Economics, Financial Services, Lithuania

According to the experts of the SEB Bank, it would also aggravate negotiations with the European Union (EU) over financial aid in the future.

According to Vilija Tauraite, chief analyst of the SEB Bank, so far only three European countries – Montenegro, Andorra and Kosovo – have adopted the euro unilaterally.

"The unilateral adoption of foreign currency is usually applied by the country facing a crisis or its aftermath with an intention to eliminate the distrust of economic entities and investors in national currency. It has been observed that such currency regime is mostly preferred by countries which are far behind Lithuania in terms of democracy, human rights, economic freedom and other indicators," Tauraite said.

After adopting the euro unilaterally, Lithuania could use many advantages, including the fact that the risk of the country which adopts the euro is assessed more favorably and, as a result, loans are granted with lower interests, which would normalize crediting and accelerate the economic recovery.

According to the evaluations of the experts of the SEB Bank, the unilateral adoption of the euro would allow to relax about 2.7 billion litas (792.1 million euros) of foreign exchange reserves to pay the state debt and urge its residents to use the saved foreign currency kept in their private lockers at home.

However, there are certain drawbacks such as unfavorable attitude of the EU institutions. "The European Commission and the European Central Bank (ECB) do not provide for legal instruments to punish a country which adopts the euro unilaterally, yet they state that the adoption of the euro "by force" is incompatible with the status of the EU member state," Tauraite noted.

The country which adopts the euro unilaterally cannot participate in the financial policy of the ECB and its interest rates would not fall as much as after entering the euro area. Moreover, the unilateral adoption of the euro would cause problems when coordinating payment systems and the country would lose revenues from monetary emission.

According to the experts of the SEB Bank, in 2009, Lithuania will probably violate even three out of five criteria of the Maastricht Treaty – inflation, budget deficit and long-term interest rates. "Lithuania might wait for the euro adoption till at least 2013-2014 without breaching the legal principles of the EU," Tauraite forecasted and proposed to choose this longer path.