| Population size | 2,970,000 (December 2012) |
| Surface | 65,302 km2 |
| Capital | Vilnius |
| GDP | EUR32.553 billion |
| Currency | Litas (1 Litas – 0.29 Euro) |
| Corruption level (Transparency International Corruption Perceptions Index 2012; 100-90 = very clean, 0-9 = highly corrupt) | 54 (ranking: 48) |
| Current government (parties forming the government) | Social Democrats (Lietuvos socialdemokratų partija), Labour Party (Darbo partija), Order and Justice Party (Partija Tvarka ir teisingumas), Electoral Action of Poles in Lithuania (Lietuvos lenkų rinkimų akcija) |
| Three biggest cities | Vilnius, Kaunas, Klaipėda |
| Baltic Sea coastal regions | Klaipėda County (Klaipėdos apskritis) |
The year 2012 marked a change in the government and revealed Lithuania’s improved economic performance. Social Democrats won the parliamentary election and formed a coalition left of the centre with Labour, Order and Justice and Electoral Action of Poles in Lithuania. The electorate supported the policies of economic austerity proposed by the former conservative government in the wake of the financial crisis. Lithuania’s economic growth was among the highest in the EU. GDP and FDI grew, whereas inflation and unemployment plummeted. However, increased public debt and high energy prices dogged political debates. Foreign policy remained traditionally anchored in the eastern neighbourhood, energy security and EU-transatlantic affairs. In regional terms, a Nordic-Baltic orientation was politically cherished and lukewarm relations with Poland appeared to warm up. The Baltic Sea Region is especially important for Lithuania in 2013, as the EU Strategy for the Baltic Sea Region is one out of four major priorities for the country’s upcoming EU presidency, starting 1 July 2013.
Government
In the sixth regular parliamentary elections in October 2012, the left-wing parties ejected the conservative-liberal coalition from power. The Social Democrats scooped up the largest share of MPs. Holding 38 out of 141 seats in the parliament, they have formed a left-of-centre constitutional majority (more than three fifths) coalition government with the centrist Labour Party (29 seats), the leftish Order and Justice Party (10 seats) and the nationalist and overtly catholic Electoral Action of Poles in Lithuania (8 seats). The Conservatives resiled with the second largest parliamentary faction, of 33 MPs. Considering the years of economic downturn, this electoral result came next to a standing ovation among the right-of-centre enthusiasts. Two parties waned and two political rookies furnished the political scenery. The Liberal and Centre Union and the populist National Resurrection Party – both part of ruling coalition in 2008-2012 - did not cross the 5% threshold. A new and somewhat anti-systemic party, the Path of Courage, gained 8% of the votes and 7 MPs. Last but not least, the Polish Party has finally stepped over the 5% barrier, despite their earlier flops. Alongside general elections came a non-binding vote on a planned new nuclear reactor at Visaginas near the Belorussian border. The Social Democrats opposed the Conservative-backed nuclear plant to be developed by the Japanese company Hitachi. 62.7% of the electorate voted against the foreseen nuclear power facility. The Social Democrats, led by Algirdas Butkevičius, promised the creation of jobs, social justice, solidarity, equal opportunities, green growth, reduction of VAT for certain goods, energy efficiency and progressive taxation.
The formation of a new coalition has taken some time, as President Dalia Grybauskaitė objected to the inclusion of the Labour Party into the government, arguing that the party had been under judicial scrutiny and that some of its members may have paid for votes during parliamentary elections. Therefore, the President addressed the Constitutional Court asking whether all the election results were fair. With the court’s positive judgment on the results at the national tier, the formation of the cabinet could proceed. The President had to accept the integration of the Labour Party in the government, but rejected several of its candidates before the final approval of the cabinet. The Social Democrats control the office of the Prime Minister and seven ministries, whereas the Labour Party holds the chairperson of the Parliament and four ministries, the Order and Justice gained two and the Polish Party one ministry.
Just before the election there were a couple of politically interesting events in 2012. The Minister of Interior, Raimondas Palaitis, bolstered by the President, dismissed the head and his deputy of the Financial Crime Investigation Service who, in contrast, were backed by the Conservatives opposing the President In the aftermath, the minister had to resign and a new minister Artūras Melianas took his place in April 2012. Furthermore, following a court decision, a police storm and takeover of a child from a temporary custodian Neringa Venckienė, who campaigned against a purported paedophile conspiracy, drew media attention and helped the Path of Courage become a parliamentary party.
Policies
The government adopted the budget for 2013 and increased the minimum wage from 850 Litas (246 Euro) to 1000 Litas (290 Euro), starting 1 January 2013. The programme of the coalition is leftist: the cabinet emphasises the welfare state, the growth of public sector, progressive taxation, increasing social entitlements, fiscal stability, renovation of energy inefficient apartment blocks and the introduction of euro by 1 January 2015. The government established a number of working groups to foresee further political changes and launched neo-corporatist consultations with employers’ organisations and trade unions and the like.
