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Country Report on

A country report

on Lithuania’s position in the EU

UNIVERSITEIT VAN AMSTERDAM CoRe Studies VI EUROPEAN POLICY STUDIES

Country Report on Lithuania

A country report on Lithuania’s position in the EU

Country Report Series (CORE‐series) European Policy Studies Universiteit van Amsterdam June 2013

©Caroline Duits, Elva Goedegebuur, Bodo von Haumeder, Tomas Hos, Shaho Jabbari, Raoul Köhler, Nathalie Koopman, Rosalinde Kranenburg, Veerle Vastwijk, Sjoerd Verest and Arkasha Verschuren.

Alle rechten voorbehouden. Niets uit deze uitgave mag worden verveelvoudigd, opgeslagen in een geautomatiseerd gegevensbestand of openbaar gemaakt, in enige vorm of op enige wijze, hetzij electronisch, mechanisch door fotokopieën, opnamen of enige andere manier, zonder voorafgaande schriftelijke toestemming van de auteurs. Voor zover het maken van kopieën uit deze uitgave is toegestaan op grond van artikel 16B Auteurswet 1912 jO, het besluit van juni 1974, Stb. 351, zoals gewijzigd bij het Besluit van 23 augustus, Stb. 471 en artikel 17 Auteurswet 1912, dient men de daarvoor wettelijke verschuldigde vergoedingen te voldoen aan de Stichting Reprorecht (Postbus 882, 1180 Amstelveen). Voor het overnemen van gedeelte(n) uit deze uitgave in bloemlezingen, readers en andere compilatiewerken (artikel 16 Auteurswet 1912) dient men zich tot de uitgever te wenden.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system of any nature, or transmitted in any form or by any means, electronic, mechanical, now known of hereafter invented, including photocopying or recording, without prior written permission of the authors.

ISBN 978‐90‐807611‐8‐6

Table of contents

Table of contents ...... i

List of abbreviations ...... vii

List of tables, figures and boxes ...... ix

Acknowledgement ...... xi

Preface ...... xii

Introduction ...... xiii

Section 1: History and Culture...... 1 1. History of Lithuania ...... 3 1.1 Prehistory (until 1009) ...... 3 1.2 Pre‐Christian time (11th to 14th centuries) ...... 3 1.3 The Polish‐ Lithuanian Personal Union (1386–1569) ...... 5 1.4 The time of Rzeczospolita (1569 – 1795) ...... 7 1.5 Russian and Prussian supremacy (1795 – 1917) ...... 10 1.6 The Russian Revolution and its impact on Lithuania ...... 12 1.7 World War I and the First Independence ...... 12 1.8 Political instability during the Interbellum ...... 14 1.9 World War II: Lithuania under the and Nazi ...... 15 1.10 Anti‐Soviet resistance: The Forest Brothers ...... 17 1.11 The Lithuanian Soviet Socialist Republic ...... 18 1.12 The move towards full independence ...... 20 2. National history narrative: analysis ...... 21 3. Culture ...... 27 3.1 National identity ...... 27 3.2 Language ...... 29 3.3 Religion ...... 30 3.4 Traditions and etiquette ...... 31 3.5 Symbols ...... 32 3.6 National myths ...... 33 3.7 Architecture, art and literature ...... 34

Section 2: The political and legal system ...... 35 4. Institutions, power and politics ...... 37 4.1 The Lithuanian Constitution ...... 37 4.2 The legislative power: ...... 42 4.3 The executive power ...... 46 4.4 The judiciary ...... 50 5. Foreign, Security and Defence Policy ...... 53 5.1 Foreign policy ...... 53 5.2 Security and Defence Policy ...... 61 6. EU Policy in Lithuania ...... 64 6.1 Lithuanian system of transposing EU Law ...... 64 6.2 Monitoring EU law compliance ...... 66

6.3 EC statistics regarding Member States EU law compliance ...... 66 6.4 Foundation of the Lithuanian EU law transposition system ...... 68 6.5 Challenges to the Lithuanian EU law compliance ...... 69 6.6 Concluding remarks ...... 69 7. Democracy and civil society in Lithuania ...... 71 7.1 Civil society and democracy until 1991 ...... 71 7.2 Current civil society in Lithuania ...... 72 7.3 Explanations for the current situation of civil society and democracy ...... 77 7.4 Conclusion ...... 80 8. Corruption in Lithuania ...... 82 8.1 Corruption: Public institutions, the general public and the private sector ...... 82 8.2 Anti‐corruption measures: Legal framework ...... 84 8.3 Problems regarding anti‐corruption measures ...... 85 8.4 Concluding ...... 87 9. Human rights in Lithuania...... 88 9.1 Political and civil Rights ...... 88 9.2 Economic and social rights ...... 97 9.3 Minorities in Lithuania ...... 98 9.4 Lithuania and the European Court for Human Rights ...... 100 9.5 Conclusion ...... 101 10. Media ...... 103 10.1 Media landscape ...... 103 10.2 National media policy ...... 104 10.3 Media ownership ...... 108 10.4 Accountability, transparency and independence of the media ...... 109 10.5 Conclusion ...... 110 11. Migration in Post‐Soviet Lithuania ...... 112 11.1 Introduction ...... 112 11.2 Emigration ...... 113 11.3 Immigration Policy ...... 116 11.4 Illegal migration ...... 118 11.5 Conclusion ...... 119

Section 3: Economy ...... 121 12. Transition ...... 123 12.1 The Lithuanian economy in transition ...... 123 12.2 Preparing for Single Market membership ...... 126 12.3 membership ...... 127 12.4 The Internal Market Scoreboard ...... 128 12.5 Conclusion ...... 129 13. The Currency Board ...... 131 13.1 EMU convergence criteria ...... 132 13.2 Price stability ...... 133 13.3 Public finances ...... 134 13.4 Exchange rates ...... 136 13.5 Long‐term interest rates ...... 137 13.6 Prospects upon EMU accession ...... 137 13.7 Conclusion ...... 139 14. Economic Crisis ...... 140 14.1 General economic development of Lithuania since 2000 ...... 140 14.2 Macroeconomic Overview of Lithuania ...... 142 14.3 Credit expansion and real estate bubble ...... 143 14.4 Financial overview of Lithuania ...... 145

14.5 External imbalances and loss of competitiveness ...... 146 14.6 Fiscal policy ...... 148 14.7 Internal imbalances: the role of inflation ...... 149 14.8 Conclusion ...... 150 15. Business environment and taxation ...... 151 15.1 Investment in Lithuania ...... 151 15.2 Deeper examination of the investments ...... 152 15.3 Factors limiting the investments and measures to improve it ...... 154 15.4 Free economic zone ...... 156 15.5 Circumstances for businesses ...... 157 15.6 Taxation ...... 159 15.7 Recommendations to improve the business environment ...... 161 16. The Labour Market ...... 162 16.1 The EU Employment Strategy and Lithuanian objectives in the preceding years ...... 162 16.2 Unemployment...... 162 16.3 Demographics ...... 164 16.4 Labour costs and wages ...... 166 16.5 Policy measures and objectives ...... 168

Section 4: Economic and energy structures ...... 171 17. Economic sectors ...... 173 17.1 Agricultural sector ...... 173 17.2 Industrial sector ...... 177 17.3 Services sector ...... 178 17.4 Foreign trade ...... 179 17.5 Conclusion ...... 181 18. Infrastructure ...... 182 18.1 Transportation infrastructure ...... 182 18.2 Energy infrastructure...... 190 18.3 Waste management ...... 200 18.4 Drinking water management ...... 203 18.5 Conclusion ...... 204 19. Environment ...... 205 19.1 Institutional framework ...... 205 19.2 Policy ...... 205 19.3 Forest management ...... 206 19.4 Pollution ...... 207 20. EU Structural Support to Lithuania ...... 210 20.1 EU support in the pre‐accession period ...... 210 20.2 EU support in the period 2004‐2006 ...... 211 20.3 EU support in the period 2007‐2013 ...... 213 20.4 EU support in the period 2014‐2020 ...... 215 20.5 Evaluation and concluding remarks ...... 216

Section 5: The social domain ...... 219 21. Social policy ...... 221 21.1 Social security during the Communist era ...... 221 21.2 The current situation ...... 222 21.3 The pension system ...... 223 21.4 Sickness benefit ...... 229 21.5 Maternity and paternity benefit...... 231 21.6 Unemployment insurance ...... 231 21.7 Social assistance and social services ...... 233

21.8 Problems and recommendations for the social security system ...... 234 22. Health care ...... 237 22.1 From Soviet to current health care system ...... 237 22.2 The reform in the health care system ...... 239 22.3 Health care insurance ...... 240 23. Education ...... 242 23.1 Transforming the Lithuanian education system ...... 242 23.2 The Lithuanian education system after EU‐accession ...... 244 23.3 The European Benchmarks on Training and Education ...... 244 23.4 Types of education ...... 245 23.5 Issues and challenges ...... 248 23.6 Conclusion ...... 251

Conclusion...... 253

Bibliography ...... 258

List of abbreviations

AWPL Electoral Action of Poles in Lithuania BEMIP Baltic Energy Market Interconnection Plan CAP Common Agricultural Policy CBA Currency Board Arrangement CEEC's Central and Eastern European Countries CF Cohesion Fund Civitas Civil Society Institute CPI Corruption Perception Index CPT Council of ’s Committee for the Prevention of Torture DG Directorate General DP EAFRD European Agricultural Fund for Rural Development EC ECB European Central Bank ECHR European Court of Human Rights EDP Excessive Deficit Procedure EEA European Environment Agency EEO European Employment Observatory EES European Employment Strategy EESC Eastern European Studies Centre EMFF European Maritime and Fisheries Fund EMU Economic and Monetary Union of the European Union ENTSO‐E European Network of Transmission System Operators for Electricity ERDF European Regional Development Fund ERM II European Exchange Rate Mechanism II ESF European Social Fund ETS Emission Trading System EU European Union FDI Foreign direct investment FEI Financial Engineering Instrument FEZ Free Economic Zone GDP Gross Domestic Product GHG Greenhouse gases GP General Practitioner GRECO Group of States against Corruption ICT Information and Communications Technology ISPA Instrument for Structural Policies for Pre‐Accession LCS Centre Union of Lithuania LDDP Democratic Labour Party of Lithuania LGBT Lesbian, gay, bisexual and transgender LiCS Liberal and Centre Union LKDP Lithuanian Christian Democratic Party LLE Lithuanian Labour Exchange LLS Liberal Union of Lithuania LNG Liquefied natural gas LRLS Liberals' Movement of the Republic of Lithuania LRS Union of Russians in Lithuania LRTK Lietuvos radijo ir televizijos komisiją LSDP Lithuanian Social Democratic Party vii

