You're reading: Lithuanian left eyes vote win, faces budget constraints

VILNIUS - Voters angry at years of austerity look set to propel centre-left parties into power in Lithuanian elections this weekend, but an incoming government may have little choice than to stick to tough budget policies.

Economists said a new coalition likely to be formed by the
Labour Party and the Social Democratic Party, which will
determine whether Lithuania heads for euro membership in the
next few years, had little room for manoeuvre because of high
borrowing needs.

The parties have said they can ease hardship while being
fiscally responsible. They have backed a higher minimum wage, a
cut in some value added tax rates and more investment, which
they say will stimulate the economy and reduce unemployment.

Lithuania remains one of the poorest countries in the
European Union. Thousands of people have left the country to
find work and unemployment is at 13 percent.

“Unemployment is the main problem, why are the young people
leaving? There is not enough work for them,” said Vycheslav
Symonenko, 47 and without work.

“They are the future of Lithuania.”

Many blame centre-right Prime Minister Andrius Kubilius for
such problems. He says his cuts to the budget deficit have saved
the small Baltic state from bankruptcy.

TENSIONS?

Kubilius’s party came in third place with 13 parliamentary
seats in the first round on Oct. 14. His problem is that none of
the other parties which did well in the election are natural
coalition allies.

In a vote which could be a taste of things to come for other
European governments with austerity policies, the Labour Party
and the Social Democratic Party, led by Algirdas Butkevicius, a
former finance minister and a prospective prime minister, won 34
of 141 seats in the first round.

The second round is a run-off for 67 seats.

Labour and the Social Democrats will need a coalition
partner to form a majority government and this is set to be the
party of an impeached former president.

Viktor Uspaskich, on trial on charges of tax evasion by his
party between 2004 and 2006, which he denies, is set for a key
role in government if he forms a coalition with Butkevicius.

In a sign there could be tensions, he has said he may push
for the budget deficit to rise beyond the limit of 3 percent of
output set under EU rules.

Butkevicius has said he will be fiscally responsible and
that Lithuania could adopt the euro in 2015, a year later than
Kubilius has said is possible.

Uspaskich has said Lithuania should not rush to adopt the
single currency while it is in crisis and public support is low.

After clashes with Russia over efforts to loosen Lithuanian
dependence on Russian gas, Butkevicius has stressed the need for
talks with the country’s former imperial master.

HANDS TIED

After a collapse in economic output of 15 percent in 2009,
the second biggest drop in the EU after northern neighbour
Latvia’s, gross domestic product (GDP) rose 6 percent last year
and is expected to increase about 3 percent this year.

The budget deficit fell to 5.5 percent of GDP in 2011 from
9.4 percent in 2009 after Kubilius’s austerity. His government
has drafted a 2013 budget with a 2.5 percent fiscal gap.

Economists said any government formed by Butkevicius and
Uspaskich and an ally would have limited room for manoeuvre.

“I’m quite happy that this election, no matter the outcome,
will not lead to crazy economic policies,” said Lars
Christensen, chief analyst at Danish bank Danske Bank.

He said politicians were well aware that pressure from the
markets would not allow them to be too generous.

Lithuania needs to borrow 7.6 billion litas ($2.85 billion)
in 2013, about 7 percent of GDP, to refinance debt, including a
1 billion euro Eurobond, and fund the deficit.

“They have their hands tied at the moment,” said DNB
economist Rokas Bancevicius.