Lithuanian Election Leader Vows to Delay ‘Unrealistic’ Euro Goal

The Lithuanian opposition party that leads polls before next month’s election said it will delay the Baltic nation’s euro-adoption plan if it heads the next government.

Joining the euro area is “unrealistic” in 2014 and should happen one or two years later, according to Algirdas Butkevicius, head of the Social Democrats. The party, which led Prime Minister Andrius Kubilius’s Homeland Union by 10 percentage points in a July survey, would remain fiscally responsible and keep the goal to narrow next year’s fiscal deficit to 2.5 percent of gross domestic product, he said.

“The euro area must solve its own problems,” Butkevicius said Sept. 18 in an interview in the capital, Vilnius. “What’s the rush now for us to pay for their bailouts when it’s been obvious since at least 2004 that Greece had to take measures to avoid bankruptcy?”

Kubilius, who defeated the Social Democrats four years ago, pushed through wage cuts and tax increases equivalent to 12 percent of GDP in 2009 and 2010 after Lehman Brothers Inc.’s collapse triggered the European Union’s second-deepest recession. While GDP grew at the EU’s second-fastest rate after Estonia last year, unemployment has doubled since the crisis and the emigration rate is the bloc’s highest.

Investors have welcomed Lithuania’s austerity measures, which brought the budget shortfall to 5.5 percent of economic output in 2011 from 9.4 percent in 2009, rewarding it with record-low borrowing costs. The yield on the government’s dollar bond due 2022 fell to 3.48 percent today, the lowest since it was sold in January.

‘No Revolution’

“Lithuania won’t follow the same path Greece, Italy or Portugal did,” Butkevicius said. “There will be no revolutions in the budget. Taxes won’t change -- there’s a need for stability to maintain the trust of investors.”

The cost of insuring state debt against non-payment for five years using credit-default swaps was 154 basis points, the seventh-lowest of 15 eastern European nations Bloomberg tracks.

Support for the Social Democrats surged to 17.9 percent in a July 20-29 survey by Spinter Tyrimai for the Delfi online news service, up from 14.2 percent the previous month. That makes them favorites to lead the formation of a governing coalition after the Oct. 14 ballot.

Kubilius’s party, under whom the unemployment rate jumped to 18.3 percent in 2010 from 3.9 percent in 2007, ranked fourth with 7.7 percent backing. The poll had a margin of error of 3.1 percentage points. The jobless rate was 13.3 percent in the second quarter of this year.

‘Own Problems’

Among policies to boost state coffers, the Social Democrats propose improved tax collection, a crackdown on benefits abuse, a wider scope for real estate taxes and a 5,000 litai ($1,888) cap on cash transactions to help rein in the shadow economy. This includes tax evasion, cigarette and alcohol smuggling and illegal employment and is equal to 26 percent of GDP, according to Lithuania’s Free Market Institute.

“Budgets shouldn’t be all about austerity,” said Butkevicius, who served as finance minister in 2004-2005.

To stimulate economic growth, the Social Democrats propose improving energy efficiency, which would cut heating costs and create jobs. Using EU funds to switch to biomass energy would help achieve those goals and lower the former Soviet republic’s dependence on Russian natural gas, according to the party.

‘Rioting’ Worry

“As a politician, I’m anxious about the next heating season,” Butkevicius said. “Prices now are cosmic in relation to people’s incomes and pensions. With prices rising another 20 percent this season, I’m worried people may start marching in the streets and we’ll see something close to rioting.”

After years of austerity, Butkevicius wants higher wages for policemen, nurses and customs officers who make below than 1,500 litai a month, less than three quarters of the 2,154 litai national average. That would help stem emigration, he said.

About 53,900 Lithuanians left the country in 2011, while 15,700 returned, the statistics office said in March. Eighty-two percent of the emigrants were unemployed for a year or more before leaving.

The spending cuts and tax increases pushed Lithuanian inequality to the EU’s highest level, with the proportion of people at risk of poverty surging to the biggest among the bloc’s 27 members, according to Eurostat.

“I’d like to raise salaries for the lowest earners a tiny bit at least, so that people would have some hope and trust in the state,” he said.

To contact the reporter on this story: Milda Seputyte in Vilnius at mseputyte@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.