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Vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro
Speaking points by Vice-President Olli Rehn on the 2014 Convergence Report
Press Room, Brussels
Brussels, 4 June 2014
The subject of today is the Convergence Report that we have just published, and this report examines the progress of eight Member States towards meeting the criteria for adopting the euro. The countries we have looked at – Bulgaria, Croatia, the Czech Republic, Hungary, Lithuania, Poland, Romania and Sweden – have made uneven progress towards this goal. I encourage all of them to pursue policies that will help them to achieve a higher degree of sustainable convergence with the euro area.
At the same time, I am pleased to announce our conclusion that Lithuania is ready to adopt the euro on 1 January 2015. The Commission is now making a proposal to the Council to this effect. I expect this conclusion to be discussed by the relevant EU institutions over the coming weeks, so that a final decision can be taken by the Council, probably in the second half of July.
Lithuania’s readiness to adopt the euro reflects its long-standing pursuit of prudent fiscal policies and serious economic reforms. This reform momentum, driven partly by Lithuania's EU accession ten years ago, has led to a striking increase in the prosperity of Lithuanians citizens: the country’s citizens per capita GDP has risen from just 35% of the EU28 average in 1995 to a projected 78% next year, in 2015.
So, GDP will have risen from 35% to 78% of the EU average in 20 years. That shows the impact of economic reforms and economic transformation which Lithuania has undergone. In the past years, the euro, contrary to what many Cassandra's suggested, did not break up or lose members, but in fact has increased its membership from 16 to 18 and will increase to 19 as of 1 January next year, if the Commission's proposal will be adopted. In other words Estonia joined in 2011, Latvia in the beginning of this year, and now the Commission is proposing that Lithuania join as of next year.
The euro area today has more effective economic policy coordination than before the crisis, a robust financial firewall in the form of the ESM to safeguard stability and, from this year, a banking union as well. Lithuania is committed to participating in and to further strengthening all of these. Thanks to the efforts of the past five years, this ship is now a far better placed to navigate rough seas than it was at the outbreak of the crisis.
We have examined Lithuania profoundly, thoroughly but fairly, fully respecting the fundamental EU principle of equal treatment. Lithuania’s ability to grow and prosper in a sustainable manner once it joins the euro area has been an essential element and integral part of our assessment. Let me briefly explain this. We have done both quantitative and qualitative assessments of Lithuania's convergence with the euro area.
The result is, as you can read from the report, Lithuania credibly meets the five Maastricht criteria for euro adoption: Inflation is well below the reference value; the fiscal deficit and public debt are both on a sustainable path; the exchange rate has remained stable vis-à-vis the euro without any signs of tension; and long-term interest rates have converged to low levels. Moreover, the legal framework has been brought fully in line with the Treaty requirements.
We have also examined additional factors which are relevant for sustainable convergence. Lithuania's external balance has improved strongly, mainly based on gains in competitiveness. Its product, labour and financial markets are well-integrated with the euro area economy and financial supervision and regulation have been strengthened.
Furthermore, once Lithuania becomes a member of the euro area, it will also become a member of the Banking Union and thus subject to the Single Supervisory Mechanism and Single Resolution Mechanism.
Euro adoption will be a major, hard-earned and well-deserved achievement for Lithuania and its people. But it should be seen as a starting line rather than a finishing line. It will be essential to continue with sound economic policies in order to ensure a smooth successful performance within the euro area – and realise the full benefits of monetary union and minimise risks in the future.
Thus, Lithuania is now on track to join Latvia and Estonia to make a 'Baltic full house' in the euro area. This is a tribute not only to the determined policy action that all these three countries have taken in the wake of the financial crisis, but also to their remarkable economic and democratic transition since regaining independence in that dramatic summer of 1991, which we still vividly recall, at least I do.
I want to also say that today marks the 25th anniversary of the first multiparty elections in Poland, which paved the way for the fall of Communism and accelerated the democratic transformation across central and eastern Europe. I want to congratulate the Polish people on this important and joyful anniversary.
At the same time, the events of this year in Ukraine show that there was nothing pre-ordained or inevitable about these democratic transitions. European integration has been a powerful driving force for stabilisation, democracy and prosperity.
Thank you for your attention.