Grybauskaite; new EU Members don’t need a preferential treatment to adopt Euro, Lithuanian will not seek the IMF help and could exceed its budged deficit

May 22, 2009 at 5:48 pm Leave a comment

The European Union’s new member states should use the economic crisis to make essential reforms – rather than beg for international assistance, Lithuania’s President-elect and the EU budget commissioner Dalia Grybauskaite said to the Financial Times today.

“This is a very good turning point for people to change to new realities,” she told the Financial Times in comments that contrast sharply with the demands of governments in the region. “Now is a perfect chance to clear away business obstacles and make a lot of structural reforms.”

Grybauskaite noted that the European Commission and the European Central Bank had already done enough to help.  Moreover, she believes that new member states should not be granted special treatment, such as softer criteria to adopt the euro or easier access to ECB liquidity, as this could blunt their incentive to reform.

“No, I don’t want to relax the [euro] criteria,” she said. “Already our politicians have been too relaxed . . . The criteria are a framework for responsible behaviour.” She added: “I don’t think that someone else should pay for the irresponsible fiscal policy in the new member states.”

Grybauskaite believes that Lithuania should be able to solve its problems without seeking help from the IMF, unlike when Lithuania was hit by the 1998 Russian financial crisis, during which time she was deputy finance minister.  “If Lithuania – with a 5% budget deficit – can refinance its debts, we don’t need to apply,” she said to the Financial Times today. “If external markets deteriorate and we cannot refinance our debts, then we will apply.”

Ms Grybauskaite believes Lithuania should maintain its currency board until it adopts the euro and that the government should set a target date, with entry in 2012-15 “quite realistic”.

To succeed, the government needs to keep the budget deficit under control as tax revenues shrink but Ms Grybauskaite warns against further deep expenditure cuts – particularly in welfare payments – at a time when popular discontent is growing, as shown by riots in the capital Vilnius in January.

“I am worried about future cuts,” she says. “Before we decide on future cuts we must be very careful.

“A 5 per cent budget deficit is not dangerous for an economy falling by between 10 to 15 per cent.”

It is more important, she believes, for the government to focus on long-delayed structural reforms to boost the economy writes the Financial Times.

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Entry filed under: Baltic States, Economics, Estonia, EU, Grybauskaite, Latvia, Lithuania, Northern Europe.

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