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According to Dr. Swedbank’s chief economist Dr. Nerijus Mačiulis, the fluctuations in the euro exchange rate, which we have often observed over the last 25 years, are determined by many factors.
“In recent years, this has been heavily influenced by changes in interest rates, especially in those states and regions where higher interest rates have been raised – they have attracted more cash flows, more investment and these currencies have strengthened,” the economist explained.
As the interviewer noted, one can only be happy that the euro has appreciated in value against the Swedish krona, the Norwegian krone and the Polish zloty in recent years.
“So the euro hasn’t really been a weak currency, and overall probably its biggest advantage is stability.” The euro doesn’t fluctuate and its exchange rate doesn’t change very quickly. A price change of one tenth or 5 percent per year is a normal change that has no significant impact on either businesses or residents,” said N. Mačiulis.
According to him, Lithuania should also enjoy such stability of the euro.
“Of course, even before the introduction of the euro, we had a stable exchange rate simply because we fixed it relative to the euro, and basically we didn’t have many other alternatives, considering how much Lithuanian companies trade with the countries.” How Is the Eurozone economy small and open? “Sometimes these thoughts and discussions about Lithuania having a floating exchange rate like Poland are unfounded because there are very few success stories when a small, open economy has its own independent monetary policy,” Swedbank explained. Chief Economist.
“All indicators – both the cost of borrowing in Lithuania, the growth of the purchasing power of the Lithuanian population, the growth of exports and the growth of GDP per capita – show that the decision to join the Eurozone most likely contributed to this,” added N. Maciulis added.
The next contender for the Eurozone is Bulgaria
As the head of the European Commission Representation in Lithuania Marius Vaščega noted, there are currently 20 countries in the European Union that use the euro, but it is worth remembering that the circle of countries in the euro zone is much larger.
“We count a total of 60 countries in the world that either use the euro or have their exchange rates linked to it in some way. “This space is much larger,” he said.
26 of the 27 countries in the European Union are committed to introducing the euro. M. Vasčega explained how and when this should happen.
“Dynamics in the introduction of the euro – they exist.” For example, last year, in 2023, Croatia joined the eurozone, and until then there were officially 19 member states.
There are still some who support the introduction of the euro: Bulgaria, the Czech Republic, Hungary, Poland, Romania and Sweden.
Denmark has no such obligation. When it joined the European Union, it formulated its negotiating position slightly differently.
In fact, it is very important to recognize that in the coming years the introduction of the euro in Bulgaria is possible, because in order to join the Eurozone you have to get closer and move to the next stage of connection with the Eurozone, and it is Bulgaria, that participates in this second exchange rate mechanism, he said.
In addition, according to the interviewee, certain other criteria must be met.
“We can also remember Lithuania’s path to the Eurozone. Lithuania didn’t quite succeed as we had planned because the first attempt or the original goals to introduce the euro failed. This only happened much later, as various criteria such as inflation, fiscal discipline and long-term interest rates have to be met. As for Bulgaria – whether it will meet the criteria for the introduction of the euro – we will assess in the middle of this year,” said M. Vaščega.
Evaluated the advantages of the introduction of the euro
According to economist N. Mačiulis, the fact that more and more countries are planning to join the eurozone is primarily an advantage for them.
“It makes it easier for them to trade with other Eurozone countries, it makes it easier for residents to travel around Europe and eliminates the cost of currency conversion, it is easier to compare prices and so on.” This advantage So it depends a lot on the country that joins.
I think, roughly measured, in monetary terms, the biggest advantage for Lithuania was the fact that the cost of borrowing fell. It was the elimination of exchange rate risk after the introduction of the euro that led to a very rapid decline in the Lithuanian state’s borrowing costs. Of course, the European Central Bank’s low interest rates over the last decade also contributed to this,” he explained.
According to the economist, by introducing the euro, Lithuania will save around half a billion euros a year in interest expenses, which it can allocate to other areas.
“You can direct them not to paying interest rates, but to developing infrastructure, roads, salaries of public sector workers – everything that residents feel.”
So here’s what most residents don’t think about. They think that it is convenient to travel around Europe, that it is convenient for companies to trade, but the biggest advantage is that the state now spends much less on paying interest rates and this money is much more productive, fairer and can use healthier,” said N. Mačiulis.
The path to the Eurozone is also increasingly being discussed in Poland. N. Mačiulis said how realistic it was.
“For each state, everything depends not only on its economic structure, not only on its size, but also on the nationalist mood of the population. Often the population considers the national currency such an important symbol of the state that they do not want to lose it, even if it provides some financial benefits.
Therefore, the need for Poland to have the euro may be less than for Lithuania, since Poland is a very large economy and a little more closed than Lithuania, but of course Poland would also have this advantage,” he said.
The economist also addressed the situation in Sweden.
“Especially in 2023, the debate became active again in Sweden for the first time after a long break that they might need the euro.” Of course, this had to do with the fact that the Swedish krona was significantly undervalued in the face of the inflation shock and other challenges.
So when each state feels that its national currency is losing value, the love for this national currency weakens a little and it begins to look more pragmatically at the advantages of the euro,” explained N. Mačiulis.
Original Doubts is a classic of the genre
Croatia is the newest member of the Eurozone and is still learning to love the Euro. As N. Mačiulis noted, the beginning is difficult for almost all states.
“Here is a classic of the genre. We remember very well all the fears and promises about how prices would change, agreements and commitments were even signed with the government, but if we look at the data available now, we would still see that in this period the average wage, the average pension has more than doubled and average prices have increased by around 50 percent.
“This means that the population’s purchasing power jump is enormous and almost the largest in the European Union during this period,” said the economist.
However, if we look at the average resident, the average pensioner and the average working person, according to the interviewees, it is obvious that their opportunities have changed only for the better this decade.
You can find the entire interview on the News Radio portal.
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