Among the EU-10 countries Lithuania was one of those worst hit by the global economic crisis. In 2009, GDP growth declined to a disastrous –14.8%. Yet Lithuania managed to return to solid growth levels in 2011 with +5.9% GDP. According to IMF forecasts, Lithuania will enjoy a 3% growth in 2013. While modest compared to its 8.7% average for 2005-007, this still ranks Lithuania’s recovery among the most successful in the European Union.
Stabilization of the economy was a result of exceptionally severe austerity measures implemented by the government, led by Prime Minister Andrius Kubilius and his center-right party. The IMF reports that Lithuania has staged one of the strongest recoveries in Europe. Regardless of the public’s general dissatisfaction over the severe spending cuts, the government remained stable for a time and Lithuania received praise from Brussels and the international community and no serious disagreements took place among members of the government over the austerity measures. The net effect of the successfully implemented tight fiscal policies was a savings equal to 9% of GDP.
Parliamentary elections in 2012, however, demonstrated the extent of the Lithuanian public’s dissatisfaction with the nationwide belt-tightening. Prime Minister Kibilius’ center-right party was voted out of office in two rounds of parliamentary elections in October, by both the Labor and Social Democratic Parties. Despite concerns about the Labor Party’s ties with Russia and allegations of voter fraud, the two victorious parties were initially considering a coalition government. President Grybauskaite, however, vetoed this proposal due to the accusations of election fraud. Investigations are ongoing, and President Grybauskaite has indicated that she will likely appoint Social Democrat Party leader Algirdas Butkevicius as Prime Minister. [Updates to come]
In addition to promising to reduce the severe austerity measures in Lithuania, the Labour and Social Democratic Parties have pledged to raise minimum wage, raise taxes on the wealthy, and improve relations with Russia. These parties also assert that they intend to push back entry into the Euro market until 2015, a move that will lessen the pressure to maintain a low deficit.
Democracy in Lithuania was unaffected by the global economic crisis and pending an investigation into the allegations of voter fraud within the Labor Party, the democratic process has not suffered significantly despite internal turmoil. The country has remained solidly within the category of “consolidated democracies”, but continued monitoring of the post-election situation in Lithuania will be essential in assessing Lithuania’s future. So far, democratic institutions, although put through a tough test, proved stable and effective. Along with other Baltic states, Lithuania remains one of the top performers of the EU-10.
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