LTL Litas LTU Long‐term unemployed LVLS Lithuania Peasant Popular Union MDF Medium‐density fibreboard MKDS Modern Christian Democratic Union MS Member States of the European Union NATO North Atlantic Treaty Organisation NB8 Nordic Baltic 8 NDP New Democratic Party NGO Non‐governmental organisation NPP Nuclear power plant NRP National Reform Programme NS New Union ‐ Social Liberals NSRF National Strategic Reference Framework OP Operational Programme OSCE Organisation for Security and Co‐operation in Europe PDP Civic Democratic Party PHARE and : Assistance for Restructuring their Economies RBMK High Power Channel‐type Reactor RRT Lietuvos Respublikos Ryšių reguliavimo tarnyba S Sajudis SAPARD Special Accession Programme for Agricultural and Rural Development SIS Special Investigation Service SME Small and medium‐sized enterprises SPD Single Programming Document TACIS Technical Aid to the Commonwealth of Independent States TEA Tax exempt amount TEN‐E Trans‐European Energy Networks TEN‐T Trans‐European Transport Networks TPP Party of National Progress TS ‐ LKD ‐ Lithuanian Christian Democrats TS‐LK Homeland Union ‐ Lithuanian Conservatives TT Order and Justice UN United Nations UNCAC United Nations Convention against Corruption USA United States of America USSR Union of Soviet Socialist Republics VAT Value added tax VNDS Peasants and New Democracy Union

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List of tables, figures and boxes

Tables

Table 3.1: Prime Minister and Government 1990‐2013 Table 3.2: Closeness to Full Presidentialism Table 3.3: Lithuanian districts and its capitals Table 3.4: The 60 municipalities of Lithuania Table 6.1: Infringement procedures in the EU in 2011 Table 7.1: Voter turnout elections 1993‐2012 Table 7.2: Party membership as % electorate of Lithuania Table 7.3: Members per political party in Lithuania Table 11.1: Negative migration balance as emigration exceeds immigration. Table 11.2: Migration per thousand residents in the EU in 2012 Table 11.3: Total population 1959 – 2011 Table 11.4: Aliens granted Lithuanian citizenship during 2006‐2010. Table 11.5: Immigration by countries of origin 1990‐2011 Table 11.6: Applications for asylum and decisions on granting of asylum during 2007‐2011 Table 13.1: Inflation Rates in Lithuania 2002‐2012 Table 13.2: Annual inflation rates in Lithuania in %: Table 13.3: Government Deficit as % of GDP of Lithuania 2003‐2012 Table 13.4: Government Debt as % of GDP of Lithuania 2003‐2012 Table 13.5: Long‐Term Interest Rate in Lithuania 2003‐2012 Table 14.1 : Total GDP Table 14.2: Real GDP Growth Rate Table 14.3: Unemployment Rate Table 14.4: Annual Inflation Rate Table 14.5: Debt Table 14.6: Foreign Trade Table 14.7: Long‐term Interest rate Table 14.8: Credit to Private Sector Table 14.9: Gross External Debt Table 14.10: Annual House Price Change Table 14.11: FDI Inflows Table 14.12: Lendind Condition Table 14.13: Current Account Balance Table 14.14: Current Efficiency – Wage Increase Table 14.15: General Public Debt Table Table 14.16: Public Expenditures & Revenues Table 14.17: Annual Average Inflation Rate Table 14.18: External Factors of Inflation Table 15.1: Foreign investment in Lithuania Table 15.2: Number of procedures, elapse of time and required capital to start a business Table 16.1: Unemployment rates in Lithuania 1998‐2012 Table 16.2: Migration levels in Lithuania 2001‐2012 Table 16.3: Wages and Salaries in Lithuania 1995‐2011 Table 16.4: Changes in Labour Productivity and wages 2001‐2011 Table 17.1: Redistribution between Member States and EU Table 17.2: The evolution of agricultural input and output prices Table 18.1: Freight transportation in Lithuania Table 18.2: Railway track network in Lithuania Table 18.3: Shipping lines from Klaipėda Table 18.4: Average wholesale prices for natural prices in some Member States ix

Table 18.5: ENTSO‐E projects in the Baltic region Table 18.6: Waste quantity in Lithuania per thousand tons Table 18.7: Overview Waste management of Lithuania Table 19.1: Kyoto GHG limits for EU Member States Table 21.1: Contributions to SoDra Table 21.3: Minimal Obligatory record to receive pension Table 23.4: Benchmarks of the EU for education

Figures

Figure 1.1: The Baltic tribes and provinces: 1200 CE Figure 1.2: The expansion of Lithuania Figure 1.3: The Polish‐Lithuanian Commonwealth in 1616‐1657 Figure 1.4: The partition of the Commonwealth Figure 1.5: Lithuania during the Interwar period Figure 7.6: Participation in civil society in 2009, Lithuania Figure 9.1: Average gross hourly earnings of women and men working full time and part time (in euro), countries arranged in increasing order of female earnings (2006) Figure 11.1: Migration in the EU in 2010 Figure 17.1: Lithuania’s export 2012 Figure 17.2: Lithuania’s import 2012 Figure 18.1: E‐Route system in Lithuania Figure 18.2: Freight transportation in 2011‐2012 Figure 18.3: The project Figure 18.4: Energy supply 2009 Figure 18.5: Electrical energy production 2009 Figure 18.6: Energy generation since 2010 Figure 18.7: Renewables potential in Lithuania Figure 18.8: Gas pipelines in the Baltic States Figure 18.9: Electricity network of Lithuania Figure 19.1: Protected areas of Lithuania Figure 19.7: PM Pollution EU Figure 19.8: Nitrogen surplus in soil

Boxes

Box 10.1: Requirements for broadcasters according to paragraph 25 of the Licensing Rules for Broadcast and Transmission Activities Box 10.2: Requirements for broadcasters according to paragraph 26 of the Licensing Rules for Broadcast and Transmission Activities Box 13.1: Lithuania Aims to adopt Euro in 2015

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Acknowledgement

We would like to thank all our interviewees for providing us with vital information in various fields and helping us construct a complete image of the Lithuanian Republic. Without your cooperation and contribution it would not have been possible to complete our report.

We would also like to thank Drs. M. van der Laaken, Dr. C.W.C. Reijnen and Dr. A.C. van Wageningen for guiding us through the process of doing research, conducting interviews, and writing this report. You helped make our visit to Lithuania and the writing of this report a truly inspiring, special and interesting experience.

The authors

Caroline Duits, Elva Goedegebuur, Bodo von Haumeder, Tomas Hos, Shaho Jabbari, Raoul Köhler, Nathalie Koopman, Rosalinde Kranenburg, Veerle Vastwijk, Sjoerd Verest and Arkasha Verschuren.

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Preface

I am proud to present the sixth of a series of country reports, in short the CORE series, of the master European Policy Studies. This report is about Lithuania. Technically spoken, Lithuania has not changed that much in the mere 22 years of its existence. That is to neglect that the Lithuanian people have passed through some important historical changes. Since 1991, Lithuania has gained international sovereignty. Furthermore, it has changed dictatorial rule to democratic rule. Moreover, it has been engaged in a transition from a state led economy to a market economy. In 2004 Lithuania joined the European Union as a Member State. It is safe to say that Lithuania has made some enormous changes in a period of not much more than 20 years.

Under my supervision and as a part of their master European Policy Studies, 11 students of the University of Amsterdam have organised a field research trip to Lithuania to study the aforementioned transitions and to examine Lithuanian integration in the European Union. They had a political, legal and economical focus underpinned by a cultural and historical background. As shown by this report, their research has been interdisciplinary. They combined desk research with interviews in and . In only 14 weeks they have obtained insight in the internal affairs of Lithuania, its relationship with the EU and some important problems still waiting to be solved.

Some serious endeavours lie ahead for the Lithuanian people. Lithuanian society at large could benefit from a more proactive and stable political attitude. The modernisation of the infrastructure, the quality and content of education, the improvement of legislation and the development of a competitive economy are some of the major tasks Lithuania has to address. A mentality change is another.

The wealth of this report not only stems from the information that the students gathered and analysed, it is also the result of the chosen interdisciplinary approach. This enabled the students to draw conclusions surpassing a single disciplinary approach. They thus proved that some inferences about our complex social reality can only be made after interdisciplinary research. Therefore once again, the sixth CORE‐study clearly demonstrates the necessity of and need for interdisciplinary studies like European studies, particularly European Policy Studies.

I took pleasure in coaching and accompanying these students. They were actively involved in making a success of this course. For them, the course itself was an adventure, as no preset course material was available. They had to find their own information and make a comprehensive selection. During their collaboration they showed a genuine team spirit. This report proves for this good cooperation.

Finally, of course I want to thank the 11 participating students for their enthusiasm and their dedication, which exceeded the demands of a compulsory assignment.

Dr. A.C. van Wageningen Amsterdam, oktober 2013

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Introduction

Situated in north‐eastern Europe, Lithuania is the most southern Baltic state. It is also the most populous, with almost 3 million inhabitants, comprising nearly 0.6% of the European Union’s approximately 500 million inhabitants. Despite this relatively small size, Lithuania is an especially interesting case study for multiple reasons. The country’s upcoming presidency of the Council of the European Union in July 2013 makes it all the more valuable to better understand this relatively new EU Member State. Its recent history of Soviet oppression, independence, and EU accession is shared only with the two other Baltic states, while Lithuania’s eagerness to turn its vision west since its independence is matched by virtually no other Eastern European state. At the same time, this swift turn away from centralised economic government to one of market rule, has for the moment culminated in an open economy that struggles with protracted high unemployment and emigration. Despite the progressive course over the past decades, Lithuania thus faces serious challenges ahead. The country therefore warrants an incisive investigation into its development and its prospects as an EU Member State. Lithuania was one of ten countries acceding to the EU in 2004, along with the two other Baltic states of and .1 The three are often mentioned together, and they are often researched as a group of countries that are very much alike. There are, however, large differences that make it worthwhile to investigate these countries separately and in‐depth. This 2013 report aims at doing so for Lithuania. In the 17 different chapters of this report you will be able to encounter information on virtually all subjects concerning the relationship between Lithuania and the EU. It intends to provide an accurate picture of the way in which the EU affects daily practices in Lithuania in different domains of society, as well as identify problems that have arisen since accession to the EU. The themes of history and culture, politics, society, the judiciary, macroeconomics, economic sectors, and social policy, are therefore all comprehensively analysed. The common framework within which we analyse most of these themes is that of convergence to EU standards. We investigate Lithuania’s overall development from Soviet independence in 1991 until the present day, and assess its performance in relation to EU strategies and regulation. Analysis is done through research of articles, reports and statistics, as well as through 60 interviews held with representatives of the government, private companies, institutions, NGOs, and scholars of different academic fields, during a visit to Vilnius and Kaunas at the end of March 2013. Naturally, the general themes mentioned above are interwoven; Lithuania’s history explains why it was so eager to secede from the Soviet Union; its politics are consequently also heavily influenced by these developments, which in turn directs economic and social policy, to give an example. Therefore, while we have grouped all articles in terms of the themes mentioned above, this by no means implies overlap of these themes are not present in all chapters. Quite the contrary, historical perspectives in particular are included within every topic.

