© Agwence France-Presse/Philippe Huguen
Lithuania, the last Baltic nation outside the currency union, has finally been given the green light to join the euro area, after its bid was turned down 8 years ago. The country could adopt the single euro currency on January 1, 2015.
The European Commission and the European Central Bank
accepted Lithuania's application on Wednesday.
"Lithuania's readiness to adopt the euro reflects its long-standing support for prudent fiscal policies and economic reforms. That reform momentum, driven in part by Lithuania's EU accession ten years ago, has led to a striking increase in Lithuanians' prosperity: the country's per capita GDP has risen from just 35% of the EU28 average in 1995 to a projected 78% in 2015," Olli Rehn, the European Commission Vice-President responsible for Economic and Monetary Affairs and the Euro, said in the statement.
The ECB looked at eight European Union countries - Bulgaria, the Czech Republic, Lithuania, Hungary, Poland, Romania, Sweden, and Croatia. Only Lithuania met all the criteria to join.
Lithuania first applied for membership on January 1, 2007. It was rejected, as inflation was above the EU's target by 0.1 percentage point, and expected to go higher. In 2008 it grew to hit 12.5 percent.
The Council will make a final decision on the matter in the second half of July, after EU officials and state heads meet at the European Council from June 26-27. Then the council will also agree on a set conversation rate for Lithuania's currency the litas to the euro. Eighteen countries already share the currency, a requirement for all member states except for the UK and Denmark.
In order for a country to adopt the euro, it needs to tie its currency to the euro for a two-year period, as well as keep debt below 60 percent of GDP and inflation within 1.5 percentage points of the three lowest rates among the euro zone.
The European Commission said that inflation, the key stumbling block to Lithuania joining the eurozone previously, has been overcome.
In the 12 months leading up to April 2014, Lithuania's average inflation rate was 0.6 percent, well below the reference value of 1.7 percent, and will likely remain below this level in the coming months, the ECB report said.
Overall, inflation across the euro zone has been half the ECB's target rate of 2 percent.
The commission credits Lithuania for its triumphant return to economic growth after the recession hit in 2009, including its success in keeping its budget deficit and government debt ratio below ECB rates.
On Thursday, the bank is expected to announce a widely anticipated interest rate cut, venturing into negative deposit rate territory, dipping below zero. The announcement is expected at 7:45 am Eastern Time.
ECB President Mario Draghi, who has hailed the euro zone as an "
island of stability" has said he will "
do whatever it takes" to save the euro currency, which is weakening before the rate decision.
SOTT Comment: "Why Slavs in Eastern Europe still look West to an empire that treats them so abominably is a mystery." (Note that Lithuania is NOT a Slavic country.)
After having been treated like vassals by the East (Soviet Union) for many decades, they saw the West as the SU's polar opposite, and, once they were able to choose, much more preferable as a "partner". In addition, after having endured economic deprivation for so long, the lure of being able to participate in an economic system they perceived as allowing them to become wealthy was irresistible.
They have come to realize that the West treats them in an almost equivalent fashion, although with a "kinder and gentler" outward appearance, and their expectations of wealth were overly optimistic. Nevertheless, they are still better off now under the Western boot-heel than they were under the Soviet heel.
Although Russia is not equivalent to the Soviet Union, either politically or economically or , , ,, it will take quite some time for most of Eastern Europe to overcome their antipathy to Russia due to their experience with the SU. However, the EU's (and the US's) quest for ever more influence/authority over national gov'ts plus the economic disaster to come due to their forced adoption of the Euro will undoubtedly make them eventually reconsider their future relationships with both the East and the West.