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By Jack Ewing FRANKFURT, September 25 — At a time when the euro currency is slumping againts the dollar and the eurozone is in need of positive turnaround stories, the tiny country of Lithuania may have provided one last Thursday. During a visit to the capital of Vilnius last week, Mario Draghi, the president of the European Central Bank, cited Lithuania as a model for other eurozone countries because of the way it overcame a brutal economic downturn in 2009 to become one of the fastest-growing members of the European Union.

“Certainly it is a powerful message to everybody else,” Mr. Draghi said during a news conference.

The overall good prospects for the Lithuanian economy come despite the impact of Western sanctions against Moscow, which have boomeranged in Lithuania to hit its dairy industry — for which Russia was its largest export market. A retaliatory Russian embargo against Lithuanian dairy products is expected to shave a few tenths of a percentage point off Lithuania’s growth this year.

Lithuania, which will adopt the euro in January, provided an example of what Mr. Draghi clearly would like to see more of in the eurozone, which is in danger of slipping back into recession. The country, Mr. Draghi said, was an example of “growth-friendly consolidation.” In other words, Lithuania showed it was possible to corral government spending and debt in the midst of a steep downturn, and ultimately return to growth.

Economic output in Lithuania plunged 15 percent in 2009 after the financial crisis. But the country of 3 million people, which pegged its currency, the litas, to the euro in 2002, stayed the course. Instead of allowing the litas to devalue, the government embarked on a harsh austerity program, cutting the government deficit to 2.1 percent of gross domestic product last year, from 9.4 percent in 2009.

Lithuania’s Baltic neighbors, Latvia and Estonia, underwent similar transformations, making them paragons of a kind of virtue that some Europeans would like big eurozone countries like France and Italy to exhibit.

“The Baltic countries have demonstrated that adjustment is possible — even without currency devaluation,” Mr. Draghi said at an event organized by the Bank of Lithuania, the country’s central bank.

“We can draw an important lesson from the Baltic experience,” Mr. Draghi said. “Governments not only acted boldly, but also immediately. They used the momentum of the crisis to implement the necessary consolidation and thus managed to convince the public of the need for these measures.”

“The Baltic case,” he added, “shows that — while consolidation might weigh temporarily on economic growth in the short term — it is the basis for sustainable growth in the longer run.”

Last year, the Lithuanian economy grew 3.3 percent. This year growth will slow to 2.9 percent, according to an estimate by the Bank of Lithuania, crimped in part by the retaliatory Russian sanctions. But Lithuania will nonetheless remain among the most dynamic economies in the European Union.

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Source: www.nytimes.com

Photo by: Ints Kalnins (Reuters)