The content of this report The country report is divided into five different sections, together comprising all the themes mentioned above in 17 different chapters. The first section will focus on Lithuania’s history and culture; the second on politico‐judicial developments; the third on macroeconomic developments since the independence of 1991; the fourth on specific economic sectors as well as

1 See for information the Country Profile on Latvia, 2012, University of Amsterdam. xiii infrastructural aspects; and the fifth on the social domain. Taken together, this report should provide the reader a broad and detailed picture of developments in Lithuania over the last decades, and allow for an understanding of Lithuania’s current challenges and prospects as a full Member State of the EU. As an introduction to this large volume, a short description of each chapter will follow below.

Section 1 provides a broad introduction to Lithuania as a country by detailing its history and culture. Chapter 1 describes Lithuania’s turbulent and long history. In Lithuania, history is considered to be an essential part of the Lithuanian nationhood. It is broadly believed that present‐day Lithuania is a direct successor of the medieval Grand Duchy and its population, whose spirit has survived all historical turbulences of the subsequent centuries. This chapter discusses the most important periods and processes of the Lithuanian historical narrative in a chronological order: the Lithuanian Gran Duchy, Polish‐Lithuanian Commonwealth, Russian incorporation, interbellum republic experience, struggle for national independence and, finally, emancipation from Soviet rule. The overall purpose of this chapter is to offer an overview of the historical origins of the Lithuanian state, serving as background knowledge for the country analysis. Chapter 2 briefly outlines Lithuania’s historical narrative. It looks at the way history is being interpreted and represented in the country. It uncovers the power of discourse on national history in contemporary Lithuania, providing a unique addition and perspective to this report’s broad investigation of the country. Chapter 3 intends to offer a description of Lithuanian culture. Aside from its past, present‐day Lithuania derives its sense of raison d’être from its culture. Since it is generally perceived to be reflecting Lithuania’s historical tradition and continuity, culture is an important attribute of Lithuanian nationhood. This chapter provides an overview of the most important cultural features, such as the language, religions, traditions, symbols, art and architecture. Furthermore, mentalities and feelings of national identity are analysed in this chapter too. As such, this chapter complements the image of the Lithuanian society and the Lithuanian individual offered in this country profile.

Section 2 details developments of state institutions and the political and legal domain in eight different chapters. Chapter 4 on state institutions, power and politics discusses both the constitution of 1992, and the separation of powers between the legislative, executive and judicial realm following from this. The political and democratic institutional set‐up will be thoroughly explained. Overall, the chapter intends to provide an extensive overview of the trias politica and the Constitution on which Lithuanian society has been built. Chapter 5 details the Lithuanian government’s foreign policy and security and defence strategies since independence from the Soviet Union. It lists the many different international organisations of which Lithuania holds membership, as well as touches on the perceived sense of security the country associates with partnerships with many western countries. Lithuania’s rather ambiguous relationship with former oppressor is still regarded of central importance to this policy area. Chapter 6 on EU policy looks at the system of taking up EU law in national Lithuanian law. The chapter distinguishes an important shift that has taken place concerning Lithuania’s focus on the transposition of European Union rules and regulations, partly due to the crisis of xiv

2008. However, despite this shift, positively introducing EU legislation remains an important feature of Lithuania’s political strategy. Chapter 7 outlines Lithuania’s democracy and civil society. The chapter investigates whether democracy in Lithuania is functioning properly. Special attention will be given to political participation, as this form of activity is most crucial to the functioning of democracy. Identified challenges are that while the Lithuanian government has taken several measures in order to develop civil society and democracy, participation in both remains weak. Several explanations may account for this, such as the ‘soviet legacy’, inadequate financing of civil society organisations, lack of trust and initiative amongst the Lithuanian citizens, and also negative influences from the accession to the EU. Mainly, however, the challenges concerning democracy and civil society are related to the top‐down approach that is used to try to improve the situation. A mentality switch may be needed, possibly facilitated through education, better financing and interaction with other western countries. Chapter 8 discusses the concerns on overall corruption. It provides an overview of the incidence and developments regarding corruption in Lithuanian society. This implicitly also provides important information on the state of democracy and transparency in the country. A lot of research has been done on this issue, allowing for an assessment of both the actual situation and the way people perceive corruption in society. The chapter outlines Lithuania’s efforts to fight corruption and the effectiveness of these. Indeed, positive developments have taken place; however, there are still challenges ahead. Chapter 9 investigates the human rights situation in Lithuania. This is important since it is one of the core values of the EU. The chapter mainly states that although Lithuania has adequate legislation in order to safeguard human rights, there is a lack of political will and understanding to actually implement all laws concerning these rights. The main issues derived from reports and interview in the field will therefore be described in this chapter. It must be taken into account, however, that Lithuania did come a long way since it regained independence, as during the Soviet period human rights did not even exist as policy and legislative concern. Chapter 10 describes the Lithuanian media landscape as well as national media policy, including the main legislation, the broadcasting regulation and the regulatory bodies. As will become clear, there are some ambiguities and problems with regard to the accountability, transparency, independence and ownership of the Lithuanian media. Overall, however, the chapter concludes that the Lithuanian media system is predominantly liberal and shows no forms of censorship. Chapter 11 provides an overview on the topic of migration and Lithuania since its independence from the Soviet Union in 1991. The reader will gain insight into how the migration balance has shifted along with the social, political and economic changes that were the result of the country’s transition following its independence. Besides paying attention to the increase of emigration that has resulted in a negative migration balance since 1991, the chapter will also discuss the immigration policy concerning new immigrants.

Section 3 will focus on developments concerning the Lithuanian economy on macro‐level since the independence from the Soviet Union. Chapter 12 discusses Lithuania’s transition from Soviet command economy to liberal market economy. Attention is paid to specific economic measures that were taken during the years after Lithuania became independent, and Lithuania’s preparations for Single Market Membership. An overview of these measures and events will not only provide the reader with insight into the transition itself, but also into why the economy works the way it does today. xv

Chapter 13 analyses Lithuania’s currency board arrangement and convergence to the EMU. The chapter looks at monetary developments since the currency board arrangement for the litas was introduced in the early 1990s. This currency peg has had notable effects on the Lithuanian economy, by both providing a sense of stability and a loss of monetary sovereignty that acts a straitjacket in times of crisis. The Lithuanian government intends to replace the currency peg with full adoption of the euro by 2015. This chapter looks into the prospects of the country on doing so, and outlines both the benefits and the downsides this step would bring forth. Chapter 14 outlines the causes of Lithuania’s economic crisis of 2009. From 2000 until 2008 Lithuania experienced a period of extraordinary economic growth, generating unprecedented prosperity and employment. In the meantime, however, several internal and external economic imbalances emerged. The global financial crisis of 2008 triggered these imbalances, causing the deepest economic crisis in the modern history of the country with devastating social consequences. This chapter discusses different factors that contributed to the development of this severe economic recession and intends to expose the real origins of the crisis. Chapter 15 describes and discusses the business environment and taxation system of Lithuania. Although the business environment looks to be rather good in theory, with for example low taxation on profits and a relative ease to start a company, the practice is less rosy. Foreign direct investments, for example, have been moderate for many years now. In this chapter, the development of FDI in recent years will be discussed, and causes for the moderate FDI performance identified. Chapter 16 looks into the challenges Lithuania faces concerning its labour market. The chapter outlines the main developments on the labour market since joining the EU, focussing on unemployment, demographics, wage developments and policy measures, within the framework of European employment strategies. In this chapter high unemployment and net emigration are regarded as the main symptoms of a labour market that has difficulty to function in the context of the economic crisis of the last years. Focusing on resolving these issues by liberalising the labour market, as is often recommended, may be too one‐sided and insufficient for a full recovery.

Section 4 provides an extensive overview of the economic and energy structures in Lithuania, and therefore focuses on real developments on the ground from four different perspectives. Chapter 17 discusses Lithuania's economic sectors. The most important economic resources within these sectors will be outlined, taking into account the influences of the independence, the economic crisis and the accession to the EU. Lithuanian agriculture has suffered most from the EU accession, while the industrial and, in particular, the services sector have benefitted from it. Furthermore, the export sector is and will remain to be of great economic importance for Lithuania. Chapter 18 on infrastructure offers a comprehensive overview of Lithuania’s infrastructural networks, policy frameworks and the most important projects. No modern economy can properly operate without a well‐functioning infrastructure. The chapter is organised in four main parts, namely transportation infrastructure, energy infrastructure, waste management and drinking water management. Many infrastructural enhancements have been conducted in order to bridge the gap between the country and other EU Member States, aiming at full extension of the internal market to the Baltic States. Consequently, from both Lithuanian and EU perspective, infrastructural interconnections have become ones of the most prioritised xvi projects. The chapter also reveals how the country’s securitisation of the national energy supply accelerates this whole process, adding to it a more self‐centred character. Chapter 19 takes a look at the state of environmental issues in Lithuania. The main focus is on environmental protection, pollution and the integration of the national policy on environment in the EU framework. Overall, this chapter argues that the Lithuanian environmental policy can be regarded as rather well developed, effective, and well integrated in aforementioned framework. Chapter 20 wraps up this section and deals with the structural funds provided by the EU. These funds are meant to support areas in the EU with lagging levels of development compared to the more developed parts of the EU. Lithuania is an active receiver of EU structural funds, which gives the country extra opportunities to build up its economic and social framework. The chapter gives an overview of EU support to Lithuania before its membership in 2004. Subsequently it focuses on the two programming periods after accession (2004‐2006 and 2007‐2013), and the structural support period to come (2014‐2020).

Section 5 finishes the report with a description of Lithuania’s social policy domain, looking at social policy, health care and education. Chapter 21 details the social policy of Lithuania. Different parts of the current social security system are described and discussed, from old‐age pensions to unemployment benefits. Although the social security system has changed considerably in some areas since Lithuania regained its independency, other aspects remain inherited from the Soviet era, leading to imbalances. Consequently, it seems the country wants to go forward on the one hand, while on the other hand the country is still thinking and acting along the lines of a communist mentality. This imbalance in the social security system creates several problems and requires that some changes in the social policy need to be made. In this chapter, first the social security system during the Soviet era will be described. Second, today’s system will be discussed; followed by a description of the problems and issues, as well as possible solutions. Chapter 22 discusses the health care system of Lithuania, focusing on the differences between the health care system during the Soviet era and now. The chapter describes how the health care system has completely been transformed, from the hospital level to the primary health care level and the general practitioner. The difficulties experienced by Lithuania during this transition will be outlined, as well as the support Lithuania received from the EU to facilitate these changes. Lastly, Chapter 23 provides an overview of Lithuania’s education system. It will provide insight into the way has transformed from Soviet times up until now, as well as into the manner in which the national education system is organised today. Besides paying attention to positive developments, the chapter discusses issues and challenges that currently still need to be dealt with, such as the fact that education is organised rather centrally, students have trouble financing their tuition fees, there is a shortage of qualified teachers in some areas, and the number of students in Lithuania is decreasing while there is an exceptionally high amount of educational institutions. The final conclusion will provide an overview on the report. It will focus in particular on the general development of the different themes discussed above, convergence to EU standards, and especially the issues that the country is still facing. The main question remains whether further convergence to the EU will actually benefit the country and alleviate the problems and challenges that it currently faces.

