Lithuanian voters to give harsh verdict on austerity

Reuters News
Posted: Oct 13, 2012 5:14 PM
Lithuanian voters to give harsh verdict on austerity

By Andrius Sytas and Christian Lowe

VILNIUS (Reuters) - Lithuanians are likely to eject their center-right government in an election on Sunday that could be a taste of what awaits other European leaders forced by the financial crisis to implement unpopular austerity measures.

An ex-Soviet state of 3.5 million people, Lithuania crashed hard when the crisis hit four years ago. It made tough budget cuts in response and is now returning to economic health - but too late for voters fed up with belt-tightening.

Opinion polls indicate they will throw out Prime Minister Andrius Kubilius and install a coalition led by the opposition Social Democrats, who promise to raise the lowest wages and reduce taxes for the poor.

This country on the Baltic Sea, held up by euro zone countries as a model of how to respond to the crisis, is in some ways a bellwether for governments in Greece, Spain and elsewhere, who are being forced to make similar swinging cuts.

"They carried out an experiment on us," said Ruslan, a taxi driver in the capital, Vilnius. "They cut pensions in half, people left the country ... Young people have to live off their grandparents."

"Now they want to do the same with the Greeks."

Before the Wall Street crash in 2008, Lithuania was booming. Scandinavian banks provided cheap credit which let the country buy more than it sold and over-heated the real estate market.

When the crisis struck, the banks stopped lending. Economic output dropped by 15 percent in 2009. Unemployment shot up. Thousands of young Lithuanians went abroad to seek work.

Kubilius, elected after the crisis began, cut pensions and public sector wages. To save money, only every third street lamp in Vilnius was lit, and fuel for police cars was rationed.

This discipline helped the economy rebound. Gross domestic product grew 5.8 percent last year, one of the fastest rates of any European Union economy. The budget deficit has been tamed.

But many Lithuanians now say the price was too high.

"They cut my pension," said a 72-year-old man selling souvenirs in the capital's old quarter, who declined to give his name. "I have to keep working because otherwise I won't be able to afford the rent on my apartment, or the electricity bills."


That sentiment has translated into support for the center-left Social Democrat party, even though they were in the government that led Lithuania into the crisis in 2008.

An opinion poll this week showed the Social Democrats were the most popular party, with 16.9 percent. The Labour party, likely coalition partner for the Social Democrats, had 15.8 percent. The prime minister's Homeland Union was on 7.9 percent.

Social Democrat leader Algirdas Butkevicius has promised to raise the minimum wage and make the rich pay more tax.

He has also said he aims for Lithuania to adopt the euro single currency in 2015, a year later than planned now, allowing him to run a bigger deficit than euro accession rules permit.

"Their (the government's) ideology leaves a person to their own fate and to the markets which, it claims, solve everything," Butkevicius, a former finance minister, said this week.

"We say the government needs to be responsible for everyone: for the sick, the old, the young who cannot find work."

However, economists say the country's still-delicate finances dictate that whoever is in government will have to stick, for the most part, to the existing austerity program.

The wild card in the election is a new anti-establishment group, called Path of Courage, which could attract protest votes from Lithuanians who are exasperated with all the established parties.

Lithuania's complex electoral system means Sunday's vote may not produce a clear-cut result. It will be followed by negotiations to form a governing coalition. A second round will take place in two weeks to settle races in local districts where no candidate won a clear majority.

(Writing by Christian Lowe; Editing by Jason Webb)