Lithuania Joins Euro as Tensions With Neighboring Russia Rise

(Reuters) -
Bank staff fill a cash machine with euro currency in Vilnius, Lithuania, as preparations continue for the currency swap-over.  (AP Photo/Mindaugas Kulbis)
Bank staff fill a cash machine with euro currency in Vilnius, Lithuania, as preparations continue for the currency swap-over. (AP Photo/Mindaugas Kulbis)

Lithuania joined the euro zone at the stroke of midnight on Thursday, hoping to anchor itself in Europe as its former master Russia flexes its military muscle in the region.

The first Soviet republic to declare independence, in 1990, Lithuania is the last of the three Baltic states to join the currency union and will be the last country to do so for the foreseeable future, with remaining European Union members at least two years, and probably much more, away.

By becoming the 19th member of the euro bloc, Lithuania hopes for a boost in trade and lower borrowing costs to help it recover from a 15 percent contraction in 2009 at the height of the global financial crisis.

But central bank Governor Vitas Vasiliauskas stressed the “geopolitical” significance of the move which puts the former Soviet state firmly in the sphere of what used to be considered Western Europe.

“You live where you live, you have to keep that in mind,” he told Reuters when asked about benefits of euro zone entry, referring to the recent flare-up in tensions in the region.

Russia’s role in the Ukraine crisis, which included the annexation of Crimea, has awoken fears in the Baltics, which have sizable ethnic Russian minorities, that they could be next.

NATO scrambled its jets more than 150 times in 2014 in response to Russian sorties, three times more than the previous year. Moscow also held surprise military exercises in Kaliningrad, its enclave that borders Lithuania, in December, with 9,000 troops and 55 ships.

Despite rising political tensions, Lithuania’s credit rating is now well into investment grade, and rating agency Fitch expects its economy to growth by 3.5 percent in 2015, three times as fast as the euro zone as a whole.