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Section 1: History and Culture

1

Introduction

The Lithuanian nation, having created the State of Lithuania many centuries ago, having based its legal foundations on the Lithuanian Statutes and the Constitutions of the Republic of Lithuania, having for centuries staunchly defended its freedom and independence, having preserved its spirit, native language, writing, and customs, embodying the innate right of the human being and the Nation to live and create freely in the land of their fathers and forefathers – in the independent State of Lithuania, fostering national concord in the land, striving for and open, just, and harmonious civil society and State under the rule of law, by the will of the citizens of the reborn State of Lithuania, adopts and proclaims this constitution.1

This is why Lithuania appeared on the map of Europe after 1991. According to Lithuanian Constitution, its sense of raison d’être seems to the continuation and subsequent fulfillment of its own historical tradition and the realisation of the Lithuanian national spirit an independent, prosperous state. Currently, Lithuania presents itself as a modern nation, and the affinity to the ‘West’ is demonstrated by its honouring of Western values and norms. The aim of this section is to critically examine these principal assumptions by means of analyses of the Lithuanian history and culture. Hereby the central question of this section should be answered: Who is the Lithuanian and where does he come from? Firstly, an overview of Lithuania’s history will be displayed, reflecting Lithuania’s historical tradition since its very beginnings. The overview is based on secondary sources and interviews conducted with several members of Lithuanian academia. Subsequently, the historical narrative will be examined from a postmodern perspective focusing on the narrative’s discursive power over current Lithuania. It will be revealed that the narrative of Lithuanian nation tradition seems to be biased, thus misbalanced and possibly harmfully affecting ’ historical, cultural and national awareness. Furthermore, since history and culture are intensely interconnected, the third chapter will concern Lithuanian national identity and most striking cultural attributes. This whole section will provide a set of contextualising information including the background and origins of the Lithuanian country, people and their current place in Europe. Therefore, knowledge gathered in this historical‐cultural section should constitute an introductory basis for a better understanding of subsequent sections.

1 Seimas of the Republic of Lithuania, ‘Constitution of the Republic of Lithuania’, http://www3.lrs.lt/home/Konstitucija/Constitution.htm, consulted on 05‐06‐2013. 2

1. History of Lithuania 1.1 Prehistory (until 1009)

History begins with written sources (re‐)discovered. In the case of Lithuania, the area of present‐day Lithuania was first mentioned in 1009 in the chronicle Saxonicae Annales Quedlinburgenses:

Sanctus Bruno, qui cognominatur Bonifacius, archiepiscopus et monachus, XI suae conversionis anno in confinio Ruscia et Litua a paganis capite plexus, cum suis XVIII, VII. Id. Martii petiit coelos.1 Saint Bruno, an archbishop and monk, named Bonifacius was struck in his head by pagans during the 11th year of this conversion campaign on the borders of Russia and Lithuania, with 18 of his followers, entered heaven on March 9th [1009].

Despite the lack of earlier written sources, it is obvious from archaeological accounts that the land of present‐day Lithuania has been populated since around the 11th‐9th millennia BCE. In this period, Lithuania was covered mostly by full or semi‐permafrost grounds. Hence, the first inhabitants were primitive nomadic hunters. Only after the climate became milder in the 8th millennium BCE and inland ice melted, did sedentary populations appear along the banks of the rivers Nemunas, Neris and Merkys. These people were prevalently primitive hunters, gatherers and fishers. Approximately during the 2nd millennium BCE, the Indo‐European tribes entered the territories of present‐day Lithuania from southern and western parts of the region. This populace is called the Corded Ware culture, named after the way their pottery was made, and has been traced in territories between the River (Wisła) and the . This culture can be considered as the valid predecessor of the three most successful Baltic peoples, namely the Lithuanians, Latvians and the Prussians, the latter of whom is, nonetheless, culturally and linguistically extinct.2

1.2 Pre‐Christian time (11th to 14th centuries)

It can be derived from rare contemporary chronicles and archaeological findings that the territory of Lithuania was subject to several internal and external threats to its security from its very beginnings. It was repeatedly raided and invaded by the Northmen (Varagians, Swedes and Danes) and armies of ancient Russia and Poland from the 9th century. Furthermore, in the 13th century, two German monastic military orders, originating from the crusades to the Holy Land, conducted recurring military expeditions with the intent to convert all Baltic pagans to Christianity. In addition, both orders built up their own theocratic feudal states, thus threatening the Lithuanian monarchy from both the west and north. The , the so called Knights of the Sword, subjugated a large part of present‐day Latvia and some western parts of Lithuania whereas the subjugated the Prussian territories (approximately present‐day Kaliningrad Russia).3

1 , ‘Lithuanian History’, http://www.lietuva.lt/en/about_lithuania/history, consulted on 23‐05‐ 2013. 2 J. Zinkus, Lithuania: An Encyclopedic Survey, Vilnius: Encyclopedia publishers 1986, p. 85‐87; K. Arjakas ed., The Baltic States: a reference book, Tallinn: Estonian Encyclopaedia Publishers 1991, p. 179. 3 J. Zinkus, Lithuania: An Encyclopedic Survey, Vilnius: Encyclopedia publishers 1986, p. 88‐92. 3

The long‐lasting border Figure 1.1: The Baltic tribes and provinces: 1200 CE threat led to an alliance of the neighbouring principalities, of which Lithuania (Lietuva) became the most important. Subsequently, a relatively stable military and political confederation of Lithuanian lands was established at the turn of the 13th century. Already in 1236, Mindaugas, the prince of the Lietuva Principality, united some of the Baltic lands whereby he began to be considered as a grand duke of Lithuania. This year is considered as the virtual beginning of the Lithuanian monarchical state. However, the grand duchy was not born in peaceful times. A large Source: M. Gimbutas, The , London 1963. coalition of the German Orders and princes from neighbouring areas was determined to create an entirely new state, should Mindaugas not conclude peace and embrace Catholicism. Since Mindaugas had no other choice than to accept these conditions: he received a royal crown in 1253 from Pope Innocent IV and declared Lithuania as a vassal to the papal curia. Later, an archbishop was appointed in Vilnius, making Lithuania an internationally recognised Christian Grand Duchy. Nevertheless, due to the stubborn opposition to Catholicism of the indigenous population, Christianisation soon failed and Mindaugas reverted to paganism in 1261. At the time of his death, two years later, Lithuania reverted to its former depiction:

Lithuania was [again] no more than a vague indication of the vast forest that stretched beyond the river, a ‘wild east’ filled with pagan savages, lurking in nebulous marches and dark woods, and giving themselves over to hideous rites.4

The return to paganism provoked renewed military aggression from the German Orders, all of which proved to be unsuccessful. However, by the end of the 13th century, the grand duchy was involved in continuous wars with the German Orders, legitimised by a papal proclamation equating pagans to evil Muslims. Many western princes, such as the Count of Hainault and Holland, came to fight the pagans on the side of the Teutonic Order in order to become

4 J. Zinkus, Lithuania: An Encyclopedic Survey, Vilnius: Encyclopedia publishers, 1986, p. 88‐92. 4 experienced warriors and be purified of their sins. In this period, Kaunas and Vilnius were established as strongholds for defence purposes. As a consequence, the territory was increasingly centralised and administrated. However, although the German Orders seemed to be momentarily neutralised, a newer, more powerful enemy emerged. Due to the Mongol incursions into Kyivan Rus and Muscowy, and their subsequent fragmentation, Lithuania now had to content with repeated invasions by the Golden Horde.5 There were only few positive prospects for the Lithuanian independent state until Gediminas, a skilful diplomat, became the grand duke of Lithuania in 1316. Geminidas managed to successfully counter the Tatar raids from the east in a number of fierce battles. He improved relations with Christian rulers, supported regional commerce with Lithuanian settlements and signed a peace and trade treaty with the German Orders and the Hanseatic League, both of which were important powers of the Baltic Sea. Moreover, Gediminas further centralised Lithuania and introduced a hereditary succession system. However, Lithuania still remained native polytheistic pagan, which again provided the German Order with a casus belli towards the Lithuanian state. Subsequently, over forty retaliatory military campaigns were conducted against the Lithuanian pagans, often supported by a minority of Lithuanians and aided by Muscowy.6 During these centuries, the administration and polity of Lithuania evolved considerably. While the Lithuanian governance was in the beginning limited to the recognition and allegiance to the prince by local landlords, irregular taxation, and periodic meetings of the higher nobility, it was later, due to the increased internal and external threats to security, necessary to build up a competent administration. Consequently, a relatively well organised, strong and capable state‐ like society was built in the territory of present‐day Lithuania by the end of the 14th century. Rare historical sources confirm the impression that an objective difference between medieval Lithuania on the one hand and more advanced principalities in the West on the other was not as profound as is sometimes claimed.7 Overall, in this period, Lithuania began to flourish and a basis was laid for its further expansion.

1.3 The Polish‐ Lithuanian Personal Union (1386–1569)

By 1386, the territory under Lithuanian supremacy was being extended south‐eastwards. The Lithuanian Grand Duke enjoyed recognition not only inside the territory of present‐day Lithuania but also in relatively large parts of White Russia () and North‐Western . In order to retain such a great area, Gediminas’ dynastic descendants reconsidered the adoption of Christianity, which should provide Lithuania with peace and stability. After Jogaila (1377‐1381, 1382‐1434) won an internal succession struggle around 1377 and so became the Grand Duke of Lithuania, he decided to settle the chaotic internal situation through a personal union with Poland. Such a union necessitated Lithuania´s conversion to Christianity, which could be considered as a strategic move, since it deprived the German Orders of their casus belli towards Lithuania and their sense of raison d’être. Such a marriage was very convenient to Poland also, where the holder of the royal title, the King of Poland, was a female whose legitimacy was often questioned. The baptising ceremony took place in 1386 in Roman Catholic Cracow where Jogaila married the Polish Queen Jadwiga and was subsequently crowned as

5 J. Zinkus, Lithuania: An Encyclopedic Survey, Vilnius: Encyclopedia publishers 1986, pp. 92‐93; W. Blockmans and P. Hoppenbrouwers, Introduction to Medieval Europe 300‐1550, London and New York: Routhledge 2007, p. 304. 6 J. Zinkus, Lithuania: An Encyclopedic Survey, Vilnius: Encyclopedia publishers, 1986, pp. 93‐94. 7 Ibidem, p. 305. 5