Lithuania’s three strategic foreign policies priorities - the eastern EU neighbourhood and Russia, transatlantic relations, and energy security – remained unchanged, although the country has become less active than it was some years ago. In the area of energy security, Lithuania has focused lately on the development of a liquefied natural gas terminal, future electricity grids to Sweden and Poland, and the construction of a new nuclear power plant. The latter’s perspectives turned hazy after the consultative referendum. The leftist government pledged to come up with clear answers about nuclear energy in May 2013, whereas other projects seem to be continued with gusto. Lithuania has been an active NATO ally, being in charge of the provincial reconstruction team in the Ghor province of Afghanistan for a number of years. Nonetheless in October 2012, the government decided to withdraw from Afghanistan by the end of 2013. In a similar vein, Lithuanian troops pulled out from Iraq in late 2011. In October 2012, the NATO North Atlantic Council endorsed the decision to transform the Energy Security Centre in Lithuania into a NATO centre of excellence.
Economic situation and anti-crisis strategies
Looking at the larger bills for heating for apartment blocks across the country, it comes as little surprise that energy security was among the top priorities in politics and everyday life. The dependency on Russian gas sparked the Lithuanian government’s appeal to the arbitration court in Stockholm in October 2012 against the Russian company Gazprom for nearly a EUR2 billion overcharge and invitation of the company Chevron to look and possibly drill for shale gas in the country in 2013. Therefore, it hardly comes as a surprise that former Prime Minister Andrius Kubilius’ statement ‘Perspectives of [centralised apartments’] heating are not bad, weather gets warmer, spring is coming’ won laurels as a phrase in 2012. Another issue was relatively high unemployment, which became the main political target of the new government. The Social Democrats pledged to activate public investment programmes via the public sector and thus create new jobs by stimulating, rather than saving. Furthermore, the statistical office reported that the number of country’s inhabitants dropped below 3 million due to emigration and a trend of low birth rates. In addition, after the bankruptcy of one of the smaller banks, Snoras, in 2011, Ūkio bankas followed suit in February 2013. Both banks were regarded as dodgy, Russia-related players in the Lithuanian financial market.
Nevertheless, Lithuania turned out not such a bad place to live in 2012. The Fund for Peace established the country’s good performance (29th place out of 177) in the Failed State Index. Among the Baltic Sea Region countries, only Germany and the Nordic countries surpassed Lithuania. According to the World Bank’s ‘Doing business’ report for 2012, in a year’s time the country fell just one place, down to the 27th position among 185 states. The World Economic Forum’s Global Competitiveness Report 2012-2013 observed that Lithuania rose from 47th to 45th place in two years among 144 countries. The country is geared up for a transition to the euro, as the planned public deficit for 2013 is 2.5% of the GDP and public debt should not exceed 39.2% in 2013. In 2012, unemployment fell by 2% to 13.3%, and is projected to fall to 11.5% in 2013. Inflation followed suit, dropping from 4.1% to 3.2%. GDP growth has increased for the 3rd year in row, reaching 3.6% – one of the highest results in the EU in 2012. GDP per capita in PPS (EU-27=100) in 2011 reached 66%. This result, compared to neighbouring countries, was 1% lower than in Estonia and 2% higher than in Poland. Foreign direct investments increased from 10.8 to 11.7 billion euros over the course of 2012. The Doing Business Report described Lithuania as an upper middle income country.
Lithuania and the Baltic Sea Region
Lithuania has an increased interested in the BSR due to developing projects of regional collaboration in a number of soft security areas. Lithuania still co-ordinates three priority areas with other countries in the EU Strategy for the Baltic Sea Region (reinforcement of sustainability of agriculture, forestry and fisheries, improvement of internal and external transport links and reduction of the volume of harm done by cross border crime) and co-ordinates 11 flagship projects. Perhaps the most important thing for Lithuania’s Baltic Sea regional profile is the EUSBSR’s inclusion among its four top priorities (next to energy security, Eastern partnership and management of external borders) for Lithuania’s EU presidency, starting 1 July 2013. Lithuania sees the BSR as an area of co-operation in low politics, emphasising energy, transport and environment.
The previous right-of-centre government emphatically bolstered Lithuania’s higher interdependence with the Nordic countries – a wise men report on enhanced Nordic-Baltic co-operation was approved by all eight countries in 2011, and Lithuania envisaged a ‘Lithuania 2030’ strategy where a Nordic orientation was tangible. Moreover, Lithuania was an NB8 co-ordinating country in 2012. The outgoing conservative-led government and the President claimed they intended to keep Lithuania on a Nordic track, whereas the Social Democrats explicitly pinpointed a stalemate in relations with Lithuania’s neighbours.
Outlook
The key concerns of the new government are the survival of the coalition and its economic policies. The Labour and Order and Justice Parties are about to merge, thus theoretically becoming the largest faction in the parliament. The new party could not pin their hopes high on the support of the President, whose distaste for the Labour party has been obvious. This should keep the Social Democrats in charge of the government. Besides, the general prosecutor’s office pressed charges against the Labour party, which, if not acquitted, may withdraw from the coalition. On the other hand, the leftist government intends to focus primarily on the creation of jobs, social security and social justice with the help of spending in the public sector. Unless the budget deficit exceeds three percent of the GDP, the government will not have extra money for funding social entitlements, in which case strict budgetary policies will be pursued in order to introduce the euro by 2015. The reduction of Lithuania’s dependence on imports of fossil fuels from Russia will stay among its top priorities, as the construction of a nuclear power station remains unclear. The government’s other plans are changes in education law by replacing the competitive ‘student basket’ system introduced by the Liberals, an efficient EU presidency, a reform of taxation and improvement of relations with neighbouring countries, first of all in the BSR.