Country Watch
A Look at the Economic, Political, and Social Events that Shape International Law Around the World
Lithuania Set To Become 19th Eurozone Member
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The Lithuanian mint is running at full capacity af- ter the European Parliament voted 545 to 116 in mid-July to allow Lithuania to join the Eurozone. The vote means that on January 1, 2015, Lithu- ania will become the 19th European country and third Baltic state, after Estonia (2011) and Latvia (2014), to join the Eurozone. The mint must now churn out and distribute 1,740 tons, some 370 million units, of euro coins to commercial banks and businesses before the start of next year. This is no easy task. Yet, when compared to the economic requirements Lithuania met to simply be considered for Eurozone membership, there is little question every ounce of currency will be ready come New Year’s Day 2015.
To be considered for Eurozone membership, a state must meet several benchmarks related to price stability, sound public finances, exchange rate stability, compatibility of national legislation with European Union legislation, and the level of integration into the European System of Central Banks. The convergence criterion is designed to prevent economic and political disruption for indi- vidual member states and the entire Eurozone by ensuring economic preparedness of the candidate state. At the time of the vote, Lithuania’s inflation rate, general government deficit, and gross debt ratio were all well below reference values. On pa- per, the country of roughly three million made the process look simple, but achieving the necessary marks was far from easy. Lithuania has worked toward its goal of adopting the euro for the bet- ter part of eight years, slowed only by the global financial crisis and constant challenge of control- ling inflation. But, why would any country want
to adopt the euro and relinquish sovereignty over monetary policy considering the risk of deflation, anti-European populism, and near-record unem- ployment in Eurozone countries?
Making the switch to the euro is an unpopular decision these days. This is evident by the list of seven countries that are dragging their feet to make the necessary economic and mon- etary policy changes required to join. The list of countries includes Sweden, Poland, Hungary, Czech Republic, Romania, Bulgaria, and Croatia. According to experts, Lithuania may be the last country to enter the Eurozone until the end of the decade, with Romania targeting 2019 for its adoption date. For Lithuania, however, the deci- sion makes sense from several perspectives.
Lithuanian Finance Minister Rimantas Sadzius stated that adopting the euro is a very attrac- tive proposition to a country such as his because the currency offers greater national security po- litically, financially, and economically. The recent developments in the Ukraine are concerning for the former Soviet state. Deepening ties with the European Union is one way to deter Russia from attempting to assert greater control over it or its fellow Baltic neighbors. Additionally, Latvia and Estonia are already using the euro. Becoming a member should encourage greater economic in- tegration among the Baltic States and other Euro- zone countries. Also, adopting the euro removes uncertainty as to the exchange rate, which may open the door to greater foreign investment. De- spite pegging its currency to the euro for several years, Lithuania remains a comparatively less at- tractive destination for European investment. Adopting the euro may change this. Considering Lithuania is known as a knowledge economy fo- cused on biotechnology, mechatronics, and infor-
ILSA Quarterly » volume 23 » issue 1 » October 2014
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