Euro no for Lithuania, yes to Slovenia

The European Commission today turned down Lithuania’s application to join the euro next year but approved Slovenia – now likely to become the first new user of the common currency since it was launched in 2002.

Lithuania’s high inflation scuppered its bid to adopt the euro, EU Economic and Monetary Affairs Commissioner Joaquin Almunia said in a statement.

“Lithuania meets all the convergence criteria except the one on inflation,” he said.

“The average rate of inflation has been slightly above the reference value since April 2005 and is expected to rise gradually until the end of the year.”

The Commission said the average inflation rate in Lithuania during the 12 months to March 2006 was 2.7%, just above the reference value of 2.6%.

“Buoyant domestic demand, energy price increases and increases in indirect taxes represent risk factors for inflation,” it warned, saying the country had to take care to keep wage growth in line with productivity.

Reinoldijus Sarkinas, chairman of Lithuania’s central bank, said the nation had done everything it could to join the euro zone in 2007, “but Brussels’ decision was motivated by both economic and political reasons.”

“I am glad the litas will not be replaced by the euro yet,” said Jolanta Budginiene, 42 year-old teacher.

“This saves us from a jump in prices, at least for a year.

Slovenia, however, is on track become the first new member to join the 12-nation common currency if EU finance ministers approve its bid – as is likely - on July 11.

Almunia warned that Slovenia now had to speed up crucial practical preparations to ensure a smooth changeover, including efforts to prevent unjustified price hikes.

Hoping and expecting a positive decision from the EU, Slovenia earlier this year started marking prices of goods and services in both Slovene tolar and euro.

The Central Bank also plans to distribute handy calculators to all households in the fall, to make it easier to Slovenes to calculate a price in euro once it’s fully introduced.