Euro adoption in Lithuania and Euro currency in European Union

European Union is a political-economycal alliance with 28 members. Euro zone defines countries who adopted euro currency. From 2015 1st of January Lithuania adopted euro currency also. From my point of view, euro is stable and strong currency in this case. A small country with a weak currency country like it was Lithuania turn mandatory to adopt euro.

First of all, if a country wants to adopt the euro it has to implement conditions wich were created by Europe Central Bank. ECB main objective is to maintain price stability.

The main factors of euro integration in Lithuania were: price stability - average annual inflation counted according to HICP can’t be 1,5 % points  bigger than the average inflation of 3 best performing Member States which have the most stable prices; general government deficit - it can’t consist of more than 3% points of GDP or has quickly to achieve this level; general Government debt - it can’t be more than 60% of GDP or has to decrease rapidly to proper level; country national currency - the country at least 2 years has to participate in the Exchange Rate Mechanism II. The national currency of participating countries can‘t fluctuate more than -+15%. The Member State may not have devalued the central rate of its currency. The role of foreign exchange interventions is also assessed.

Still refearing to the main factors for integrating the euro, long term interest rates are also taken into account, namely: average nominal interest rates cannot exceed more than 2% points of the 3 best performing Members in price stability interest rates.

In this regard, the performance of Lithuania was:

Price stability -  0,6% (Reference value 1,7%);

General Government deficit - 2,1% (Reference value 3%);

General Government debt  - 39,4 (Reference value 60%);

Rxchange Rate LTL - 3,45280 (Reference value LTL 3,45280 -+15%);

Long-term interest rates - 3,6 % (Reference value 6,2%).

According to the data made available by the Central Bank of Lithuania, we see that Lithuania succeed in all criterias and adopted euro.

After euro adoption, prices tend to rise because of bills emission. Ordinary Lithuanian thinks that he or she was deceived by Lithuania‘s goverment, but according to macroeconomics when country does bills emission prices tend to raise. As we know from salary-price spiral, if prices rise, salary also has to be raised. In this case, from 2016 1st of July minimal salary in Lithuania was increased to 380 euros per month before taxes. The same currency in different countries makes communinication more easy and has benefits, for example, volatility of rate of exchange and cost of currency changes disapear. Furthemore, economy grows and customers have bigger diversity in products supply. Using the same currency, bussines can more easily practice international trade in European Union and this leads to more stable economy. Moreover, becoming one of the Euro Zone‘s country Lithuania leads to stronger and more open economy regarding to relations with international companies.

European Union – these words say that something has to relate all countries. From my opinion, same currency is the best option. Reducing obstacles between monetary communication lets to co-operate more easily. Globally, EU increases the power of itself with euro, because euro is the second strongest currency in the world, after dollar. European Central Bank created rules for those countries which want to adopt euro. It is s obligatory to ensure that country will not make Euro Zone more difficult.

To sum up, euro currency, which is second strongest currency in the world, is the currency that should be used by every European Union country. That would allow to eliminate monetary obstacles, allowing a much easier communication between countries. In my opinion, Lithuania was prepared for euro adoption and that was very important for our economy. It helps it to become a more open and stronger economy in the aim of the European Union.

Diana Balseviciute

References:

1.     Central Bank of Republic of Lithuania. Last update 04/06/2014. „Euro adoption criteria and their implementation“. Interact [https://www.lb.lt/convergence_criteria_and_their_implementation]

2.     Europe Union. Last update 04/10/2016. „Euro“. Interact [http://europa.eu/european-union/about-eu/money/euro_lt]

[artigo de opinião produzido no âmbito da unidade curricular “Economia Portuguesa e Europeia” do 3º ano do curso de Economia (1º ciclo) da EEG/UMinho]