Dominic Hannigan (Meath East, Labour)
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The meeting is now resumed. On behalf of the committee I welcome to the meeting H.E. Mr. Vidmantas Purlys, the Lithuanian ambassador to Ireland. On 1 January next year Lithuania is scheduled to become the 19th member of the eurozone, and while membership for Lithuania is not a foregone conclusion, its likely that joining the eurozone is an indication of the country's ongoing economic stability. It is also testament to the resilience of the euro currency, which is emerging strongly from the economic crisis of recent years.

The committee looks forward to discussing with the ambassador the challenges his country faces and how it is preparing for membership of the eurozone. I understand he was in the Gallery when I read out the privilege notice earlier and will assume he has heard the notice so that we can proceed without delay to his presentation. While we have invited him to discuss Lithuania's preparations for the euro, in the context of our earlier discussion perhaps he will also give us an overview of how his country addresses the issue of voting rights for its diaspora.

H.E. Mr. Vidmantas Purlys:

I am delighted to have the opportunity to address the committee and I thank members for inviting me. In regard to voting rights, all Lithuanian citizens living abroad are entitled to vote in presidential, parliamentary and European elections. We will be holding presidential elections on 11 May and all Lithuanian citizens residing in Ireland will be able to cast their vote in the embassy, which is the single balloting point. During the last parliamentary elections in 2012, more than 2,000 citizens cast their votes in Ireland. That is, of course, a fraction of the estimated 70,000 who live here. These 2,000 active citizens used their constitutional right to vote in elections. There is no electronic voting; the ballots are on paper. Ireland is the second largest constituency after the UK in terms of those turning up for elections. The US is the third largest constituency for Lithuanian citizens.

Dominic Hannigan (Meath East, Labour)
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I invite the ambassador to outline his country's preparations for the euro.

H.E. Mr. Vidmantas Purlys:

I will outline my country's preparations for the introduction of the euro on 1 January 2015. Membership of the eurozone is a long-standing strategic priority for Lithuania and a major objective for the Lithuanian Government in 2014. I will structure my presentation in three parts. First, I will outline the key considerations behind our strategy. Second, I will speak about Lithuania's compliance with the Maastricht membership criteria and summarise the practical steps taken by the Government in preparation for the introduction of the euro. Third, I will present a broad economic perspective for Lithuania.

Lithuania aims at a sustainable fulfilment of the Maastricht criteria with a target date to adopt the euro on 1 January 2015. Our commitment to join the euro area is enshrined in the EU Treaty; Lithuania has been participating and adhering to the Exchange Rate Mechanism, ERM, II commitments since 2004. We believe that an enlargement of the eurozone will benefit not only Lithuania via investment, trade and access to credit but also the Economic and Monetary Union and its individual members of the eurozone, including Ireland, because it would send a positive signal to the markets about the vitality of the euro project.

Lithuania is an open, trading nation. The EU is Lithuania’s main trading partner. Two thirds of our total exports go to the EU, with 30% going to the eurozone, and 80% of our FDI comes from the EU, with 40% from the eurozone. Our loan portfolio is 69% euro denominated. In terms of income convergence Lithuania is making steady progress. Real GDP per capita was 32% of the EU average in 1996 but in 2012 it stood at 64% in terms of purchasing power parity.

The course of deepening Lithuania’s integration with the EU was also informed by strategic and security considerations. The current aggression towards Ukraine highlights this imperative even more strongly. We are ready to assume all the commitments of euro membership, such as fully fledged participation in the European Stability Mechanism and adoption of the provisions of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. We are ready to work with other EMU members to make the euro area stable and credible.

Enlargement of the euro area and recent reforms in EMU, to which Lithuania contributed during its Presidency of the Council of the European Union, also prove the dynamism and credibility of the euro project. Lithuania’s prospective membership in the euro area serves as an anchor for prudent fiscal and economic policies that the country focuses on in building a balanced and competitive economy. Lithuania has demonstrated its ability to deal with the impact of the global downturn without external assistance and has undergone a significant financial and economic adjustment in the recent years.

