Caspian Energy (CE): Your Excellency, Lithuania is one of the most active members of the Eurozone which faces crises – migration, probable Brexit, recession of some economies of the Eurozone. How do these problems reflect upon common economic conditions of the EU and Lithuania, in particular? What a positive scenario of the way out of the crises do you see?
Algirdas Butkevičius, Prime Minister of the Republic of Lithuania: The EU and the euro area have proven their ability to reform and adapt to the challenges in recent years. According to the latest data, the economic situation in the euro area is gradually improving, although investment remains quite weak and the recovery is still vulnerable to turbulence in the global economy. Continued efforts of fiscal consolidation have brought down government deficits in the euro area and the aggregate debt level has also started to decline. The European Commission forecasts a broadly neutral fiscal stance for the euro area as a whole in 2016.
The Lithuanian economy was able to quickly recover after the 2008–2009 crisis: fiscal policy framework has been continuously strengthened and that has finally led us towards successful introduction of the euro as of the 1st of January 2015. As a member of the euro area, Lithuania will continue responsible fiscal policy in order to keep sustainable public finances in the long-term period. According to the latest forecast economic growth in Lithuania is expected to rise from 1.6% in 2015 to around 3 % in 2016.
Close coordination of Member States' fiscal policies significantly contributes to the strength and coherence of the euro zone. However such common challenges as migration crisis and possible Brexit is a matter of importance for the whole European Union rather than euro area. Therefore the European Union as a whole should be at the centre of solutions.
CE: Which priorities can you highlight within the framework of the strategic cooperation with the EU in 2016?
Algirdas Butkevičius: We need to manage migration crisis. In this respect is necessary to strengthen security of EU external borders, fully implement readmission agreements, fight against illegal migrants traffickers. Lithuania has already started relocation process at the end of the year 2015. Ready and willing to take more refugees from Italy and Greece. At the same time we are also contributing with other measures, such as participation in Frontex, EASO.
Fully integrated Internal Energy Market, including synchronous operation of Baltic States within the Continental European Network, is important for us.
For Lithuania is important to promote employment and developing skills that match the needs of the labour market are necessary. It is important that new initiatives on social dimension contributes to well-functioning of internal market, safeguarding its fundamental freedoms.
We agree on the Netherlands Presidency attempt to start discussions at an early stage on the new Multiannual Financial Framework. The next MFF should better react to the new challenges, but the attention to the EU long-term priorities (cohesion and agriculture policy, TEN-T) as well should remain.
CE: More than a year has passed since Lithuania entered the Eurozone. How has it influenced over the economy of Lithuania? Can it be said that it helped Lithuania to avoid an inflation?
Algirdas Butkevičius: The year 2015 was exceptional for Lithuania. One of the reasons to this was the euro adoption, which, compared to the neighbouring countries, was extremely smooth: we would hardly find another country like this, for Lithuania’s trust in the euro, according to the Eurobarometer, amounted to 68 per cent before the euro adoption, and reached 72 percentage points later on.
Talking of economic achievements, the country’s industry has grown 4.7 per cent and totalled 17.2 billion euros this year, despite the impact of the Russian embargo. The growth of national economy was consistent: the real GDP stood at more than 9 million euros in the third quarter, and has grown by 1.7 per cent in a year. In addition, in the face of the Russian embargo, export to the EU member states has grown by 7.1 per cent, and large markets are opening up in other continents as well.
In 2015, the International Monetary Fund published its conclusion that Lithuania, who joined the Eurozone in 2015, had undergone a remarkable economic recovery over the previous five years. The growth of Lithuania’s economy has been among the strongest in the EU, its real GDP has exceeded the previous highest level, and income per capita has reached 73 per cent of the EU average (by purchasing power parity). The current account has been balanced, fiscal deficit has been reduced dramatically, and there is a sound private sector balance. The euro adoption process was smooth; to this end, major policy improvements had been carried out. Closer economic integration with Europe and direct access to ECB operations, which ensure liquidity, offer special benefits to Lithuania’s economy.
According to the preliminary data, the flow of foreign direct investment (FDI) grew in Lithuania in the third quarter of 2015 (similarly to the second one), and totalled 247.2 million euros, which reflects foreign investor confidence in the investment climate of Lithuania.
The growth of FDI is demonstrated by the fact that the total FDI in Lithuania increased by 307 million euros, i. e. 2.4 per cent, over the first three quarters of 2015. Last year, the FDI per capita stood at 144 euros more on average, as compared to the data of 31 December 2014. In total, FDI in Lithuania amounted to 564.3 million euros, i. e. 2 per cent of Lithuania’s GDP, over the first three quarters of 2015.
In addition, Lithuania’s investment grade was upgraded from BBB to A credit rating in 2014-2015. Regionally, the euro adoption has reduced credit risk for the Baltic States, access to the financial markets and opportunities for bank liquidity management have improved, economic policy has become well-defined, and there are better crisis management instruments available.
Higher investment means more jobs, growing salaries for the employees, and fuller coffers for the State. The results have also been improved by the Government’s targeted policy to improve investment environment, including the Government’s ambitions to adopt the new social model of the country. The business believes that the adoption of this model will create conditions to create even more jobs; therefore I trust that the Seimas will be approve it in its spring session.
