Litouwen streeft naar invoering euro in 2006 (en)

EUOBSERVER / BRUSSELS - The Lithuanian finance minister Dalia Grybauskaite today announced that the government had decided to apply to join the euro's exchange rate mechanism (ERM II) - the first formal step on the road to joining the single currency.

Vilnius is the first of the future EU countries to take this step and it would allow the Baltic state to join the euro as early as mid-2006 - the earliest theoretical date.

But first it needs to pass other hurdles.

The currency - the Litas - first needs to be stable against the euro for a period of two years. Lithuania must also adhere to the euro rules that other euro members are supposed to apply to (but in many cases, notably France and Germany's, do not).

This means that their budget deficit - tax income minus public spending - must be below three percent of their gross domestic product (GDP) and their debt must not exceed 60 percent of GDP.

In its latest report on Lithuania's economy, the European Commission projected a deficit of under three percent in 2005 and debt well within the threshold, so Lithuania could well be in a position to join immediately.

Beating its neighbour to it

Lithuania has always been a favourite to be the first new member state to join the euro, along with Baltic neighbours Estonia and Latvia.

But both the European Central Bank (ECB) and some commissioners - notably Frits Bolkestein on a recent visit to Malta - have warned the future EU states not to rush into joining the euro.

According to reports, Ms Grybauskaite - who is also set to be Lithuania's representative in the new-look European Commission - described the decision as "historic".

Lithuanian diplomats said that they suspect the subject will be raised in the forthcoming ECOFIN meeting of EU finance ministers and that the application will be made in the next few weeks. But they emphasise that this is not certain.

The application will be considered by the euro group (finance ministers from the 12 countries that share the euro) and the ECB.