Władisław II Jagełło, the King of Poland. In addition, he retained the Lithuanian title of the Grand Duke. However, the Polish‐ Figure 1.2: The expansion of Lithuania Lithuanian partnership was predominantly formal since Lithuania retained its independence to a large extent. Polish nobles attempted to annex Lithuania and thus absorb the Grand Duchy without having to resort to force, but these machinations only resulted in strengthened vigilance from the Lithuanian nobility, by which the Grand Duchy confirmed its sense of independence within the personal union. Further, it Source: www.truelithuania.com acquired its own monarch in the framework of the personal union, a so‐called Magnus dux, who was, however, inferior to the Polish‐Lithuanian monarch. However, since Jogaila became this Supremus dux, he acquired supremacy over his cousin and rival (1392‐1430), Magnus Dux. In fact, the Polish‐Lithuanian partnership was only formal and Lithuania, according to many historians, was the zenith of its pre‐nation statehood.8 Nevertheless, despite the formal loss of their casus belli towards Lithuania, the German Crusaders continued to restrict the political power of the Grand Dukes. It was therefore essential to a frustrated Lithuania to militarily and politically eliminate the German Orders before being able to continue its expansion eastwards. Hence, a decisive (Žalgiris, Tannenberg) took place in 1410 between the Lithuanian (Vytautas) and Polish armies (Jogaila as Władisław II Jagełło) and their Polish‐Lithuanian vassals on one side and the German Orders on the other. As a result, the Teutonic and Livonian Orders were defeated and, subsequently, fell into a gradual decline. The Treaty of Mełno in 1422 was a definitive settlement between the involved parties, defining Polish‐Lithuanian borders in relation to the Orders. The territorial concessions were deemed to have lasting validity for good. (the western part of present‐day Lithuania) coast was granted to the Lithuanian Grand Duchy whereas the Teutonic Knights retained the coastal line including Klaipėda (Memel). Later, Lithuania gained access to the Baltic Sea through annexation of Courland after the Livonian Order was disbanded in 1561. The Teutonic Order was in the same period transformed into the Duchy of , a vassal state

8 J. Zinkus, Lithuania: An Encyclopedic Survey, Vilnius: Encyclopedia publishers, 1986, p. 93‐94; W. Blockmans and P. Hoppenbrouwers, Introduction to Medieval Europe 300‐1550, London and New York: Routhledge, 2007, p. 304. 6 of Poland. The subjugation of the Teutonic Knights by the Polish crown put an end to the medieval German Drang nach Osten.9 Having no formal access to the Baltic Sea until 1561, Vytautas and mainly his descendants pursued a programme of expansion towards the Black Sea, an area containing a political vacuum with important trade routes. Furthermore, Lithuanian Grand Dukes concentrated on state centralisation, a permanent bureaucracy and well developed tax system, controlled by loyal aristocrats. By doing so, they enjoyed much popularity among their noble subjects. Vytautas even attempted to be crowned as a king of Lithuania, which was vehemently opposed by the Polish nobility. However, despite the high degree of independence of Lithuania within the personal union, Lithuania was systematically westernised through polonisation in terms of administration, aristocracy and noble feudal structures, refined manners and even language of local elites. In addition, Lithuanian aristocracy was gaining new privileges, in accordance with the Polish model. From the mid‐15th century, the Grand Duke’s Council gradually evolved into a council of Lords, a virtual holder of all political power in Lithuania. Some of the Lithuanian Grand Dukes pledged to themselves not to adopt any law without the approval of the Council of Lords. In 1529, 1566 and 1588, the leading position of the Lithuanian nobility was officially codified and formalised. In 1588, the land Diet (Seimas) and regional diets (Seimeliai) limited the legislative power of monarchs by making their approval obligatory for adoption of all new laws. Moreover, some of the upper nobility were exempted from paying taxes. Conversely, a considerable part of the peasantry was reduced to serfdom. Overall, the Grand became a manorial state governed by the aristocracy.10

1.4 The time of Rzeczospolita (1569 – 1795)

The Polish‐Lithuanian Commonwealth was established in 1569 on the basis of a treaty signed by Polish and Lithuanian nobility in Lublin. Hence, the Commonwealth’s other name is the Union of Lublin. In Polish, it is called Rzeczpospolita, which can be translated as a ‘common empire’. The Commonwealth replaced the dysfunctional personal union between both countries founded in 1386. Furthermore, it had Figure 1.3: The Polish‐Lithuanian Commonwealth in 1616‐1657 far‐reaching consequences for the political integrity of the Lithuanian state. However, it was still advantageous to Lithuania, which primarily intended to enhance its international and internal strength, both of which seemed to have been deteriorating slowly but inevitably. Moreover, since Muscowy was being transformed into a new great power of the East, Lithuania,

9 J. Zinkus, Lithuania: An Encyclopedic Survey, Vilnius: Encyclopedia publishers, 1986, p. 94‐99; W. Blockmans and P. Source: www.truelithuania.com Hoppenbrouwers, Introduction to Medieval Europe 300‐1550, London and New York: Routhledge 2007, p. 305; Arjakas ed., The Baltic States: a reference book, Tallinn: Estonian Encyclopaedia Publishers, 1991, p. 179. 10 J. Zinkus, Lithuania: An Encyclopedic Survey, Vilnius: Encyclopedia publishers,1986, p. 95‐97. 7 with its vast land possessions connecting the Baltic and Black Seas, urgently sought a strong and solid ally to counterbalance Russian hegemonic ambitions. It was also the Lithuanian lower nobility who strongly preferred a closer and more intensive relationship with Poland, thus providing them with more prestige, and, more importantly, with more rights and less obligations. The result of the Union was an enormously extensive federal state construct. The idea of personal union was retained since the Commonwealth had only one official Head of State who was both King of Poland and Grand Duke of Lithuania. The succession was not hereditary, as the supreme ruler was selected and subsequently elected by the Commonwealth Diet (Sejm, Seimas)11, which consisted of the highest and most respected entities in the entire empire. The Rzeczpospolita was also equipped with a Senate. Nevertheless, administration, treasure, army, court and legislative affairs remained separate. The division between Lithuania and Poland was long maintained by the use of the different languages and the spread of the Reformation in Poland which affected the country to a much greater extent than in Lithuania. Geopolitically, as a result of the Lublin pact, large parts of Lithuania were ceded to Poland, namely Podlasie (a border territory around Białystok to the south from Prussia) and Ukraine. Lithuanian White Russia (Belarus) was retained under Lithuanian administration.12 The Polish‐Lithuanian Commonwealth was definitely known as one of the largest states Europe has ever witnessed. However, this territorial expansion did not coincide with the enhancement of the monarch’s power, as in the case of western monarchies, to absolute power. In some sources, the Union is classified as a feudal aristocracy or even as a republic of nobility, rather than any kind of monarchy. As far as the Commonwealth’s polity is concerned, the supreme ruler could be considered as only a puppet under the direct influence of the aristocratic Seimas, simply reflecting the preferences of the nobility and other important figures of the empire. Moreover, only nobility could be appointed to the state administration. The Seimas oversaw sequentially all of the monarch’s actions and was not hesitant to utilise its liberum veto whenever it seemed to be convenient to any of its individual members. As the veto right necessitated unanimous decision making among hundreds of aristocrats, most of the proposed legislation could not be passed. It is, therefore, not surprising that such a situation led to a gradual decline of the country. Under the poor Saxon rule (1697‐1763), the Commonwealth was thrown into chaos, leading to decentralisation and eventual anarchy. The Seimas was dissolved about 40 times during approximately one century and the country lacked any kind of stable legislature. The Counter‐Reformation, coming from Catholic Poland and directed at Protestants and Orthodox Christians, further accelerated the general decline. As a consequence of a lost war, a massive reform of internal affairs was enforced by Russia in 1717, rendering the Union incapable of resisting internal and external threats. As one historian put it, ‘Commonwealth, lacking fortifications and artillery and poorly armed and equipped, was more fitting for parade than for warfare.’13 Foreign powers, particularly the emerging , intervened in the Union’s internal matters, since it regularly engaged corrupt members of the Seimas to act on their behalf. Consequently, since the mid‐17th century, the foreign policy of the Union was paralysed.14 The lost war against Russia was absolutely not the only military event in territories held

11 The Commonwealth Diet is known under Sejm in Polish and Seimas in Lithuanian. 12 J. Zinkus, Lithuania: An Encyclopedic Survey, Vilnius: Encyclopedia publishers, 1986, p. 99‐101; Arjakas ed., The Baltic States: a reference book, Tallinn: Estonian Encyclopaedia Publishers, 1991, p. 179. 13 J. Zinkus, Lithuania: An Encyclopedic Survey, Vilnius: Encyclopedia publishers, 1986, p. 100. 14 Ibidem, pp. 101‐102; T.F.X. Noble, ed., Western Civilisation: Beyond Boundaries, Volume II: since 1560 (6th ed), Boston: Houghton Mifflin Company 2011, p. 461; Arjakas ed., The Baltic States: a reference book, Tallinn: Estonian Encyclopaedia Publishers 1991, p. 179. 8 by the King of Poland and Grand Duke of Lithuania. Since the beginning of the 17th century, the Commonwealth was in recurrent wars with Russia, and their allies. Firstly, Russia, supported by Ukrainian Cossacks, officially claimed a majority of the Lithuanian territories in Belarus and Polish territories in Ukraine. After a lengthy war, Poland was forced to cede large Ukrainian territories to Russia in 1667. Secondly, after Sweden, which was rich from international trade, had laid a claim to the Baltic Sea (as dominium maris Baltici), it soon became very obvious that the Swedish expansion would have substantial consequences to the Polish‐Lithuanian Commonwealth: Sweden proceeded to appropriate large parts of Lithuania and Baltic coastal territories of the Commonwealth. Because of this, the Union was repeatedly humiliated by Swedish Figure 1.4: The partition of the Commonwealth armies and western parts of Lithuania were reduced to operational bases for Swedish troops on their way to Poland and Russia. Subsequently, Lithuania was forced to cede and lost its access to the sea. Lastly, during the northern Wars between Russian Tsar Peter the Great and Sweden, the Commonwealth attempted to regain its lost territories by joining the anti‐Swedish Source: http://germanhistorydocs.ghi‐dc.org alliance. Consequently, Poland‐Lithuania became a battlefield for Swedish and Russian armies for two decennia. Protracted famines, epidemics, plague, internal conflicts and chaos pervaded the country. Approximately 30‐40% of the population deceased during this period. The Union became almost ungovernable and the Lublin agreement was nullified.15 The last attempt to reverse this regression was made by the last Polish‐Lithuanian monarch, Stanisław II August (Poniatowski). In 1791, with a hope to save the Commonwealth from annihilation, he introduced very progressive reforms to the Union including far‐reaching changes in governmental and administrative structures. He aimed at replacing the anarchy of the nobility with a constitutional monarchy based on examples of contemporary western royal houses, and in particular, the French monarchy. Cities were to gain more power at the expense of Seimas and the aristocracy. In addition, the power of aristocracy was to be diminished by the partial alleviation of serfdom. The royal title was to be hereditary again and the Commonwealth’s army was to be considerably enhanced. Stanisław II August also supported education and science. His ultimate objective was at least to equalise the Commonwealth with its neighbours in order to ensure Polish‐Lithuanian survival. Nonetheless, he was not able to realise these ambitions, as Russia, Prussia and the Habsburg Empire had long concluded that a strong, enlightened and progressive Poland‐Lithuania at their doorsteps would prove to be an

