolution No 604 of 26 June 2013. Available at http://www.lb.lt/preparation. It was amended in December 2013 and in June 2014.
[7] Available at http://www.lb.lt/preparation.
[8] Article 2 of the National Changeover Plan.
[9] Council Decision 2014/509/EU of 23 July 2014 on the adoption by Lithuania of the Euro on 1 January 2015 (OJ L 228, 31.7.2014, p. 29). The ECB gave a favourable opinion on 14 July 2014, the European Parliament on 16 July 2014.
[10] Public information on the Euro adoption was performed in accordance with the Communication Strategy.
[11] “Russia growls across the border as Lithuania readies for euro”, Reuters, Available at: http://uk.reuters.com/article/2014/12/21/uk-lithuania-euro-idUKKBN0JZ08F20141221