Lithuania's entry into the Eurozone

•
• Lithuania in the 1990’s
• Former republic of the Soviet Union
• After its collapse, was left with high inflation and negative GDP growth
• Table 1: GDP growth 1992-2008 source: IMF
• Table 2: Annual inflation 1992-2008 source: IMF
• Lithuania in the 1990’s
• Underwent several reforms:
◦ Privatizations
◦ Re-introduction of national currency
◦ Banking sector reform
◦ Tax reform
• The EU Accession Process
• Started approaching the EU since early 90’s
• Signed treaties on trade, economic and commercial cooperation in 1992
• Applied for membership in 1995
• Negotiations started in 1999
• Entered the EU on May 1st, 2004, along with the Czech Republic, Poland, Hungary, Estonia, Latvia, Cyprus, Malta, Slovenia and Slovakia
• Why euro?
• Benefits
▪ Elimination of currency transaction costs
▪ Price transparency and comparability
• Increased competition within the Single Market
▪ Payments across the euro area become easier, faster, cheaper
▪ Stronger foundations for the country’s macroeconomics stability and growth
• Why euro?
• Costs
▪ Loss of national monetary policy
• Fixed exchange rate regime prevents wider fiscal policy
• Monetary policy is not used macroeconomics management tool
▪ The jump of prices
▪ Costs of changeover preparations
• To sum up: benefits of the euro outweigh the costs of preparation and implementation of the changeover
•
• Currency stability for two years.
• Inflation within 1.5 pt of the average of the three best performing countries
• Interest rates within 2 pt of the average of the three best performing countries.
• Net Debt: No more than 60% of GDP.
• Budget deficit: No more than 3% of GDP.
• Convergence Criteria
• Economic convergence criteria
•
• convergence criteria
• reference value
• reference value in Lithuania, 2008
• Exchange rate stability
• 3.45+15%
• 3,45
• Price stability
• 1,7+1,5%=3,2%
• 7,4%
• Budget deficit
• 3%
• 1,2%
• Debt
• 60%
• 17%
• Long-term interest rate
• 4,5+2=6,5%
• 4,4%
•
• The main challenge for Lithuania – satisfying the inflation criterion
• The main factors that influence fast inflation process in Lithuania
• Strong real GDP growth
• High prices of...

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