15 J. Zinkus, Lithuania: An Encyclopedic Survey, Vilnius: Encyclopedia publishers, 1986, pp. 100‐102; T.F.X. Noble, ed., Western Civilisation: Beyond Boundaries, Volume II: since 1560 (6th ed), Boston: Houghton Mifflin Company, 2011, p. 461‐ 463.; G. Rystad, ed., In Quest of Trade and Security: The Baltic in Power Politics 1500‐1990, Volume 1: 1500‐1890. Lund: Lund University Press, 1994, p. 181‐182. 9 extraordinary inconvenience to them. Thus, the Commonwealth of Poland and Lithuania was partitioned in three waves (1772, 1793, 1795) until it was erased entirely from the map of Europe. The official justification for all of the three annexation waves was the internal chaos within the Union, still generally prevalent and sometimes as a reaction to Stanisław II August’s reforms.16 Overall, during the times of Rzeczpospolita, Lithuania became increasingly absorbed into Poland, both politically and culturally. By the end of the 18th century, the upper nobility had become fully polonised, embracing the and becoming politically oriented towards Poland. In the meantime, Lithuania was introduced, through Poland, to contemporary western thought, particularly with respect to the Renaissance, the Reformation, and the concept of humanism. With the introduction of the printing press, publications spread among the literate population; nobility became relatively more educated and a university was founded in Vilnius in 1575. This integration led to a diminishment of the Lithuanian identity, to a point where Lithuania was to be regarded merely as a Polish province, despite its formal federal accreditation. Foreign armies and governments did not make much effort to continue recognising Lithuania as an independent unit and, finally, by 1795 the Commonwealth was gradually partitioned among its neighbours and both Poland and Lithuania disappeared from the map of Europe.17

1.5 Russian and Prussian supremacy (1795 – 1917)

After the last partition of Poland‐Lithuania in 1795, the majority of former Lithuanian territory was absorbed by the Russian Empire. Only some minor parts of Lithuania were annexed by Prussia, resulting in a new province which was called New East Prussia. Prussian proprietorship of Klaipėda (Memel) was re‐confirmed. Consequently, the Lithuanian people were russified and, in Klaipėda, germanised. The occupation of Lithuania by foreign superpowers and their restrictive policies proved crucial in the development of a Lithuanian national identity. The national frustration in the Russian parts of Lithuania was significantly more intensive than in the Prussian territories.18 In the Russian part, occupied Lithuania was subjected to major russification. This had two distinguishable streams: one cultural, the other administrative. Firstly, it was intended to dismantle Lithuanian administration and supersede it with the Russian system. This kind of russification was relatively successful. Russian administration, taxation, government structures, and rules ended the long‐term legislature anarchy of the country. The Grand Duchy of Lithuania was deprived of its former sovereignty and reduced to the Vilna (Vilnius) (gubernia), soon to be replaced by the Lithuania Governorate and subsequently by the Lithuania‐Grodno Governorate, all of which were positioned within the Russian hierarchical administrative system. Secondly, the process of russification was designed to replace the Lithuanian culture with the Russian one. This attempt at russification did not meet its objectives; rather, it was abortive to the whole process. Originally, Vilnius was a regional centre of

16 T.F.X. Noble, ed., Western Civilisation: Beyond Boundaries, Volume II: since 1560 (6th ed), Boston: Houghton Mifflin Company, 2011, p. 139‐140; J. Zinkus, Lithuania: An Encyclopedic Survey, Vilnius: Encyclopedia publishers, 1986. Lithuania, p. 103. 17 Ibidem, p. 100; Arjakas ed., The Baltic States: a reference book, Tallinn: Estonian Encyclopaedia Publishers, 1991, p. 179. 18 J. Zinkus, Lithuania: An Encyclopedic Survey, Vilnius: Encyclopedia publishers, 1986, pp. 104‐105; Arjakas ed., The Baltic States: a reference book, Tallinn: Estonian Encyclopaedia Publishers, 1991, p. 179. 10 education within the Russian Empire, using the and Latin alphabet. However, progressive thought was strenuously oppressed by the Russian authorities.19 The virtual cultural russification started after the Napoleonic Wars. After partial support to Napoleon’s invasion of Russia, the Lithuanians opposed Russian autocracy by means of illegal activities perpetrated by the intelligentsia, anti‐tsarist uprisings and peasant revolts. Consequently, St. Petersburg imposed even harder oppression and cultural russification, which led to the closure of the Vilnius University in 1832. All books and other literally works printed with Latin characters were banned and censorship was introduced. Furthermore, administratively, the Lithuanian Governorate was divided in two new governorates in 1843, in an attempt to facilitate the russification policies. Consequently, the contemporary national movement, being supported by an increasingly larger ratio of the population, focused mostly on a struggle for reversal of cultural russification, restoration of the Lithuanian language in public life, education and administration and, more idealistically, a restitution of the Lithuanian state. It concentrated on trafficking Lithuanian texts from Prussian Klaipėda (see chapter 3 on culture) where such harsh germanisation measures were not being taken. In most cases, lower officials, students and craftsmen were involved in this tacit national movement. The national oppression was not noticeably attenuated during the reforms period under Tsar Alexander II. On the contrary, the Lithuanian press was banned in 1864 and the Tsar’s land reforms initiated throughout all of Russia led to an even deeper exploitation and impoverishment of Lithuanian peasants, who comprised the majority of the population. Furthermore, russification policies, poverty and famine, supported by the emergence of capitalism, spurred a large wave of emigration to larger cities of the region and abroad, mostly to North America.20 Simultaneously, the Lithuanian national movement began to play an important role in the national awareness of the inhabitants of Lithuanian lands. Being bolstered by the cultural oppression and the Europe‐wide growing Romanticist patriotism and nationalism, the movement’s main target was the gradual multifaceted emancipation of the Lithuanian people and its subsequent recognition as a fully developed, legitimised and independent nation. The basis for the national awareness was the Lithuanian language, which was, however, almost extinct since the beginning of the 19th century. Therefore, the nationalist movement started with an informal request to legalise the use of the Lithuanian tongue in the public sphere by means of equalisation with the Russian language and ended with an unconditional petition aiming to establish the Lithuanian nation‐state, to definitively institutionalise the Lithuanian nation. It is important to emphasise that the most nationalist activities were long considered to be illegal and subversive by all official authorities. Next to this internal dimension represented by enthusiastic Lithuanian aristocratic and bourgeois elites, the Lithuanian nation was built also from outside the country, i.e. by emigrants, especially those in New York. The era of national awakening produced important personages, mostly perceived as modern Lithuanian national heroes. In most cases they are deemed to have significantly contributed to ‘re‐emergence’ of the Lithuanian nation. The poet and physician Vincas Kudirka, and national activist Jonas Basanavičius are among the most popular ones. The latter is even called the ‘Patriarch of the Nation’.21 Overall, the 19th century in Lithuania was characterised by tsarist oppression one the one hand and the process of national awakening on the other. The first concessions to the

19 E.C. Thaden, ed., Russification in the Baltic Provinces and 1855‐1914, Princeton: Princeton Univeristy Press, 1981, p. 15‐16; J. Zinkus, Lithuania: An Encyclopedic Survey, Vilnius: Encyclopedia publishers, 1986, p. 105. 20 J. Zinkus, Lithuania: An Encyclopedic Survey, Vilnius: Encyclopedia publishers, 1986, pp. 105‐108. 21 Government of Lithuania, ‘Lithuanian History’, http://www.lietuva.lt/en/about_lithuania/history, consulted on 23‐05‐ 2013. 11

Lithuanian nationals by the Russian government were made in 1904, only one year before the social revolution of 1905 spread all over the Russian Empire.

1.6 The Russian Revolution and its impact on Lithuania

In 1905, a revolution sparked off in Russia by protests from workers, peasants, middle class people and members of the intelligentsia, who demanded better working conditions, more political representation, freedom of speech and the transformation to a constitutional monarchy.22 The oppressive and absolutist Tsarist Monarchy under Nicholas II had to give in, after having struggled to stamp down the uprisings, and made a number of concessions in the October Manifesto, e.g. granting more basic civil rights and liberties to all Russian citizens. Some of these concessions also affected the incorporated regions like Lithuania. First of all, the Tsar agreed on the implementation of a parliament (Duma) in which Lithuanians representatives could also play an active part and political parties were allowed.23 From now on a platform within the Russian Empire existed for Lithuanians to pursue their ambition of an independent and free state.24 This meant for Lithuania the acquirement of some autonomy and led to the formation of the first Lithuanian congress of representatives, the Great Assembly of Vilnius (Didysis Vilniaus Seimas), which demanded full political Lithuanian autonomy within the Russian Empire on 5 December 1905.25 For once, the Lithuanian language was reintroduced as official language in the education system and administrative bodies, and the Latin alphabet replaced the Cyrillic alphabet. In addition, the borders of ethnicity within Lithuania were defined. Furthermore, the aftermath of the Russian Revolution in 1909 resulted in the regaining of a certain extent of autonomy, the revival of the Lithuanian national consciousness and the beginning of the official demand for independence.26 Although Lithuania reacquired some degree of autonomy in 1905 and 1909 the Great Assembly of Vilnius did not succeed in achieving full Lithuanian sovereignty. This first required the total breakdown of the tsardom.

1.7 World War I and the First Independence

In the spring of 1915 the army of the German Empire occupied Lithuania, which then became part of the occupational government district Ober Ost. Since the Russian Empire had withdrawn the complete administrative structures, the Germans were forced to rebuild the public administration with the help of local knowledge and manpower.27 This led to an increase of Lithuanians working in public services. After the February Revolution and the October Revolution in 1917 the Tsarist Empire was overthrown and an armistice was concluded with The German Empire in the Treaty of Brest‐Litovsk.28 Lithuania was from now on no longer in the Russian sphere of influence.29 In 1917 the German Empire allowed representatives of the Lithuanian society to organise the Vilnius Conference, which had the declared mission of re‐establishing an

22 C. Evtuhov and R. Stites, A since 1800, Boston: Houghton Mifflin, 2004, pp. 186‐188. 23 Ibidem, p. 176. 24 T. Raun, ‘The Revolution of 1905 in the Baltic Provinces and Finland', Slavic Review, nr. 3 (1984), p. 456‐459. 25 CIA World Factbook, ‘Lithuania Country Information', https://www.cia.gov/library/publications/the‐world‐ factbook/geos/lh.html, consulted on 22‐01‐2013. 26 C. Evtuhov and R. Stites, A History of Russia since 1800, Boston: Houghton Mifflin, 2004, p. 164. 27 M. Butenschön, Estland, Lettland, Litauen: Das Baltikum Auf Dem Langen Weg in Die Freiheit, München: Piper, 1992, p. 29. 28 C. Evtuhov and R. Stites, A History of Russia since 1800, Boston: Houghton Mifflin, 2004, p. 234. 29 M. Butenschön, Estland, Lettland, Litauen: Das Baltikum Auf Dem Langen Weg in Die Freiheit, München: Piper, 1992, p. 32. 12 independent Lithuanian state.30 The members of the Vilnius Conference elected the Council of Lithuania (Lietuvos Taryba), which received some executive and legal authorities to perform government functions in Lithuania. The German occupation forces accepted this independence movement, because they did not believe that they could successfully annex Lithuania, which had been so long occupied by Russia and was now experiencing a strong revival of nationalism.31 Instead German military officials planned on establishing an independent Lithuania, which would maintain close relations with Germany.32 By avoiding direct annexation and granting Lithuania sovereignty the Germans hoped that Lithuania would seek some kind of union with Germany to become detached from Russia.33 In fact, William II recognised Lithuania formally as an autonomous state but wanted to keep it within the German sphere of influence and highly dependent on the German Reich. On 11 December 1917 the Council of Lithuania proclaimed the independent Lithuanian state with a firm and permanent alliance with The German Empire. Although it would have been a Lithuanian republic highly dependent on Germany, the Germans did not respond straight away by recognising the new state.34 Eventually, the Council of Lithuania proclaimed the republic of Lithuania again, however this time without any ties to the German Empire. William II did recognise the republic of Lithuania on 27 March 1918, but still applied pressures on the new state to commit to a strong alliance with Germany.35 Due to the German capitulation in November 1918 this did not become reality.