Currently, Lithuania fulfils the Maastricht criteria. Prudent fiscal policy underpinned by the law on fiscal discipline and the Stability and Growth Pact is at the core of Lithuania’s policy framework to ensure macro-economic stability. Over the past several years Lithuania has implemented substantial fiscal consolidation measures which brought the post-crisis general government deficit from 9.4% of GDP in 2009 to 3.2% of GDP in 2012. The forecast for 2013 is 2.5%, compared to the Maastricht reference value of 3%. The general government debt, which was estimated at 39.5% of GDP in 2013, is one of the lowest in the EU and is projected to decline in the medium term. The Maastricht reference value is 60%. Lithuania continues to strengthen its fiscal framework, inter alia, through transposing the fiscal compact into its national legal system.

The annual average inflation rate fell sharply from the peak of 11.1% in 2008 to 1.2% in 2013. It has further moderated and is projected to remain stable with domestic price pressures firmly contained. The forecasted inflation for 2014 is 1%, compared to the Maastricht reference value of 1.6%. Lithuania pegged its national currency, the litas, to the euro at a fixed exchange rate of 3.4528 litas per euro on 2 February 2002 under the currency board arrangement. As I have already mentioned, Lithuania has been part of ERM II since June 2004. Aiming at full harmonization of national legislation with the requirements of EU law, the amendments to the law on the Bank of Lithuania and the law on the National Audit Office have been adopted by the Seimas, the Parliament of Lithuania. As a result, Lithuania’s national legislation is in line with the legal convergence requirements under the Treaty of Functioning of the European Union, the Statute of the European System of Central Banks and of the European Central Bank. Over the past several years long-term interest rates in Lithuania have decreased from 14% in 2009 to 3.83% in 2013, attesting to increased investor confidence in Lithuania’s fiscal policy and the stability of the financial market. The Maastricht reference value is currently 5.4%.

The national euro changeover plan and the information and communication strategy were approved on 26 June 2013 and updated on 4 December 2013. On the same day the Government of the Republic of Lithuania approved the action plan for the implementation of the national euro changeover plan.

The plan paved the way for the preparatory works by public and private institutions and includes provisions relevant to the dual display of prices, conversion of the litas - our national currency - to euro and the rounding and adaptation of information systems, as well as other measures. The implementation of the plan and strategy is co-ordinated by the special commission chaired by the Prime Minister, which is supported by the set-up of designated working groups. The information campaign is divided into stages and is focused both on informing the public about the practical aspects of euro introduction and on explaining the functioning of the euro area and implications of joining it in a broader context.

Let me now turn to the broader economic outlook. Since 2011, Lithuania has remained one of the fastest-growing economies in the EU. In 2012 Lithuania’s GDP rose by 3.7% - the third highest rate in the EU - while in 2013 real GDP growth was 3.2%. Growth is forecasted to be above the EU and euro area average in 2014-2016. The growth profile is balanced among the macroeconomic categories, such as consumption, investments, and exports. In particular, investment is rebounding and net exports continue to be one of the main drivers of growth. The growth pattern is much healthier than in the pre-crisis period, with wages rising in line with productivity, the current account staying close to balance, and credit in the economy more strictly monitored under the responsible lending guidelines issued by the Bank of Lithuania in 2011. The improved economic situation manifests itself in the labour market. In 2013, the unemployment rate was 11.8%, down 1.6 percentage points from the previous year, and it is projected that it will continue to decline in the medium term. The financial stability framework is robust; the banking sector is liquid and well capitalised, and steps have been taken to strengthen further macro-prudential policy, including the adoption of responsible lending regulations.

The resilience and flexibility of the Lithuanian economy is underpinned by the structural reform agenda, focusing on restructuring of the energy sector, reforms in the labour market that increase competitiveness and reforms in company law that bring improvements to the business climate. Energy sector reforms are particularly relevant and constitute one of the national priorities for Lithuania. These include a programme of apartment block renovation, alternative supply of electric power through interconnectors with Poland and Sweden, a liquefied natural gas terminal on the Baltic Sea to become operational by 2015, and other measures. These are relevant not only in terms of improving the competitiveness of our economy, but also in addressing our over-reliance on a single energy supply and diversifying the ways and means of bringing natural resources such as gas and electricity to our economy.

Improvement of the business environment has been recognised by international organisations. The Doing Business 2014 report, as compared to the same report for 2013, states that Lithuania improved its global ranking by ten positions, and now ranks 17th in terms of ease of doing business.

In conclusion, I would like to mention that Lithuania values Ireland’s support during the process of becoming the 19th member of the eurozone. Ireland and Lithuania are like-minded countries, active and responsible members of the international community. Co-operation on a bilateral level and in international forums is very close. In this context, I would like to recall our joint work as troika members in the OSCE in 2011 and 2012, as trio members of the Presidency of the Council of the European Union in 2013, and currently in the UN, where Lithuania sits on the UN Security Council and Ireland is a member of the UN Human Rights Council.

