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News Analysis: Economists expect more benefits on Lithuania's joining eurozone

English.news.cn   2014-07-24 02:21:13

VILNIUS, July 23 (Xinhua) -- Economists of SEB bank and Swedbank in Lithuania anticipate more benefits than disadvantages on the country's eurozone membership.

Lithuania has been approved by the EU Council on Wednesday to join the eurozone as its 19th member. The Baltic country won favorable opinions from the European Council, the European Central Bank (ECB), and the European Parliament recently.

International credit rating agencies have also raised their sovereign ratings for Lithuania.

"Higher credit ratings mean that Lithuania's borrowing costs will decrease, and therefore government, companies and private individuals will be able to borrow at lower rates," Gitanas Nauseda, chief economist of SEB bank, told Xinhua in an interview on Wednesday.

"International financial transaction costs will also decrease. Euro is also expected to encourage foreign trade and support economic development," Nauseda said.

Lithuania will be more attractive to foreign direct investment as a member of the single currency bloc, according to Nauseda.

In fact, the eurozone's membership will enable Lithuania to join its neighbors Estonia and Lativa in enhancing the Baltic region's competitiveness on attracting foreign investment, said Vitas Vasiliauskas, chairman of the central bank of Lithuania, to Xinhua in an earlier interview.

As the 19th member of the single currency bloc, Lithuania will have its own voices on monetary decisions and have its share in ECB profits, said Nauseda.

The Baltic country, becoming a member of the EU in 2004, has pegged its currency litas to euro in 2002 with absolutely fixed exchange rate.

"The economy of Lithuania has been strongly related to the euro area for quite a long time already, and euro could be seen as Lithuanian de facto currency," said Vasiliauskas.

The transaction cost will be lower after Lithuania's adoption of euro, because the eurozone is "the biggest trading partner for Lithuania, and important holiday destination", Nerijus Maciulis, chief economist of Swedbank, told Xinhua.

"Private sector and, especially, the government can expect to borrow at lower interest rates, because the foreign exchange risk will be eliminated," he illustrated.

Concerning the risks of joining the eurozone, Maciulis believed there would be no tangible risks, yet "there will be some effect of rounding up the prices, but the experience of other countries shows that this effect is negligible and isolated to non-necessities".

"There is a risk that at some point in the future eurozone will fracture and we will have to reintroduce our national currency, but the risk is small," he continued.

According to Nauseda, official estimates show that euro introduction will push up inflation by 0.2 percent to 0.3 percent only.

Hi predicted that "the most difficult challenge is to ensure that businessmen do not use euro as a means for blurring price increase".

"The government will monitor prices while companies were encouraged to sign fair pricing memorandum and those which will abuse euro introduction for raising prices, are subject to fines," he said.

Double prices will be shown on labels starting from Aug. 22, Statistics Lithuania has already started monitoring and publicizing prices of most frequently bought products.

"Price changes for the main goods and services will be actively monitored and published. Consumer organizations and the public will also be actively involved in price monitoring," Vasiliauskas stressed in an earlier interview.

As of the situation that euro members faced in the past years, Maciulis said that "the eurozone has gone through important transformation - European Stability Mechanism is up and running, ECB has expanded its mandate, banking union is in the making".

"These make eurozone a more stable union than it was during the last decade. There is a risk of tensions between eurozone countries - as the club expands it will not be easier to find common ground. But the fear of imminent break up of euro zone is grossly exaggerated," he anticipated.

"In recent years, the eurozone has experienced its most serious crisis, however, the most acute challenges are already overcome as a lot of unconventional measures were adopted, especially in the monetary policy field over recent years," Nauseda pointed out.

"At the moment, situation in the eurozone is much more stable than 2-4 years ago and Lithuania's economy is in good shape. In general, euro introduction is favorable for Lithuania's economy," Nauseda said.

"Lithuania meets Maastricht criteria required for euro introduction and there are no reasons for postponement of euro introduction," he believed.

"Most likely, in order to survive, the eurozone will have to walk the path of deeper integration on both political and fiscal levels," he added.

In the past years, Lithuania has been preparing for its entry into the eurozone, and "Lithuania has passed the exam of euro preparations, which wasn't easy", according to Lithuanian Prime Minister Algirdas Butkevicius in a report of BNS news agency.

"We appreciate the coming of the euro not only as an economic security guarantor but also as a possibility to pursue greater financial stability in our country and to further develop the economy in a sustainable and harmonious way," Butkevicius was quoted by ELTA news agency as saying.

"It means new job creation, growth of personal income and increasing competitiveness of the country," said Butkevicius.

The Baltic country will formally join the eurozone on Jan. 1, 2015, following the footsteps of its Baltic neighbors Estonia and Latvia, which joined the single currency club in 2011 and 2014 respectively.

Editor: yan
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