After the German Figure 1.5: Lithuania during the Interwar period forces had left Lithuania, troops of the new founded Red Army invaded Lithuanian in November 1918 with the intention to set up a workers and peasants government with close ties to the Soviet Union. Vilnius was conquered on 5 January 1919 by the Red Army and became the capital of the new proclaimed Lithuanian Soviet Socialist Republic.36 When Soviet troops entered Lithuanian territory the Lithuanian army started to fight the Red Army by all available means. At the same time, Poland would also Source: www.truelithuania.com

30 A. E. Senn, Lithuania Awakening, Berkeley: University of California, 1990, p. 145. 31 T. Snyder, The Reconstruction of Nations: Poland, Ukraine, Lithuania, Belarus, 1569‐1999, New Haven: Yale University Press, 2003, p. 54. 32 A. E. Senn, Lithuania Awakening, Berkeley: University of California, 1990, p. 167. 33 T. Snyder, The Reconstruction of Nations: Poland, Ukraine, Lithuania, Belarus, 1569‐1999, New Haven: Yale University Press, 2003, p. 63. 34 Ibidem, p. 60. 35 R. Kamuntavičius, Development of Lithuanian State and Society, Kaunas: Vytautas Magnus University, 2006, p. p. 167. 36 H.J. Bömelburg, ‘Geschichte Litauens: Vielfalt auf kleinem Raum', www.unigiessen.de/~g91159/dokumente/Geschichte%20der%20Stadt%20Vilnius.pdf, consulted on 05‐01‐2013. 13 fight the Soviet army to maintain its own independence and managed to capture Vilnius on 21 April 1919.37 Since Poland had territory claims on the region where the majority of the population had Polish origins, they occupied the city and Kaunas became the new Lithuanian capital. Even though Lithuania and Poland had a common enemy, the Vilnius question could not be solved. Lithuania did manage to push the Red Army out of its territory. Although Germany did not officially support Lithuania against its former enemy, many German troops helped voluntarily to restrict Soviet influence in the region.38 With German assistance Lithuania raised a strong army and was able to defeat the Soviet army in August 1919. The new Soviet leader Vladimir Lenin signed a treaty with Lithuania on 12 July 1920 recognising the full independence and freedom of the country and giving up all Russian sovereign rights over Lithuania.39 After the Soviets had left the Lithuanian army tried to recapture Vilnius but failed. Finally, Lithuania had to sign the Suwalki Agreement under pressures of The League of Nations, which attributed Vilnius to Poland.40 On 9 October 1920 the city of Vilnius and its surrounding region were officially incorporated into Poland. Among the population there was very little resistance against the incorporation at the time, which can be explained by the fact that the majority of people living in this area were Polish and even the ones with a Lithuanian background were, according to an interviewee, to a high degree assimilated.41 Nonetheless, the authorities of Lithuania never accepted the annexation of Vilnius since this region was believed to belong to the Lithuanian ethnical homeland.42 For this reason no diplomatic relations with Poland were maintained until the end of World War II, and officially Lithuania and Poland remained in a state of war until 1938 (see chapter 5 on foreign policy, security and defence). In the early 20’s, Lithuania had another border dispute concerning the Memelland. Originally, the Memel region with the city of Klaipeda was founded by Lithuanians but then fell under German rule for 700 years.43 After Germanys´ defeat in World War I it was placed under the administration of the League of Nations, which was represented in the area by French troops.44 In 1923 it was annexed by Lithuania and also recognised as Lithuanian national territory by the same League of Nations in 1925. It is believed that Germany accepted the annexation only because it did not want the region to belong to Poland, which had also laid claims, and had no prospects of regaining the Memelland.

1.8 Political instability during the Interbellum

In 1918, the Council of Lithuania elected Antanas Smetona as the first president of Lithuania and introduced a democratic constitution establishing a multiparty system with a proportional system of representation in 1922.45 This constitution represented democratic and liberal values and granted civil and freedom rights to all citizens.

37 M. Butenschön, Estland, Lettland, Litauen: Das Baltikum Auf Dem Langen Weg in Die Freiheit, München: Piper, 1992, p. 134. 38 Interview 36. 39 P. Buttar, Between Giants The Battle for the Baltics in World War II, Chicago: Osprey Pub, 2013, p. 54. 40 A. E. Senn, Lithuania Awakening, Berkeley: University of California, 1990, p. 187. 41 Interview 36. 42 Interview 43. 43 M. Butenschön, Estland, Lettland, Litauen: Das Baltikum Auf Dem Langen Weg in Die Freiheit, München: Piper, 1992, p. 146. 44 Z. Kiaupa, The History of Lithuania, Vilnius: Baltos Lankos, 2002, pp. 343 ‐ 344. 45 Ibidem, p. 356. 14

The parliament (Seimas) was elected for the first time in October 1922. In the elections the Christian Democratic Party obtained a majority and they stayed in office until 1926.46 The period was marked by frequent changes of government; the Christian Democratic Party governed with the Farmer´s Party, the Labour Party or the Populist Party. However, the new democracy was very weak because of strong party rivalries, poor executive capacities of the democratic government and high unfamiliarity of the Lithuanian people with the democratic system, which can partly be explained by widely spread illiteracy. An interviewee stated that the incapability of the democratic system to establish effective public decision‐making provided fertile grounds for the emergence of an authoritarian regime later on.47 In 1926 a social‐democratic coalition won the elections, but was soon discharged after a coup d’état by the military, the Christian Democrats and the Nationalist Union (Tautininkai). An authoritarian regime was established with Antanas Smetona still holding the office of the president and Augustinas Voldemaras becoming Prime Minister of Lithuania.48 The coup was supported by the military and it is assumed that also Western countries and the Soviet Union encouraged the change of regime, because they held the view that Lithuania needed a stricter ruler with an iron hand for the stability of the region.49 The conservative and oppressive regime of Smetona lasted until 1940 and turned Lithuania step by step from a liberal democracy into a totalitarian dictatorship. Smetona suspended the parliament in 1927 and abandoned the liberal constitution in 1928. Elections did not take place anymore under his rule only his Nationalist Party Tautininkai was still allowed to exist as a political organisation. Moreover, a new constitution was introduced concentrating the political power on the office of the president, authorising him to implement his policies by the use of force. Consequently, the separation of power (Trias Politica) was abandoned and all legislative, executive and judicial powers were assigned to the Tautininkai Party. Smetona referred to himself as “the leader of the people” (Tautos Vadas) and started to create a personality cult around him. In the period from 1926 to 1940 he successfully liquidated the democratic state of Lithuania and established an oppressive dictatorial regime with an autocratic rule.

1.9 World War II: Lithuania under the Soviet Union and Nazi Germany

After having annexed and the Sudetenland in 1938, Nazi Germany occupied the Memel region in March 1939. Lithuania was forced to consent to this annexation and handed over the Memel region to the Third Reich.50 On August 23 1939 the Molotov‐Ribbentrop Pact was concluded between Nazi Germany and the Soviet Union. The pact consisted of an official declaration that assured the two countries would not conduct war against each other. In addition the pact had a secret protocol that divided Central and Eastern Europe into two spheres of influence. While Lithuania belonged first to the German sphere of influence, it was transferred later, through an amendment of the treaty, to the Soviet sphere.51 The Soviet Union forced Lithuania in October 1939 to sign a non‐aggression pact and to allow 20.000 troops of the Red Army to be stationed in Lithuania. In return, Stalin gave back the Vilnius city and region to Lithuania, which had been conquered by the Soviet Union from Poland. On June 15 1940 Lithuania was totally occupied by the Soviet Union and a friendly pro‐

46 Z. Kiaupa, The History of Lithuania, Vilnius: Baltos Lankos, 2002, pp. 384‐386. 47 Interview 36. 48 A. E. Senn, Lithuania Awakening, Berkeley: University of California, 1990, p. 354. 49 Interview 36. 50 Z. Kiaupa, The History of Lithuania, Vilnius: Baltos Lankos 2002, p. 276. 51 Ibidem, p. 301. 15 communist government was installed. Elections for the Seimas were organised with 99, 2% of the voters approving with the pro‐soviet people´s republic. The elections were considered to be strongly manipulated by the Soviets. The new socialist government declared the Lithuanian Soviet Socialist Republic on 21 July 1940 and officially joined the Soviet Union on the 3rd of August 1940. The Soviet rule in Lithuania resulted in a lot of radical economic and political changes. Many economic sectors were nationalised, the Lithuanian agriculture was collectivised and the national litas currency was replaced by the Russian rubel. Furthermore, the Soviet occupation took very hard measures against any opponents. The NKVD (Soviet Secret Police) systematically started to deport the political and social elites of Lithuania to Siberia. As a result, approximately 23,000 political opponents were deported to Siberia during the first Soviet occupation.52. When the Red Army had to retreat, because of the approaching German forces, political prisoners in all of Lithuania were liquidated in high numbers, because of their opposition to communist rule. In what became known as the June Deportations the Red Army systematically started to kill the national elites like politicians, intellectuals and military officers. The following June Uprising was brutally crushed and 700 Lithuanians lost their lives.53 The Anti‐Soviet resistance group began to fight the already retreating Red Army and took over the main cities of Vilnius and Kaunas. Before the Germans arrived in Lithuania the Anti‐Communist resistance had defeated the Soviets themselves.54 At that time, the only hope for an independent and sovereign Lithuania was a war between Nazi‐Germany and Soviet‐Russia.55 Lithuanians were hoping to be able to free their country with German help from Soviet domination. A provisional government was established in Vilnius by the Soviets, which was totally controlled by the Kremlin and determined to Sovietise Lithuania extensively. The German Wehrmacht started to attack the Soviet Union on 22 June 1941 and completely conquered Lithuania on 29 June 1941. Parts of the Lithuanian population celebrated the German forces as liberators from the oppressive Soviet rule, who would make an end to the Stalinist terror.56 However, the German occupation forces established a military administration just as totalitarian and oppressive as the Soviet administration. Although the Lithuanian elites tried to establish a provisional government, this was not accepted by the German occupation forces and the provisional government was replaced by the Council of Trustees (Vertrauensrat), an administration of ethnic Lithuanians supervised and controlled by German military officials.57 The Council of Trustees had some autonomy in local affairs but had to coordinate most decisions with the German military. Nevertheless, Lithuanian officials largely ran the administration of the country. Initially, a lot of Lithuanians hoped that national sovereignty still could be achieved, since the German military had granted considerably more autonomy to local authorities than the Soviets had done when they attempted to seize complete control over Lithuania.58 These days we know that the German occupation forces only attributed so much autonomy to Lithuanian authorities because of the scarcity of their manpower. In the time of the German occupation 200,000 to 220,000 Jews were murdered, which was about 90 to 96% of the Jewish population in Lithuania at that time.59 This percentage was

