EU Commissioner: ‘Lithuania’s landing is fast, hard and painful’
At the moment many people are asking the same question ‘Which country is next after Iceland?’ The Danske Bank has announced a list of the 15 most financially vulnerable countries in the world. This analysis suggests that Hungary is ‘en route’. The three Baltic countries are also amongst the ‘lucky’ 15. This news coincided with Commissioner’s Grybauskaitė vist to Lithuania. She has confirmed the news – the Lithuanian economy is in trouble… But there is also some good news.
Perhaps it should be noted that the announcement of the black list came after a British paper miss interpreted the Head of the International Monetary Fund as saying that the Baltic countries are very close to the ‘Icelandic scenario’. The local economists jumped in and vigorously denied this prediction. Yes, the Baltic countries are in trouble but the causes of our troubles are different from the Icelandic.
Eg. Lithuania’s external debt is 13 per cent and the internal debt is about 70 per cent of our GDP. Further more, Iceland’s budget deficit was 9 per cent, Lithuania’s less than 3 per cent. More, our currency Litas, is pegged to Euro (with all positive and negative effects). The Danske Bank senior analyst Lars Christensen also confirmed that even though Lithuanian is well into the hard landing (according to him it started about a year ago) Lithuania is in a better situation than our Baltic brothers.
As it was mentioned Lithuania heard the bad news not only from the Danske Bank. ‘Lithuania’s landing is fast, hard and painful” Dalia Grybauskaitė, the EU commissioner responsible for financial programming and budget anounced last week during her visit to Lithuania. This former Finance Minister is one of the most popular public figures in Lihtuania. For the last two years she harshly critisies Lithuania’s Goverment at every visit to Lithuania. The PM Kirkilas once complained to the EU Commission’s President about Grybauskaitė’s ‘interferience’ in the Lithuanian politics.
However Mrs Grybauskaitė decided to go open about the Lithuania’s economical situation two years ago, because the Government would not react to her remarks. She said, “Actual Lithuania’s economic situation shows that nobody has heeded advices in Lithuania. We see that the situation has got worse. Everybody, not just the European Commission (EC), but international organizations, sees it as well. They make very straightforward evaluations, for example, the rating agencies have revised Lithuania’s credit ratings down. Meanwhile, it means more expensive borrowing, lower confidence in the country and more complicated borrowing terms” BNS quoted her.
First of all she suggested the President to veto the new proposed 2009 budget. “We should speak about the general fiscal deficit, and, as to my knowledge, it (the budget) is getting closer to the critical limit of Maastricht criterion, 3 percent of gross domestic product (GDP). Clearly, if the rate is larger, mistrust will be huge. We have had such experience with this year’s budget. A country has submitted a certain deficit figure to the EC, and now it is getting clear that the actual rate is five times larger than the initial one,” according to the BNS the commissioner said.
As the BNS noted Lithuania risks having its fiscal deficit cross the 3 percent limit in 2009, the European Commission (EC) warns. In 2008, as projected by the Commission, the country’s deficit will reach 1.7 percent of gross domestic product (GDP).
The outlook for Lithuania’s economy is poor with the International Monetary Fund (IMF) seeing the countries GDP growing by meagre 0.7 percent next year, much less than envisaged by the government, she says.
As the BNS further noted the commissioner slammed the government for denying problems and delaying their solutions thus eventually failing to get prepared for the crisis. “Such politicians and governments are drowning their countries. I do not want to specify any names, you know them yourselves,” Grybauskaitė said.
She projected that Lithuania’s fiscal deficit would exceed the 3 percent GDP limit in 2009. “I think it will be well above that limit.’
The hopes of balanced budget were failing, while the inflation spiral was being given an additional impetus instead of being curbed, the commissioner said.
“There are two anti-inflation plans but no actual actions. Moreover, some actions of opposite effect have been taken, such as the indexing of payments. No actual actions have been taken, since the plans were declarative. Structural reforms in the area of education and on the labour market have not taken place, on the contrary, they have been avoided,” she pointed out.
In short there are a lot of bad news in the Lithuanian economy. However, there is also hope. The Commissioner noted that this a very good time for the Lithuanian political establishment to get their act together. The new government should be formed this year already. There is a lot of speculation in the Lithuanian media about Grybauskaitė’s return to the Lithuania’s politics in order to set the Lithuanian finances straight.
As the BNS agency noted she isn’t shooting for Lithuanian prime minister’s seat. She did, however, note willingness to cooperate with whatever government is formed in result of the general elections. “I am not at all referring to any posts, as government or post apportionment is of no interest to me, this is not in my life priority list”.
The BNS further noted that any political force or majority to come into power will not be capable of managing forthcoming challenges alone, she forewarned, noting the need for achieving a joint agreement – inclusive of all main parties – on how to conquer these challenges, with the least to come of it being a moratorium on any new financial commitments for at least a one year period.
“When I hear any political force speaking on how to deal with the pending economic crisis in Lithuania, we will then address it. All I hear now is division of power, therefore I cannot provide any answer”, the EU commissioner said asked to comment on hints of her being an example of a suitable PM BNS writes.
However, the EU commissioner brought at least one good news to Lithuania.
As BNS wrote she has praised the management of EU structural funds in Lithuania.
According to the data cited by the commissioner, Lithuania absorbed 91 per cent of EU assistance as of September. “I am delighted that all my comments have been truly considered in the area of structural funds management as far as the ministry of finance is concerned. The result is truly good. As of September, the rate of structural funds absorption in Lithuania is 91 per cent, and we believe that Lithuania will come very close to full absorption in the remaining two months,” Grybauskaite told the reporters.
The BNS reminded that according to the European Commission’s (EC) data, some 91 per cent (EUR 813 mln) of structural assistance funds envisaged for Lithuania in 2004-2006 were paid to the country as of Sept. 10.
Lithuania was only behind Estonia and Malta (92 percent each) in terms of EU assistance absorption rate.