Will Lithuania fly like a hawk or a dove at the ECB?

February 20, 2014

No one will really know how Lithuania will impact European Central Bank monetary policy until the country gets a seat at the table. That is expected to happen in 2015, provided the last of the three Baltic nations meets the criteria to become the euro zone’s 19th member. We’ll all find out in early June.

The ECB’s monetary policy remains at its loosest (main refinancing rate is just 0.25 pct) since the bank assumed central banking responsibilities for the euro area 15 years ago. My Frankfurt-based colleague, Eva Taylor, explained earlier this month that the addition of Lithuania will change the voting patterns of the ECB, curbing smaller members’ perceived influence and giving more weight to the center.

Here in New York, Lithuania’s Economy Minister Evaldas Gustas, along with Mantas Nocius, who heads up the ministry’s enterprise department, presented investors with an overview of the economy. When asked if Bank of Lithuania Governor Vitas Vasiliauskas would be a hawk or a dove should Lithuania join the euro zone in 2015, the answer, at least from Nocius, was as sharp as a claw.

“Not that complicated. Yes, Lithuanians, they are a bit hawkish, as the other two Baltic neighbors, because of our tradition,” Nocius said.

He elaborated further: “We are close to Nordics and we think we have to be very prudent in financial issues. I would very much expect that the governor of the Bank of Lithuania, Vitas Vasiliauskas, he is likely to behave in a similar way as Estonia and Latvian counterparts. Definitely, they discuss a lot and meet quite often. I think this is a case where we can talk about cooperation. Also, our current president, she is a former minister of finance and former budget commissioner. I think it would be consistent to think that the governor of the bank of Lithuania is going to take a rather hawkish position.”

Lithuania failed to adopt the euro in 2007 because it narrowly missed the inflation threshold set out in the Maastricht Treaty.

While he didn’t comment on the central bank governor’s position, Gustas assured those gathered at the meeting organized by the European American Chamber of Commerce in New York that he did not expect them to fail this time around. Gustas cited 1.2 percent inflation this year (below the 3 percent threshold requirement) and a debt-to-GDP ratio running at around 40 percent, below the 60 percent limit set in the Maastricht criteria.

Gustas reiterated the government’s 2014 economic growth forecast of 3.4 percent while adding he thought 2015 could see growth above 4 percent.

Prime Minister Algirdas Butkevicius said in January he will resign if Lithuania fails to join next year. Vasiliauskas told the Reuters Global Markets Forum, an online chatroom, that he did not need to follow suit if they fail to join.

Lithuania’s neighbor, Latvia, adopted the euro on Jan. 1 this year, following Estonia in 2011. All three Baltic countries split from the former Soviet Union in the early 1990s and joined the European Union in 2004.

Click here for a copy of the economic presentation

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