EUROZONE : LITHUANIA OPTIMISTIC ABOUT EURO ADOPTION ON 1 JANUARY 2015.

Internal disagreements in the coalition government represent the biggest risk

The Lithuanian government remains optimistic about the country's chances of adopting the euro on 1 January 2015. Finance Minister Rimantas Sadzius has explained that this step is not only "necessary" after two decades of a pegged exchange rate regime, first to the dollar and later to the euro. It is also "politically crucial since it will allow the country to participate in a decision making process very important for the entire Europe and the global markets," he told a group of reporters, on 18 March.

According to the European Commission's latest winter forecast, Lithuania's economy meets the convergence criteria. Today "we can talk about real economic convergence, and not only nominal convergence," argued the Governor of the Bank of Lithuania, Vitas Vasiliauskas, during the same briefing. "The real issue is sustainability," underlined Sadzius, who recognised how in 2006, when the country tried to join the euro for the first time, there were doubts about the sustainability of Lithuania's economy, with the rate of inflation rising to a double-digit figure two years later.

But two risks remain before the scheduled release in June by the European Commission and the European Central Bank of their next convergence report. First, the adoption of further sanctions against Russia, in the context of its conflict with Ukraine, could backfire on the Baltic state. Vasiliauskas explained that only 4% of Lithuania's direct exports go to Russia, while up to 80% of foreign direct investment comes from the EU.

However, the Achilles' heel of the Lithuanian economy is its total dependence on gas imports from Russia. The minister explained that the country is working...

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