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ECB’s Vilnius Trip Shows What’s Hot and What’s Not in Euro Club

ECB’s Vilnius Trip Shows What’s Hot and What’s Not in Euro Club

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European Central Bank officials heading to Lithuania for this week’s rate-setting meeting may welcome swapping the rigors of Germany’s glass-and-steel financial hub for the cobblestone streets, churches and outdoor cafes of Vilnius’s baroque old town.

But the policy makers on their annual jaunt away from Frankfurt won’t be able to just kick back. For starters, they must continue plotting how to help the euro-zone economy out of its rough patch. And away from the formal agenda, they’ll find Lithuania’s sleepy facade hides a host of hot-button issues to chew over.

The Baltic nation of 2.8 million people was the last country to adopt the euro, in 2015, and -- more than a decade after becoming a testing ground for austerity -- boasts an economy that’s expanding at a healthy 4% clip. But the ECB shouldn’t be too eager to pat itself on the back.

Lithuanians dislike the common currency more than any other euro-area member, while crisis-era spending cuts sparked the European Union’s second-highest inequality behind Bulgaria and sent hundreds of thousands of workers to the continent’s richer west in search of higher pay. What’s more, years of ultra-loose monetary policy have fueled the currency bloc’s third-fastest inflation.

ECB’s Vilnius Trip Shows What’s Hot and What’s Not in Euro Club

“We see diverging speeds of economic growth across the euro area, which proves expansionary ECB policies don’t fit eastern members such as Lithuania, which is growing beyond potential,” said Tadas Povilauskas, chief economist at Vilnius-based SEB Bank.

On the political front, central-bank independence has come to the fore as the government -- with an eye on elections -- bashed institutions it blamed for the 2008 crisis. The furore culminated in a parliamentary motion urging the ouster of Governor Vitas Vasiliauskas, who sits on the ECB’s Governing Council. That push failed, and the probe unraveled.

There’s also good news.

Despite controversy around companies such as Revolut Ltd., Lithuania’s three-year bid to transform itself into a center for financial technology startups has been a success. Euro-region membership has been instrumental -- alongside super-fast licensing and English-language services -- in luring businesses. About 700 fintech jobs were added last year.

Elsewhere, 10 straight years of economic gains are helping turn the tide of emigration. Long the EU’s fastest-shrinking nation, data suggest the exodus may end this year as service-sector and IT jobs tempt back those who fled or left to get a foreign education.

As global trade tensions spike once again and expectations build for a cut in U.S. interest rates, ECB President Mario Draghi and his colleagues have plenty to discuss in Vilnius. But with other ex-communist countries like Croatia and Bulgaria knocking on the euro’s door, officials shouldn’t miss the opportunity to learn from Lithuania’s ups and downs.

To contact the reporter on this story: Milda Seputyte in Vilnius at mseputyte@bloomberg.net

To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, Andrew Langley, Paul Gordon

©2019 Bloomberg L.P.