This New Year's Day was quite different for the European Union and for one of the Baltic States - Lithuania. Indeed, Lithuania officially became the 19th EU member state to join the euro area. Since December 2014, Lithuanian euro coins starter kits have been available to the general public and various retailers. As of 1 January, the central bank of the Republic of Lithuania, Lietuvos Bankas, started exchanging litas into euro at the official conversion rate of €1=3.45280 LTL. This switch in currencies has come during tough times for both the euro area and the EU's eastern neighbourhood. Thus, there are multiple underlying reasons and foundations behind this event, forming a coalescent combination of political and economy-based rationales.  

Lithuania has been aiming to join the euro area for quite some time and it came close in 2008, only to see its application rejected due to the country's inflation rate. Now, in 2015, Lithuania has just been admitted in a monetary union which is facing both political and economic difficulties. Despite these issues, EU leaders are hoping that this event solidifies stability and, as European Commission vice-president and Commissioner for the Euro and Social Dialogue, Valdis Dombrovskis, stated: "[t]his is a symbolic moment not only for Lithuania, but also for the euro area itself, which remains stable, attractive and open to new members". Optimists see the litas' replacement with the euro as a chance for economic growth and also, particularly positive from a Lithuanian perspective, a chance for the country to use new decision-making powers within the area (especially after Lietuvos Bankas joined the fourth Central Bank Gold Agreement). The Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovici, stated that "[Lithuania] is well-placed to thrive in the euro area".

Conversely, many Lithuanians are not so sure of the decision to adopt the euro and there is a general feeling that this adoption will result in higher prices, especially of food and services. In fact, moving over to the euro was always a thorny issue within Lithuania, as at various times, opposition and its constituents strongly voiced their concerns on the matter. Greece's perilous situation within the euro area cannot go unnoticed and this affects the euro's image and strength in a negative manner. Despite this, the strong favourite to win the Greek elections being held on 25 January, the left wing Syriza party, led by Alexis Tsipras, has stated that if the party does win the elections, Greece would stay within the euro area. However, it will take time to see whether these perceptions (both about Lithuanian concerns and the Greek future) materialise.

The situation in Eastern Europe is very fragile. It is in this context that Lithuania joins the euro area. A majority of Lithuanians might consider the euro area as another mechanism which "defends" its sovereignty from possible destabilisations. There seems to be evidence to support this, as support for Lithuanian entry in the euro area increased from 41% in 2013 to 63% during mid-December 2014. This trend follows those of other Baltic states such as Estonia and Latvia, both EU member states and both part of the euro area. Such reasoning seems to be further proof that the euro survives just as much on political necessities and willingness as on economic demands and in fact, Valdis Dombrovskis, vice-president of the European Commission stated that, "Lithuania's accession marks the completion of the Baltic States' journey back to the political and economic heart of our continent".

A contributor to the politico-economic discourse is the fact that Russia's rouble has been hit hard due to sanctions (related to the Crimean crisis) imposed by both the United States of America and the EU. Russia responded by banning certain EU products. These actions have hit Lithuanian exporters hard and this may be part of the reason why the euro has been seen as a beacon of hope.

However, following a study of the Lithuanian Parliament, Ram nas Vilpišauskas, director of the Institute of International Relations and Political Science at Vilnius University, stated that parliamentarians tended to put geopolitical and security related apprehensions vis-á-vis the adoption of the euro behind the prospects of economic opportunities and the already mentioned decision-making function within the euro area. This enthusiasm and Lithuania's "strong track record of sound fiscal policies and structural reforms, which have delivered some of the highest growth rates in Europe, coupled with steadily falling unemployment",  as Moscovici put it, might energise the euro area and speed up recovery from one of the worst recessions in the EU's history.

James Azzopardi

Executive (Information and Policy)

Meusac