THE euro zone is in a terrible state. Growth has been anaemic for years. It is on the verge of deflation, where prices fall, thereby pushing up the value of debt. Unemployment is high: in Spain and Greece it exceeds 20%. The debt-to-GDP ratio of the euro zone has increased from 84% in 2010 to more than 90% today. Yet Lithuania, a fast-growing, low-debt Baltic state of 3m people, will on January 1st become the 19th member of the club. Why? Most obviously, because Lithuania is required to join. All 28 member states of the European Union (EU), except Denmark and Britain, which negotiated opt-outs, have to adopt the single currency. Lithuania has been a member of the EU since 2004, when it joined with nine other countries. Its Baltic neighbours, Latvia and Estonia, already use the euro. Some say it was only a matter of time before Lithuania followed suit. And there are other political reasons why joining the euro may be necessary. Lithuania is an ex-Soviet nation just a short flight from Moscow. About one in twenty Lithuanians are Russian-speaking—the group that Vladimir Putin, the Russian president, has undertaken to “protect”. Many Lithuanians hope that the euro will provide a symbolic defence against a Kremlin incursion.

There are also other reasons why Lithuania wants to join. Boosters point to the economic benefits of membership. With euro adoption, investors believe that economic policymaking becomes more predictable. What is more, Lithuania’s banks and central bank will gain access to ECB funding in an emergency. That should reduce the government's cost of borrowing (as it did for Estonia when it joined in 2011). Indeed, the central bank predicts a 0.8 percentage-point fall in the government’s average interest rate after it adopts the euro. That’s not all. The euro zone is Lithuania’s biggest trading partner and using the single currency will boost trade further. This has assumed new importance because Russia—which normally accounts for 30% of Lithuania’s exports—has imposed sanctions on Lithuanian goods. What is more, Lithuanian firms will no longer have to spend money guarding against currency fluctuations or paying for currency conversion. All in all, the bank reckons that euro adoption will boost GDP over the long term by about 1.3%.

Lithuania will not be the last country to join the euro. Poland has no official plans to join yet, but many political leaders are keen on the idea. Romania is more ambitious: it wants to join in 2019. Even amid all the bad news about the euro zone, many countries still regard adoption of the currency as a step forward.



Dig deeper:

The euro zone's newest member faces an uphill struggle (Dec 2014)

The Baltics look to NATO for protection (March 2014)

It will take time to reduce Europe's dependence on Russian gas (April 2014)