Viking – Trans-Caspian
CE: What do you think about prospects of joining of the Lithuanian railway project “Viking” in the Trans-Caspian international transport route? Which problems do you see and what are the advantages that Lithuanian can enjoy due to the development of the railroad transit linking East and West, and North and South?
Algirdas Butkevičius: First of all, Trans-Caspian railroad connection development would definitely open new possibilities for logistics service providers looking for different alternatives of transcontinental connections.
Lithuania is investigating thoroughly the potential of developing the Trans-Caspian international transport route. We see some really good opportunities for cooperation capitalising on success of the container train "Viking".
Taking into account that Lithuanian, Belarusian, Ukrainian, Moldovian, Georgian, Romanian and Bulgarian railway companies as well as Klaipeda, Odessa and Ilichevsk seaports take part in the joint “Viking” train project as well as using the advantages of the “Viking” train expansion to Turkey and it's further development to Georgia and Azerbaijan, this project opens the possibilities of reaching further to the countries in the Middle East.
Connection of the "Viking" train to the Trans-Caspian railroad route could first of all serve as channel for distribution Chinese cargo to the Baltic sea region (Baltic states, Scandinavia, Finland) and vice versa or cargo could be directed to some big hub ports in the North Sea via port of Klaipėda.
The "Viking train" has already proven to be a really competitive alternative route in terms of time and cost which means there are all necessary conditions present for the best synergy of the route.
Moreover, the Viking connection would open more possibilities for transportation on Trans-Caspian international transport route for goods, which are embargoed from/to transiting via Russia.
And finally, I believe, this "Viking train" connection will maximise the potential and promote the movement of freight between the East and West, South and North.
CE: How do you assess prospects of expansion of the Trans-Atlantic Trade and Investment Partnership (TTIP)?
Algirdas Butkevičius: A comprehensive and high standard TTIP agreement would bring significant benefits for Lithuanian economy and open new opportunities for our exporters. We see a window of opportunity to conclude negotiations in 2016, but we have to make sure that TTIP delivers substantial market access for goods, services and public procurement, envisages effective regulatory cooperation, and creates high-standard trade rules (especially, in the energy area) which would set a benchmark for the rest of the world.
Hub for energy flows
CE: What are the plans on development of the alternative energy amid the stoppage of operation of nuclear power plant?
Algirdas Butkevičius: After the decommissioning of the Ignalina Nuclear Power Plant (NPP) in 2009, Lithuania turned from electricity exporter to electricity importer. Electricity generation has decreased considerably in the domestic market; therefore, more than two third of the electricity consumed in Lithuania is imported from neighbouring countries, mainly from Russia. However, in a very short period we have shifted from that dependency – withnew electricity links with Sweden (NordBalt) and Poland (LitPolLink) started operating this year Lithuania becomes integral part of the Nordic and Central Eastern Europe electricity market. Today over half of the electricity, or 57 %, is imported from Northern European countries, Latvia and Estonia, while 43 % of the electricity consumed is imported from third countries. These changes also bring better prices of electricity for consumers and more energy security for the whole region.
The Baltic States plan to build at least one more cable to the rest of the EU to become a full part of the European network. And full synchronization with the Continental Europe grids would mean that our countries would be more than just islands with bridges to Europe. Lithuania seeks to become a hub for energy flows among the Nordic, Baltic, West European and Russian electricity markets.
Lithuania remains among the few European countries showing stable growth in electricity consumption for years in a row. In 2015 the electricity production in Lithuania increased by 13 %. At 10.86 terawatt hours (TWh), or 1.4 % more than in 2014, electricity consumption in 2015 was at its highest since 2009. Due to the growth of local electricity production, the amount of imported electricity decreased accordingly. Power plants fired by renewable energy resources generated almost half of the total electricity produced in the country. Just over 1 TWh was produced by hydropower plants, 0.8 TWh by wind turbines, and 0.46 TWh by solar energy, biomass, biogas and other waste-fired power plants. In 2016 we will double the installed capacity of wind energy and expand our biomass exchange. Electricity interconnections that we built with Poland and Sweden will solve the problem of reliability – so crucial for energy production from renewables.
At the same time natural shift to innovative energy solutions, including the reduction of the cost of renewables is slow. A low-carbon, reliable and depoliticized energy sector remained a dream in the overwhelming majority of states. Action plans and projects must be developed, but they will be accepted by consumers only if effective and affordable technologies are in place. Therefore, there is a need to double investments into research and development that promotes effective energy consumption.
CE: What are the plans on expansion of investment cooperation with the Caspian countries? How will the cooperation with Iran change after lifting of sanctions?
Algirdas Butkevičius: There is an expectation that the Nuclear Agreement will open the door to a steady improvement in relations between Lithuania, other EU Member States, the EU and Iran. As of today we explore the areas which have a great potential and where Lithuania and Iran could cooperate to mutual benefit.
The Nuclear Agreement has been a good start and encourages for the future; nevertheless the quality of the deal will be proven by its full and rigorous implementation.
Thank you for the interview
Interview made by Sabina Mammadova, Olga Nagiyeva