Contacts regarding the introduction of the euro are ongoing at intergovernmental level. Of course, the purpose of engaging with our Irish counterparts and colleagues in other member states is to reassure them that Lithuania is on the right track in preparing for the euro.

Finally, 11 March is a very special day for Lithuania, as it was this day 24 years ago that the Lithuanian Parliament adopted a resolution that restored the independence of Lithuania, and this set the course for the nation to move towards European and Euro-Atlantic institutions, where we naturally belong. We have made a great deal of progress. We became members of the EU and NATO in 2004, and we are members of all major international organisations. The introduction of the euro is yet another major step in integrating into the European Union. I thank committee members for their attention and I look forward to their questions and comments.

Dominic Hannigan (Meath East, Labour)
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I thank the ambassador. It is eight months since he last addressed our committee, and at that time it was to brief us on the forthcoming Presidency of the Council of the European Union. I would like to take this opportunity to congratulate the ambassador on what was a very successful Presidency, Lithuania's first.

H.E. Mr. Vidmantas Purlys:

That is right.

Dominic Hannigan (Meath East, Labour)
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I think much was achieved in the last six months of the year. One issue that was a priority for Lithuania was the Eastern Partnership and signing an agreement. For reasons we are all aware of, that did not quite work out, but I wonder if the ambassador could give us an outline of where he thinks things are at the moment.

Lithuania will be the last of the three Baltic states to join the eurozone. Estonia was the first, Latvia joined this year, and Lithuania is joining next January. Several members of the committee and I travelled to Riga last November and we had a meeting with the central bank there. Its officials outlined the Latvian preparations for membership, and we were all very impressed with the detail that they went into to ensure the transition would be a success. Everybody here would agree that the transition was very well managed and very successful. One question that they were not sure about was in respect of how soon the population would increase its support for the euro. Some surveys were done in Latvia prior to the introduction which showed that a certain element of the population favoured the old currency. What is the situation in Lithuania? Is there a groundswell of public sentiment in favour of the euro? If you are not doing it already, you should make contact with the Latvians to see what they did, because they had a very successful transition and it would be useful to talk to them about it.

Seán Kyne (Galway West, Fine Gael)
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I welcome the ambassador and wish Lithuania every success in its campaign to become a member of the eurozone. Hopefully, that will be the case next year by the time of the 25th anniversary of independence.

The ambassador mentioned the liquidity of the banks. Has that been independently scrutinised by the European Central Bank? Lithuania's high levels of growth are to be commended. What particular areas has that growth been based on? We went through a period of unnatural or unsustainable growth in this country, so I am just wondering if this is sustainable. The ambassador also mentioned plans on energy, which seem to be about moving away from a dependence on Russian gas.

Does the country still depend on Russian imports? The ambassador has mentioned links with Sweden and Poland.

In 2008 and 2009 Lithuania had very high inflation and interest rates, which have been successfully managed. What initiatives were put in place to manage the economy?

Seán Crowe (Dublin South West, Sinn Fein)
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I would like to welcome the ambassador. I was very interested in his account of the Lithuanian economy, the debt ratio and his positive news on the economy. I wish him well.

I am old enough to remember when we moved to the euro. Some people became unsettled as they did not understand it. The ambassador said that Lithuania proposes to operate a dual system. How long will the dual system be in place? In some parts of Europe, people still have their old currency and still think in terms of it rather than the euro. People of my generation still talk in terms of pounds, shillings and pence. Many Irish people had a sense, not necessarily at the time but some three or four years afterwards, that the consumer rather than business had lost out on the transition to the euro. Some still have that belief today.

Is there public support for the transition to the euro? Has it been determined how long the Lithuanian Litas will continue to be exchanged for euro? Has there been an awareness campaign on the euro? Are some sections of the population more reluctant than others to accept changes in the currency? From our experience, I know that younger people found it easier to accept decimalisation.

I presume the ambassador believes the euro will bring greater stability to the Lithuanian economy, but the country will lose some of its sovereignty to the European Union. I wish Lithuania well.

Eric Byrne (Dublin South Central, Labour)
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I welcome the ambassador and hope he will have a successful celebration of Lithuania's national day of liberation.

