Winner of Lithuania election says may let deficit rise

Reuters News
Posted: Oct 14, 2012 5:28 PM
Winner of Lithuania election says may let deficit rise

By Christian Lowe and Andrius Sytas

VILNIUS (Reuters) - The leader of the party set to win Lithuania's parliamentary election said on Sunday there could be a case for letting the Baltic state's budget deficit rise above the ceiling set out under European Union rules.

Lithuania has been held up as a model of fiscal discipline inside the European Union after it responded to the banking crisis with tough austerity measures and kept its deficit within the threshold of 3 percent of gross domestic product.

But voters gave their verdict by ejecting the government in an election on Sunday and choosing a coalition that promises to be less strict, an exit poll showed.

The result could be a foretaste of what awaits other European leaders forced by the crisis to impose unpopular measures.

In an interview with Reuters in his office soon after the exit poll put his Labor Party in the lead, Viktor Uspaskich outlined a plan which would put generating economic growth ahead of rigid measures of fiscal discipline.

Asked if he would stick to the 3 percent rule, Uspaskich, a Russian-born businessman, said: "Of course to begin with, let's put it this way, we will."

But he said there may be a case later on for widening the deficit to invest in promoting growth, even if that meant exceeding the 3 percent threshold.

"How otherwise can you generate (growth in) the economy if you only borrow to cover regular expenditure? You need to borrow for generating (growth)."

Uspaskich will not necessarily be the new prime minister because the final shape of the government depends on a second round of voting and negotiations over a coalition. But his party will influence the new government's policy.

He said joining the euro single currency remained Lithuania's long-term goal, but was cautious about the timing.

"The euro is very weak," he said. "And we also have not yet balanced our budget... These two factors should hold us back. And when those two factors are resolved, then we can talk about accession. But when they will be resolved, no one knows."

He said he favored increasing the minimum wage and cutting taxes for businesses which help drive down Lithuania's import bill. But he said these measures would not have a big impact on the budget.

The wage rises would happen in stages and the tax cuts, he estimated, would cost only about 290 million euros, or about 3 percent of budget revenues. He said this money would be recouped through higher growth.

"What we are going to do will generate business a lot more," he said. "We want to create the conditions so that instead of one factory there are three."

(Editing by Rosalind Russell)