Brussels, 04/06/2014 (Agence Europe) - The eurozone may get a new member on 1 January 2015. On Wednesday 4 June, the European Commission published a report on convergence, recommending that Lithuania join the single currency in January 2015, a recommendation that the EU Council of Ministers will need to endorse. The decision will be discussed by the European summit on 26 and 27 June, then by the European Parliament and a decision will probably be taken in the second half of July, explained Economic and Monetary Affairs Commissioner Olli Rehn (of Finland). At the same time, the Commission notes in its report that seven other countries due to join the euro are not yet ready to do so.
Lithuania to become nineteenth eurozone member. Vilnius meets the four convergence and quality criteria for joining the euro. Over the twelve months to May 2014, Lithuania's average inflation rate was 0.6%, well below the reference value of 1.7% set for April. It is expected to remain below the reference value in future months, explains the Commission. The European Central Bank has taken a slightly more cautious approach, noting in its report, published the same day, that the current low inflation is mainly due to temporary factors and concerns exist about the sustainable nature of inflation convergence in Lithuania due to the potential problem of dealing with domestic pressure on prices and avoiding an overheating of the economy in an environment of fixed exchange rates. The catch-up process is expected to widen the gap between inflation in Lithuania and the eurozone over the medium term as per-inhabitant GDP and prices are still below the eurozone average. Quizzed about this difference in interpretation, Rehn said there was a significant degree of convergence between the two reports with different nuances. He said that this type of nuance had been seen for Estonia and Latvia too.
Lithuania's public finances are in good shape. Its public deficit was 2.1% in 2013 (below the 3% cut-off point) and is expected to remain below 3% in 2014. The public debt is well below the 60% limit, standing at 39.4% on 31 December 2013. In Exchange System II, which Lithuania joined on 28 June 2004, the exchange rates for non-euro countries are only allowed to fluctuate by 15%. Lithuania's currency, the litas, is not subject to tension and has not deviated from exchange system reference point over the past two years. Average long-term Lithuanian interest rates stood at 3.6% for the year ending in April 2014, well below the reference value of 6.2%.
The Commission says that Lithuanian monetary legislation is totally compatible with that of the EU. Other factors were examined, such as the country's trade balance, which has sharply improved in recent years, and the fact that the economy is well-integrated into the EU28 economy through trade and exchanges of labour. The country's banks are well-integrated into the eurozone system with high levels of foreign capital in the bank system.
Rehn said: “Euro adoption will be a major, hard-earned and well-deserved achievement for Lithuania and its people. But it should be seen as a starting line rather than a finishing line. It will be essential to continue with sound economic policies in order to ensure a smooth successful performance within the euro area - and realise the full benefits of monetary union and minimise risks in the future”. Lithuanian Prime Minister Algirdas Butkevicius said: “Euro adoption is an economically and politically measured strategic step by Lithuania aiming at a more rapid economic growth, and also better life for all the residents of the country”. Similar comments were made by Lithuanian Finance Minister Rimantas Sadzius: “Being the euro area member for Lithuania means a greater confidence of foreign partners in the country, which is larger investment, more favourable borrowing, lower unemployment, and growing income of the residents.”
Romania hopes to join euro in 2019. The next assessment will not take place for another two years, but Commissioner Rehn says that Romania has informed the Commission that it is planning to join the euro in 2019. Romania is the only euro candidate country that has not yet met the price stability criterion during the reference period (inflation of 2.1%) and is expected to remain outside the reference value in future months. The seven countries that will be joining the euro at some point (Bulgaria, the Czech Republic, Croatia, Hungary, Poland, Romania and Sweden) are not members of Exchange Mechanism II. The Romanian currency fell temporarily against the euro in the summer of 2013 and the start of 2014. The seven countries' legal systems are not totally compatible with the eurozone joining requirements, with problems surrounding the independence of the central bank and, with the exception of Croatia, the bank on monetary financing and the legal integration of central banks in the Eurosystem. All seven countries meet the long-term interest rate requirement. The Czech Republic may exit excessive deficit proceedings in 2014 if the Council of Ministers goes along with the Commission's recommendation. The deadlines for Croatia and Poland (2016 and 2015 respectively) suggest that the two countries will be on track with their budgets for the next convergence report. Croatia and Hungary are expected to have debt levels of above the 60% reference point until 2015 (69.2% and 78.9% of GDP respectively). Sweden, the Czech Republic, Romania, Bulgaria and Poland are expected to keep their debt well below 60%. Rehn said that the deadlines “need to be credible and backed by concrete policy commitment”. (EL)