Lithuanian Annual Strategic Review

This paper addresses the probable modifications of the economic strategy of Lithuania after the 2008-2009 crisis (the Great Recession) and the changes in macroeconomic environment in the European Union (EU). In Lithuania’s case, like that of the other two Baltic states, a certain specificity of a small open economy was revealed and the need for some adjustment of strategy was displayed. Both the rapid economic progress of the Baltic States as well as their extreme economic depression during the crisis in the largest part was the result of the integration of those national economies into the European and world markets. The crisis has not only halted the economic progress of the EU and other countries of the world for a few years, not only induced attempts to review some weakened postulates of economic theory, but also asked for major adjustments in the economic policy of the EU and member states. Based on the texts drafted by the European Commission it has already agreed on tougher requirements in the Stability and Growth Pact, signed and ratified the Treaty on stability, coordination and governance in the economic and monetary union, and the European semester began operating procedures. EU Member States’ economic policies have become inserted into a rigid frame, and the process of content aggregation of national economic policies will continue. Based on theoretical conclusions of single currency area and the practical requirements of the common monetary policy in the euro area integration processes are underway and will proceed rather fast. By the decisions of European Council the euro area should become a nucleus of economic integration of the EU member states, leading to full economic union. EU’s political leaders, in conformity with the theory of European integration, raise already an issue of political union into the agenda. The article provides an analysis of the changes and draws a couple of conclusions. First, the process of economic integration should be separated stricter than ever before from process of political integration. Second, economic integration modifies the sovereignty of the states (increasingly moving to the principles of unified economic policy and economic decision-aggregation), which is not to be equated with the loss of sovereignty, but requires a new approach in the assessment of factors and motives of a national economic policy and its role in securing country’s sovereignty. Third, the economic strategy of small states has to continue to rely on the active involvement of European economic integration, giving priority to real economic convergence (reduction of development gap) and real participation in decision making concerning the issues of the integrated economy of the EU. The conclusion is made that on the basis of these provisions it would be possible to distinguish inexorable, rationality-based process of the EU economic integration from the alleged imperative of political union of European countries.