Dec. 9 (Bloomberg) -- Lithuania, the fastest-growing economy in Europe last year, will expand 7 percent a year through 2007, helped by 2.5 billion euros ($3.3 billion) of European Union aid and foreign investments, President Valdas Adamkus said.

``There are still huge untapped opportunities'' in the Lithuanian economy, Adamkus, a 78-year-old former U.S. citizen, said in an interview in London. ``For the next three years, we'll continue growing at 7 percent without doubt.''

The former Soviet Baltic state of 3.5 million people is one of 10 nations that joined the European Union in May. Its $18 billion economy expanded 9.7 percent last year. The rapid pace of growth and EU financial aid is helping Lithuania keep its budget deficit down, meeting a key requirement for euro adoption.

Adamkus said there were no obstacles to switching to the euro within three years together with Estonia and Slovenia. The three EU entrants on June 27 started a two-year test of currency stability and could get the currency as soon as 2006.

``We are ready to introduce euros in an orderly and safe way,'' said Adamkus. ``Lithuanians will have euros in 2007.''

Lithuania already meets terms to limit the budget deficit, state debt and interest rates, and is close to the current 2.5 percent inflation target. Annual inflation slowed to 3 percent in October from 3.3 percent a month earlier.

The litas has been pegged at 3.4528 per euro since early 2002. For eight years before that, the exchange rate was fixed at 4 per U.S. dollar.

Lithuania probably won't hold a referendum before introducing the EU's common currency, the president said.

Overwhelming `Yes'

``We held already a referendum on joining the EU, and the result was such an overwhelming `yes' vote that this would be just a waste of time and money,'' he said. ``I see absolutely no opposition'' to rapid euro adoption, he said.

The nation is seeking foreign capital to expand its biotechnology and other science-related industries, he said.

Executives of St. Paul, Minnesota-based 3M Co., which spends about $1 billion a year on research and development, International Paper Co., North America's biggest paper maker, drugmaker Bristol- Myers Squibb Co. and American International Group, the world's largest insurer, were among about 150 participants at a Baltic investment conference attended by Adamkus in London this week.

``We're not as cheap as the Chinese, but we're cheap, and we also offer low taxes on profits,'' said Adamkus. ``Our people are hungry for an opportunity to work and make money.''

The country's average wage of $471 a month compares with about $5,000 in Germany and $143 in China. Lithuania has a flat 15 percent corporate tax rate. Companies pay as much as 38 percent in Germany.

Tax Cuts

Now the Baltic nation plans to reduce its 33 percent personal income tax rate, Adamkus said. That means employees will get more money without companies having to raise wages.

Altria Group Inc. subsidiaries Philip Morris and Kraft Foods Inc. were the first two big foreign companies to buy factories in Lithuania after the nation declared independence in 1990, the first of the 15 Soviet republics to do so.

The biggest investors are TeliaSonera AB, the Nordic region's biggest phone company, which has invested $780 million, and Swedish lender SEB AB, which invested $330 million to buy Lithuania's biggest bank, AB Vilniaus Bankas, according to the Lithuanian Development Agency's Web site.

EU financial aid is meant to help the newest member countries, all but two of which were communist during half of the 20th century, catch up with the region's wealthier nations.

`Inside and Out'

``The influx of that amount of money could change the country inside and out,'' Adamkus said. ``I want to make sure the money is properly used'' to improve roads, railways and utilities, and boost environmental standards.

Adamkus said the need to ensure a transparent distribution of the EU funding was why he forced Prime Minister Algirdas Brazauskas this week to replace two members of a new cabinet that's being formed after October elections.

``The coalition was determined to push the president into a corner'' about the cabinet's composition, Adamkus said. ``But they met a tough nut who said `no way'. I had to ensure the quality of the individuals'' in the government, he said.

To contact the reporter on this story: Bryan Bradley in Vilnius on Bbradley4@bloomberg.net

Last Updated: December 9, 2004 04:16 EST