Analytics, Direct Speech, Economics, EU – Baltic States, Financial Services, Lithuania

Swedbank's chief economist Nerijus Maciulis provided answers to questions why becoming a member of the euro area and adopting euro is an important strategic priority and the best alternative, reports LETA/ELTA.

"First of all, joining the euro area would help to reduce Lithuania's borrowing cost. A total Lithuania's foreign debt last year exceeded LTL 85 billion (EUR 24.6 billion). If the borrowing cost is reduced at least by half of a percentage point, which is quite a conservative assumption, Lithuanian companies, residents and the government might save around LTL 425 million (EUR 123 million)," Maciulis said.

He said that the government would receive the greatest direct benefit, as its foreign debt amounts to LTL 31 billion (EUR 9 billion), and if the debt's cost is reduced by 1 percentage point per year, the debt's service costs decrease by LTL 300 million (EUR 86.8 million).

According to Maciulis, another argument is that Lithuanian companies as well as residents exchange litas to euros and vice versa every year for dozens of billions litas which cost them up to LTL 100 million (EUR 29 million). Direct benefits to residents, companies and the state might make over LTL 0.5 billion (EUR 0.14 billion), therefore, it should not be ignored.

Indirect financial benefits related to direct foreign investments might be even greater. Foreign companies, which invest into developing markets, find a stable country's currency very important because due to its currency devaluation property's which is gained in that country value decreases. Therefore, possibility that such a phenomenon may occur diminishes country's attractiveness.

Maciuls also said that litas currency devaluation would result in increase in prices of imported production.

Maciuls said that, undoubtedly, abandoning national currency and adopting euro will bring not only benefits but also costs. After joining the euro area, Lithuania should contribute to stabilizing Europe by transferring around LTL 1 billion (EUR 0.29 billion) in five years time. "Probability of a collapse of the euro area and euro currency is really low, therefore, it is unclear why Lithuania should wait and for what reasons it should lose at least LTL 0.5 billion (EUR 0.14 billion) per year," Maciulis said.