It is easy to say – and economists too often do state – that the current situation looks relatively good or bad and that the outlook depends on a number of assumptions. Let’s take Lithuania as an example. On the positive side, economic growth is accelerating and may turn out to be the fastest in the EU this year while the government faces no strong opposition meaning that they should be able to implement its program. Moreover, the government is intent on joining the Eurozone by 2014 meaning that they plan to fulfill the Maastricht criteria, which means that the economy has to be in a prudent and stable shape. On the negative side, inflation is picking up (which may delay the Eurozone plans), growth is high partly because of the base effect (meaning that these kind of growth rates may not be sustainable), and the government is hesitant to target the most difficult but important reforms (pension, social security, education and corruption).
My tentative conclusion – without the normal qualifications – is that we should give Lithuania the benefit of the doubt. It is a country that has reformed enormously during the past 20 years – first in 90s when transforming from a planned to a market economy, then in the 00s to qualify for EU membership, and most recently to come out of the financial crisis – and a certain element of reform fatigue may be understandable. A country that will grow among the fastest in the EU should be analysed with an amount of respect.
But one cannot live on old merits for long, at least not in the financial world, so we should keep a close eye on the development in Lithuania going forward.
