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UPDATE 2-Lithuania PM says 2014 euro entry still on track
June 8, 2011 / 12:36 PM / 6 years ago

UPDATE 2-Lithuania PM says 2014 euro entry still on track

* Inflation pressures make target unrealistic -c.bank head

* Says single currency ‘not worth killing yourself for’

* PM says still aims to meet euro adoption terms in 2012

* CPI rise hit highest for two years in May

* Govt vows to stick to earlier fiscal plan

(Adds prime minister, analysts)

By Nerijus Adomaitis

VILNIUS, June 8 (Reuters) - Lithuania will press ahead with a plan to adopt the euro in 2014 and accompanying fiscal reforms, its prime minister said on Wednesday, brushing off warnings from the central bank that the target date was unrealistic.

Central bank governor Vitas Vasiliauskas said the Baltic state was unlikely to hit that target due to price pressures, setting the scene for above-target inflation to thwart its ambition of joining the single currency for the second time.

Analysts agreed it would be no surprise if Lithuania missed the target, but Prime Minister Andrius Kubilius said his government would not waver from its accession programme.

“The government is aware of the inflation challenge, but is going to stick to its plan to meet the euro adoption criteria by the end of 2012, including budget deficit,” Kubilius told Reuters via his spokesman.

Lithuania missed euro adoption in 2007 after inflation overshot the entry criterion, as stipulated by the Maastricht Treaty, by a whisker.

Data earlier on Wednesday showed consumer prices rose at their fastest rate in two years in May.

“Inflation is going to be the main obstacle (again),” said Vasiliauskas, citing high energy prices and becoming the first top official to say the entry timetable was unrealistic.

”Our forecasts show that we will not be able to meet the (entry) criteria in 2012 or in 2013...

“The fact is that under our forecasts, 2014 does not look like the year when we can have the euro ...,” he told a news conference.

The central bank expects inflation to rise to 3.9 percent in 2012 from 3.8 percent this year.

‘NO NEED TO RUSH’

As well as meeting the economic criteria, applicant countries also need the green light from the European Commission and European Central Bank to adopt the euro.

“It seems that the European Commission has signalled to other EU member states not to rush into the euro zone after it saw Estonia’s inflation,” said Jekaterina Rojaka, the chief economist for the DnB Nord bank.

“So it would come as no surprise to the markets if Lithuania’s euro adoption is postponed beyond 2014. But it’s nice that the central bank has become clear on that.”

Baltic peer Estonia, which joined the euro zone in January, saw its inflation rate hit 5.4 percent in May.

Inflation in the third Baltic state, Latvia -- also hoping to join the single currency in 2014 -- rose to 5 percent in May from 4.5 percent in April.

Violeta Klyviene, senior Baltic analyst at Danske bank, said it was not certain Lithuania could meet the budget deficit criterion in 2012 either, because of upcoming parliamentary elections in October of the same year.

The central bank governor said Lithuania had to aim for assuring sustainable economic growth first.

“The euro is not worth killing yourself for. What is important is meeting the conditions to adopt (it)”

To qualify for the single currency, a country’s inflation can be no more than 1.5 percentage points above the average rate of the three EU states with the lowest rate the previous year.

“Our energy sector is completely dependent on our friends from the East,” Vasiliauskas said, referring to Lithuania’s reliance on Russia for its energy needs.

Reporting by Nerijus Adomaitis; Editing by John Stonestreet

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