Lithuania adopts the Euro in January 2015

by Jörgen Eriksson on July 22, 2014

Lithuania euroThe European Union is recovering from a profound economic and financial crisis which at its worst moments raised questions over the future viability of the euro, the most ambitious project in the process of European integration. The Greek government’s announcement in late 2009 that the country’s public finances were in far worse shape than anyone had believed shocked Greece’s EU partners and shattered the financial markets’ faith in the euro area, leading to doubts the euro could survive.

The European Central Banks decision on September 12th 2012 that it would act as sovereign lender of last resort removed much of the fear of self-fulfilling liquidity panics. This announcement, and European key nations clear statements that they were determined to stay with the euro at any cost saved it as the common European Unions currency.

Since then the borrowing costs for the troubled euro countries have dropped substantially. Not because austerity policies brought national debts under control, debt ratios are still rising because of shrinking economies and deflation. Instead, because there has been a dramatic flattening of the relationship between debt and interest rates, with a new trust in the euro as a currency that is here to stay. See below graph form The Economist of the current currencies in Europe.

Europes currencies

This week, the European Union and the Government of Lithuania announced that Lithuania will become the nineteenth member of the euro area from January 1st 2015.

Lithuania’s adoption of the euro is a major event not only for the country but also for the euro area and the European Union as a whole. Lithuania’s readiness to adopt the euro reflects its long-standing pursuit of prudent fiscal policies and serious economic reforms. This reform momentum, driven partly by Lithuania’s EU accession ten years ago, has led to an increase in prosperity as GDP per capita has doubled since 1995.

As Doug Bandow recently wrote in Forbes, Estonia, Latvia, and Lithuania have not had an easy time.  They were early and avid reformers after escaping the unwanted bonds of the Soviet Union, but they were careless after the good times arrived.  They allowed spending to rise too rapidly in the middle of last decade, on average nearly 17 percent per year between 2002 and 2008. Then the global financial crisis and recession hit.

However as the crises arrived,  the Baltic countries turned to reform and restraint, strongly cutting government spending.  Rather than borrowing money for lavish “stimulus” programs as United States, United Kingdom, France and other leading economies did, the Baltic states emphasized fiscal responsibility.

The introduction of the euro will bring a range of practical benefits to Lithuanian companies and citizens, including the elimination of exchange rate risk and lower transaction costs. The stability-oriented policy framework of the euro area will support the catching-up process of the Lithuanian economy, including attraction of more foreign investment.

About Jörgen Eriksson :

Jörgen Eriksson is the founder of Bearing and is the Chairman of the firm since it was created. He has successfully expanded Bearing into covering projects on four continents. He is also Adjunct Professor of Innovation Management at the International University of Monaco and at Universitat Politècnica de Catalunya in Barcelona and he is an active member of the Founders Alliance organisation.

Working with consulting engagements across Bearings practices, he has over the past fifteen years participated in and supervised a large number of client projects, from innovation system development and place development and branding, to merger and acquisition assignments and leading edge research and business development activities for key clients.

His new book, Branding for Hooligans, will be published in 2015. It is about how innovation and branding are key survival factors in our modern times of hyper competitive markets.

Prior to Bearing, he was Director of Europe, Middle East, and Africa for Trema Treasury Management, a technology and consulting services provider, supplying financial software solutions for the global financial industry, Clients included The European Central Bank, Citibank, SEB, South African reserve Bank, Deutsche Bank, Abu Dhabi Investment Authority (ADIA), as well as many other large financial institutions and Fortune 500 companies.

Early in his career Eriksson was educated at the Stockholm School of Economics, where he studied economics, financial economics and philosophy. He then worked in Scandinavian investment banks and also for the Swedish Institute of National Defense Research.

You can contact Jörgen on e-mail, connect on LinkedIn onörgen-eriksson/0/38/8a0/ and follow him on twitter on joreri508.

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