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  Euro, wages and other fears (1)

Viktor Denisenko
2014 09 10

In less than half year period Lithuania‘s national currency litas will be replaced by the single European currency euro. Our country will be fully integrated in the European system, yet this event is also related to various fears and worries. Lithuania‘s response to the euro could be related both to financial and psychological aspects. Let‘s start from the latter.

Lithuania is the last of Baltic States to introduce the euro: Latvia did it last year, Estonia from 1 January 2011. In fact, Lithuania had a possibility to join the Euro zone the first of the three Baltic States, i.e. from 1 January 2007. However, this attempt was not successful due to excessive inflation, 0.1 percent exceeded the limit set in the Maastricht treaty by 0.1 percent.

In 2006 this was an obvious failure, but today we can also see positive aspects. Later a global financial crisis hit the European Union. The Euro zone also suffered from an economic crisis - Southern European countries didn’t manage to solve their financial problems and underestimated the importance of the fiscal discipline.   

During the crisis there were many talks on dangers to Europe’s single currency. The collapse of the Euro zone was also predicted many times, as well as withdrawal of some states or even expulsion (the case of Greece). But these predictions didn’t come true.

The euro has both, financial and symbolic value. It means the acknowledgement of national achievements and an indication that a state managed to fulfill strict requirements and is ready to join the “elite club”.

Regarding unnecessary concerns that Lithuania is the last of the Baltic States to introduce euro, it is worth mentioning that although to be the first is a respectable challenge, it is often a very difficult challenge. The example of Estonia and Latvia showed that introduction of the euro had no tragic consequences which are often highlighted by the ones who like conspiracy theories. Due to successful experience of our neighbors, Lithuania will be psychologically better prepared to introduce the euro; but it will take time and efforts to eliminate all fears. First of all these fears are related to the vitally important issues, e.g. prices and wages.

National authorities try to calm down the society and promise that there will be no sharp jumps in prices. In spring Algirdas Ðemeta responsible for the EU’s Financial Programming and Budget, said that in the countries which have already introduced euro, prices usually increased by only 0.2-0.3 percent.

The issue of wages is also important. According to the data of this year, Lithuania is among the EU Member States with the lowest minimum wage (after Romania and Bulgaria).  By this indicator both Latvia and Estonia are ahead of Lithuania. According to the data of Eurostat, the minimum wage in Lithuania amounts only to 289,62 euro, in Latvia – 320 euro, in Estonia – 355 euro.

 The map of European countries by monthly net average wage shows wage distribution in various countries. It shows that even the crisis stricken South European countries have higher wage levels than the Baltic States and Poland which managed to cope with the crisis successfully.  

According to Eurostat, the average hourly labour costs in Lithuania were estimated at 6,2 euro (in Latvia – 6,3, in Estonia – 9 euro), i.e. in Lithuania the hourly labour costs are four times lower than the EU average.  

Of course, it is difficult to be optimistic in such a situation, and the euro becomes an instrument generating new financial fears. But the euro for Lithuania is an opportunity rather than danger. The portal specifically designed for introduction of the euro in Lithuania presents the following positive aspects:

·  the euro will help Lithuania develop trade and financial relations;

·  there will be no currency exchange costs when travelling to other Euro zone countries;

·  participation in euro zone will ensure price stability; 

·  euro promotes competition in the EU market, thus consumers will get cheaper goods and services;

· possibility to borrow at lower interest rates;

·  the state will have to pursue strict EU’s financial discipline.

These are the objective features of benefit of euro introduction. They might seem non-concrete; introduction of the euro is not a panacea in terms of financial failures, but is an unquestionable step forward.  Since the accession to the EU and NATO in 2004 our country hasn’t practically taken any serious geopolitical steps.

Let’s hope that the euro will become another stimulus providing for the improvement of Lithuania’s financial and economic situation. Maybe in several months we’ll be more optimistic and all the fears will be forgotten. 

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