Lithuania to reject austerity, quick euro entry in vote

VILNIUS (Reuters) - Austerity-weary Lithuanians are set to eject the country’s ruling centre-right coalition in an election this month, a move likely to delay the moment the small European Union member state joins the euro and to ease ties with Russia.

Lithuania's Prime Minister Andrius Kubilius stands in his office in Vilnius October 1, 2012. REUTERS/Ints Kalnins

However, the new government, which opinion polls show is likely to be a broad coalition led by the centre-left Social Democrats, is expected to largely stick to austerity as the Baltic state cannot afford to be frozen out of debt markets.

“The situation is unbearable, half of Lithuania has emigrated,” said Svetlana Orlovskaya, 65, as she headed to work as a factory cleaner in a suburb of the capital city Vilnius.

She said Prime Minister Andrius Kubilius, head of a four-party coalition since 2008, had not done “anything good”.

The election is likely to influence when Lithuania seeks to join the single currency. Kubilius has said 2014 would be a realistic date, but Social Democratic leader Algirdas Butkevicius told Reuters he is aiming for 2015.

Along with Latvia and Estonia, Lithuania has been held up to euro zone states as an example of how to successfully implement tough austerity measures. It cut spending and raised taxes following the 2008 global crisis.

The flip side, however, was falling wages and living standards and a 15 percent drop in output in 2009. Some growth has returned, but thousands have emigrated, the jobless rate is 13 percent and the country remains one of the poorest in the EU.

Kubilius, 56, a veteran politician, has defended his record, which included keeping the litas currency pegged to the euro.

“Back in 2009 the budget deficit would have been 15 percent (of GDP), but it ended at 9 percent. This year it will be about 3 percent,” he said in his office.

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But political scientist Kestutis Girnius of the Institute of International Relations and Political Science said people were fed up with austerity, and with Kubilius, who has a dour image.

“As one of his advisers has said, he seems like a surgeon who would say ‘Let me cut off the leg, but you won’t get any anaesthesia’,” said Girnius.

Lithuania has two voting rounds: on October 14 half the seats will be decided on a proportional representation basis, with the rest decided two weeks later in runoffs in districts.

Lithuanians will also vote in a referendum on Sunday on whether to back a new nuclear power plant. Polls show most people will reject it, but political parties might ignore the result as the referendum is advisory rather than binding.


Social Democratic leader Algirdas Butkevicius, whose first choice of coalition is with the Labour Party, led by a Russian-born businessman, and with a party led by an impeached former president, Rolandas Paksas, backs rises in the minimum wage and a progressive income tax which would be fairer to lower earners.

“It has to be recognized that if the situation in the work market does not change, there could be social clashes this winter as heating prices will rise,” Butkevicis told Reuters.

But DNB Nord economist Rokas Bancevicius said he saw little leeway for a new government to go on a spending spree.

“Even if budget policy will be slightly looser it might not actually have a big economic impact,” he said.

How the issue is handled may influence when Lithuania seeks to join the euro, something it is determined to do despite the currency bloc’s debt crisis. To adopt the euro, a country has to keep its budget deficit below 3 percent of output and meet targets on inflation, debt and long-term interest rates.

President Dalia Grybauskaite, a forceful former EU Commissioner who oversaw budgets, has the role of choosing the prime minister after elections. She backs fiscal discipline.

The Social Democrats back more constructive ties with Russia after Kubilius sought to lower gas prices and restructure the gas industry, against which the Kremlin loudly protested.

Ex-Soviet state Lithuania and Russia have often had testy relations since the Baltic state regained independence in 1991.

Lithuanian elections often throw up protest parties.

This year, that party has been formed around a former judge, whose brother died - though some suspect he was murdered - after alleging his daughter was assaulted by a paedophile ring, which was covered up by officials.

The brother, in turn, was suspected of killing a judge he accused of being a member of the ring as well as the sister of his ex-girlfriend. He had alleged his former girlfriend was also complicit in their daughter’s abuse.

“My brother was killed, the daughter of my brother was abused sexually, that made me go into politics,” said Neringa Venckiene, the key figure in the new Path of Courage party.

She said people backed her because “the state is totally ruined, totally degraded”. Polls show her party will just make it into parliament, but she said it could win 20 to 30 seats.

Editing by Alistair Scrutton and Andrew Osborn