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Lithuania’s Next Government Needs to Cut Deficit, Danske Says

Lithuania’s new government emerging from this weekend’s elections will have to keep cutting the budget deficit or risk higher interest rates, said Lars Christensen, chief emerging-markets economist at Danske Bank A/S.

Lithuanians go to the polls on Oct. 28 to vote in a second round of elections that may oust Prime Minister Andrius Kubilius, bringing opposition parties to power. Kubilius’s Cabinet cut wages and raised taxes in 2009 and 2010 as output plunged by almost a quarter, worsening the Baltic nation’s deepest recession in those years.

Kubilius’s Cabinet approved the 2013 budget with a deficit of 2.5 percent of gross domestic product from this year’s planned 3 percent. The opposition parties have said they would seek to stimulate the economy without letting the fiscal gap exceed the European Union’s limit of 3 percent of GDP.

“No matter who wins the elections, there is no way around the fact that fiscal consolidation will have to be continued,” Christensen told a news conference near Vilnius, Lithuania’s capital, today. “I’m quite happy that this election, no matter the outcome, will not lead to crazy economic policies after the elections.”

The opposition has been luring voters with pledges to boost wages, trim sales levies and increase public spending in a challenge to Kubilius.

“I have a lot of sympathy of the fact that a lot of people who have really beared the brunt of this crisis are low-skilled hard-working Lithuanians with very little income,” Christensen said. “Shutting them out of the labor market by increasing minimum wages dramatically is not helping anyone.”

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