I am keen to learn how the euro is being sold to the electorate? When we in Ireland take major decisions, we have a great deal of debate. If the Russians had not invaded Ukraine, which I am sure is a very sensitive issue in Lithuania, would the people have been equally supportive of the adoption of the euro? Given the Russian involvement in Ukraine, I presume a greater number will opt for the euro, in that it will incorporate a greater degree of merger with other European countries? Does the ambassador believe the Russian invasion has spurred on people to become more enthusiastic about the European experience and adopting the euro? What is the current position?

H.E. Mr. Vidmantas Purlys:

I will deal with the Eastern Partnership and Ukraine in my concluding remarks.

First, let me respond to questions on the level of public support for the euro. The Lithuanian Government has started an extensive, targeted information campaign. I am aware that the experience of other countries that recently made the transition to the euro has been similar. The support for the currency stands at just over 40% and those who have doubts are close to 50% of the population. We have some way to go to convince some of our people. The Government and the Prime Minister are very committed to explaining the process in detail. He is doing a very important job in that regard. This is a popular Government, which has prioritised the introduction of the euro in its legislative programme. The euro is viewed positively by business circles and they have joined the campaign on the "Yes" side and I think the outlook will change quite rapidly.

I know from the experience of our neighbouring country, Latvia, that its people also expressed doubts in advance of the currency transition, especially in respect of price increases and speculation on consumer goods, but their experience of the euro has been very positive from the beginning. Members have pointed out that the introduction of the euro in Latvia has been very successful. We are in close contact, not only with Latvia but also with our colleagues in Estonia and have the privilege of learning from their experience on how to make the transition to the euro in the most efficient and effective way. I am confident that the support for the euro will increase and will substantially exceed the 50% threshold.

The financial sector in Lithuania is sound and is dominated by conservative retail banking, which has limited international exposure. Lending conditions have normalised after pronounced leveraging and the banks in Lithuania are predominantly from Scandinavia and the Nordic region. They are subject to international scrutiny mechanisms and are solid and stable institutions. There are no issues in that regard.

Lithuania had its significant crisis in 2009, at the time I came to Ireland. The then Government took serious measures across the board to effect savings. When I appeared before the committee on a previous occasion, I explained that the capital programme was downsized and salaries and wages across the public sector were cut significantly. This had an effect on our competitiveness and in 2010, we were back to growth.

Although the shock to individual citizens was quite significant, the process itself was orderly and manageable. Since we returned to growth in recent years it has been continuous and steady. The general public can feel the effect of the increase in exports as the economy is driven by export and trade. We have won a number of important investment projects and have had a range of success stories in recent years. All in all, the economy is back on track and on a much more sustainable footing since the crisis. The reasons for the 2009 crisis were largely the same as they were in Ireland, including an over-reliance on real estate development as the major contributory factor.

With regard to the national currency, the feeling is to keep it for a while. The Lithuanian currency is pegged to the euro at a fixed rate, so de factoit is the same currency, but we are not yet part of the eurozone. Given our connection with the EU, and the fact that the euro is used in Latvia and Estonia, the Lithuanian people are exposed to the euro. Therefore, our introduction of the euro should be a positive experience.

We do not believe the Eastern Partnership project failed at the Vilnius Summit in November, as important steps were taken on Georgia and Moldova. While Ukraine did not sign the association agreement, it was an important juncture in the events that unfolded there. Ukrainians stood up for their European choice and we saw Russia was not at all happy. This has been followed by cynical aggression in Crimea. Discussions took place on this in the EU and in the international arena on how to respond to the violation by Russia of all possible international agreements and norms which civilised nations built up after the Second World War to prevent open aggression against other countries. The EU leaders' summit that took place last week reached conclusions, and the process continues. Ukraine will be able to sign the political part of the association agreement. We must be very careful and monitor the situation closely as far as Moldova and Georgia are concerned. We need to increase our efforts to sign the relevant agreements with them. We must also examine how to make the Eastern Partnership policy more effective. We may need to go back to the drawing board to redesign European Russian policy, learn lessons from recent experiences and see what we can do to preserve international stability in the region and beyond.

Dominic Hannigan (Meath East, Labour)
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I thank Mr. Purlys for his remarks on the Eastern Partnership and the euro. I have no doubt Lithuania will have a successful transition and we wish it well. I thank Mr. Purlys for coming before the committee and sharing his thoughts with us.