There are tougher rules for fiscal policies, stronger oversight of macroeconomic imbalances, a lender of last resort for sovereigns in the form of the European Stability Mechanism, and there will soon be a sounder and more integrated banking sector thanks to the creation of the Single Supervisory Mechanism. The euro area has gone through its difficult initial learning phase, and new members will reap the benefits, which certainly outweigh the costs associated with the existence of these institutions. Joining a stronger euro area will increase the long-term prosperity of its members and their resilience to adverse shocks. But there are also other concrete benefits stemming from trade and foreign direct investment, which will be bolstered, especially given Lithuania’s strong trade ties with its two Baltic neighbours in the euro area, Estonia and Latvia. Moreover, Lithuania will be an equal partner at the Governing Council table and will fully participate in deciding monetary policy for the whole monetary union. Do you share the view that being a member of the euro area is an additional safeguard for countries such as the Baltic states or Finland against the spillover effects of geopolitical tensions in Europe (or even an insurance policy against Russian aggression), such as those that we have recently witnessed in Ukraine? Does the euro make us safer and, if so, how? While we currently consider geopolitical developments as a downside risk to growth, I will refrain from commenting on the political aspects of these tensions, as these issues fall outside the mandate of the ECB.
As regards the economic effects, the recent crisis concerning Ukraine and the consequent imposition of sanctions on and by Russia has so far had limited spillover effects on the euro area economy, either via trade or financial links. However, the Baltic states and Finland are more likely to feel any negative effects than other euro area economies owing to the strong trade ties they have with their eastern neighbours. But on the economic risks, I would like to add that the European “family” provides safety nets to partly offset the negative effects of geopolitical tensions related to Russia and Ukraine. For instance, the European Commission announced support measures to protect food producers affected by Russia’s food embargo. The euro area is a large market that can help Lithuanian producers to make up for losses from the Russian market. Finally, euro area countries can use the emergency liquidity lines provided in euro by their national central banks, which in turn would receive euro liquidity from the Eurosystem, in the event of significant turbulences in the financial sector. Why is lending to the real economy in the euro area sluggish? What else needs to be done in addition to the mix of different measures that the ECB is applying, such as low interest rates (or negative interest rates for bank deposits at the ECB) and the planned asset-backed securities programme? It is true that credit dynamics remain weak. At the same time, recent trends show some positive changes.