52 A. Matulyte and R. Tracevskis, War after War. Catalogue of the Exhibition. Vilnius: Ekspoziciju Sistemos, 2007, p.13. 53 Ibidem, p. 13. 54 Interview 36. 55 Interview 43. 56 C. Dieckmann, Deutsche Besatzungspolitik in Litauen 1941‐1944, Göttingen: Wallstein, 2011, p. 354. 57 Ibidem, pp. 375‐378. 58 Interview 36. 59 A. Matulyte and R. Tracevskis, War after War. Catalogue of the Exhibition. Vilnius: Ekspoziciju Sistemos, 2007, p. 67. 16 higher than in any other European country.60 Several historians, such as Timothy Snyder and Christoph Dieckmann, attribute the extensiveness of the Holocaust in Lithuania to the very active participation of the Lithuanian population.61 On 24 June, approximately 3800 Jews were tortured and killed in the Kaunas Pogrom by the local population under the eyes of the German military.62 In the first weeks of the German occupation the annihilation of Jewish Lithuanians took place in such form of pogroms, assisted by the German military.63 After that the Nazis organised the execution of Jews in a systematic way with less participation of the Lithuanian population. The active assistance of the Lithuanian population is often explained by Nazi propaganda, which defamed local Jews as communist agents boosting existing anti‐Semite sentiments in the population. The role of the Lithuanian population in the persecution of the Jews remains a controversial issue on which historians disagree.64 During the German occupation of Lithuania the Nazis not only took radical steps against the Jewish population but also took actions against political opponents and national resistance fighters. About 60,000 Lithuanians were transported to Germany as work force for the German war economy.65 In the light of increased German violence a national resistance movement developed. The anti‐Nazi resistance movement operated mostly with nonviolent measures, such as publishing anti‐German newspapers and organising economic boycotts. An interviewee pointed out that the anti‐Nazi resistance wanted to operate in a nonviolent way because they decided to save their manpower for the return of the Soviets, who were regarded as the most dangerous enemy.66 The national resistant movement managed to evoke patriotic sentiments in the country and successfully stopped the establishment of a Lithuanian SS formation. So, while the German military cooperated on various levels with the Lithuanian population on the one hand, it also experienced nonviolent resistance on the other. In the summer of 1944 the Red Army occupied Lithuania again and the German forces had to withdraw. The Lithuanian Soviet Socialist Republic was re‐established and incorporated into the Soviet Union. When it became clear that Lithuania had definitely lost its sovereignty to the Soviet Union, a national anti‐Soviet resistance movement started a long‐lasting guerrilla war against the Soviet authorities.

1.10 Anti‐Soviet resistance: The Forest Brothers

The Forest Brothers were a partisan resistance movement that was active in all the Baltic countries and fought in a bloody civil war for national independence until 1953. The dissident movement consisted of all social classes, such as former military personnel, intellectuals, peasants and operatives.67 In this partisan anti‐Soviet guerrilla war The Forest Brothers were

60 P. Frysh, G. Somra, and F. Shadravan, ‘The Holocaust in Lithuania: One Man's Crusade to Bring Justice' CNN, Cable News Network, http://edition.cnn.com/2010/WORLD/europe/06/03/lithuania.nazi.prosecutions/index.html, consulted on 07‐ 05‐2013. 61 T. Snyder, ‘Holocaust: The Ignored Reality', http://www.nybooks.com/articles/archives/2009/jul/16/holocaust‐the‐ ignored‐reality/?pagination=false, consulted on 18‐02‐2013; C. Dieckmann and S. Suziedelis, The Persecution and Mass Murder of during Summer and Fall of 1941 : Sources and Analysis, Vilnius: Margi Raštai, 2006. 62 Ibidem. 63 Paul Frysh, Gena Somra and Farhad Shadravan, ‘The Holocaust in Lithuania: One Man's Crusade to Bring Justice'. http://edition.cnn.com/2010/WORLD/europe/06/03/lithuania.nazi.prosecutions/index.html, consulted on 07‐05‐2013 64 The Economist, ‘Lithuania under the Nazis: Hero or Villain?', http://www.economist.com/blogs/easternapproaches/2012/06/lithuania‐under‐nazis, consulted on 07‐05‐2013. 65 C. Dieckmann, Deutsche Besatzungspolitik in Litauen 1941‐1944, Göttingen: Wallstein, 2011, p. 354 66 Interview 43. 67 H.J. Bömelburg, ‘Geschichte Litauens: Vielfalt auf kleinem Raum', www.unigiessen.de/~g91159/dokumente/Geschichte%20der%20Stadt%20Vilnius.pdf, consulted on 05‐01‐2013. 17 fighting for a democratic and autonomous Lithuanian nation state. They did not believe that they could defeat the Soviet occupation forces but did hope for liberation by the democratic West, who established the Atlantic Charter guaranteeing “the right of all people to choose the form of government under which they will live”.68 Unfortunately it soon became clear that the West would not intervene, leaving Lithuania to her fate behind the fall of the Iron Curtain. The struggle of the Forrest Brothers for an independent Lithuanian state can be divided into three stages. The first stage took place between July 1944, when Lithuania was re‐occupied by the Soviet Union, and May 1946. During this period The Forest Brothers were involved in many open battles with the Red Army and approximately 10000 of them perished.69At that time, their goal was to defeat the Soviet occupation forces, as they were still convinced that the West would soon intervene on their behalf. They attacked small towns, destroyed Soviet offices and built fortified camps. However, due to their shortage of heavy artillery and armoured vehicles the resistance movement suffered great losses in this period. In the second stage, which lasted from May 1946 until November 1948, the movement was centralised and coordinated by a joint resistance authority.70 They established an organisational structure with different units operating independently in several districts. The tactic of the resistance movement changed from open confrontation to guerrilla warfare. While the Forest Brothers would first live in fortified camps they now took shelter in well‐hidden bunkers in the woods. They were supported mostly by farm households provided them with food supplies. During the second stage, 4000 partisans practised a hit‐and‐run tactic because of supremacy of the NKVD forces in terms of weaponry and manpower.71 The third stage constituted the end of the anti‐Soviet resistance movement and took place between November 1948 and May 1953. Only about 2000 partisans remained fighting during this period and the purpose of the movement was to demonstrate that a resistance movement still existed.72 Due to the collectivisation of the farms the Forest Brothers lost their most important supporters. Since they did not have sufficient military capacities, they devoted their activities to anti‐Soviet propaganda in the form of newspapers, pamphlets and books.73 One interviewee stated that the movement was already completely uncoordinated at that point and simply trying to survive.74 From 1953 on the national resistance movement of the Forest Brothers ceased to exist. In the end, even though the movement had a very popular agenda, the partisans could not keep up with the capacities of the Soviet occupation forces.

1.11 The Lithuanian Soviet Socialist Republic

After the Lithuanian Soviet Socialist Republic (LSSR) had been re‐established in 1944, sovietisation and communist rule were once more imposed. The Communist Party was the only political organisation allowed and communist ideology was propagandised by means of all available media channels. A secret police was formed to monitor and control the Lithuanian population. During the Stalinist Repressions an estimated 350000 Lithuanian were deported to

68 M. Kelly, ‘Atlantic Charter: A Vision for a Post‐World War II World’, http://americanhistory.about.com/od/worldwarii/a/atlantic_charte.htm, consulted on 18‐01‐2013. 69 D. Kuodytė and R. Tracevskis, The Unknown War: Armed Anti‐Soviet Resistance in Lithuania in 1944‐1953, Vilnius: Genocide and Resistance Research Centre of Lithuania, 2004, p. 24. 70 A. Matulyte and R. Tracevskis, War after War. Catalogue of the Exhibition. Vilnius: Ekspoziciju Sistemos, 2007, p. 18. 71 Ibidem, p. 35. 72 Ibidem, p. 19. 73 D. Kuodytė and R. Tracevskis, The Unknown War: Armed Anti‐Soviet Resistance in Lithuania in 1944‐1953, Vilnius: Genocide and Resistance Research Centre of Lithuania, 2004, p.37. 74 Interview 36. 18

Gulags in Siberia, because of disobedience or anti‐communist beliefs.75 The oppression was directed against all parts of societies that would disagree to some extent with the Soviet ideology, such as business people, Catholics, intellectuals, peasants and middle class citizens.76 Catholics suffered in particular under communist rule as religion was oppressed brutally. The Soviet government closed 32 Catholic churches between 1945 and 1958, forbid priests to practise their profession and banned religious literature from being published.77 After Stalin´s death in 1953 the Soviet regime became less oppressive and the repercussions declined.78 The Soviets meanwhile invested big sums in the industrialisation of the Lithuanian economy, which until then mainly consisted of agriculture. Inside the Soviet Union, Lithuania belonged to the republics with the highest standards of living, with strong economic performance in sectors like heavy industry, mechanical engineering, petroleum and wood processing and electrical industry.79 Furthermore, the Soviets tried to russify Lithuania in order to weaken nationalist movements, by having ethnic Russians and Belarusians settle in the country, who would then work in the newly established industrial complexes. However, due to strong Lithuanian nationalism Lithuania managed to receive a smaller percentage of Russian citizens than the others Baltic States.80 Since the armed resistance of the Forest Brothers had come to an end in 1953 the Lithuanian dissidents began to operate in a more peaceful and passive way. In response to the Hungarian uprising in 1956, young people like students, pupils and trainees started to engage into non‐violent ant‐Soviet resistance. They formed Lithuanian culture clubs, published anti‐ Soviet newspapers and demonstrated for more freedom and civil rights.81 The movement reached its peak when high school student Romas Kalanta immolated himself to protest against the Soviet rule over Lithuania on 15 May 1972.82 The Catholic Church resisted in a passive way because Soviet rule made it difficult for them to practise their religion. Due to the oppression by the communist authorities, the Catholic Church had to perform a lot of their activities, like christenings and communions, in secret.83 The Catholic Church began to publish an underground newspaper, The Chronicle of the Catholic Church of Lithuania, to draw attention to the bad state of the religious institution. This religious newspaper promoted catholic values, criticised communist authoritarian rule and attacked Soviet ideology.84 The unarmed anti‐Soviet resistance movement in Lithuania consisted of several more clandestine organisations, which all called attention to the nationhood of Lithuania, the Soviet war and occupation crimes, and the need for a liberal democratic republic.

75 A. Matulyte and R. Tracevskis, War after War. Catalogue of the Exhibition. Vilnius: Ekspoziciju Sistemos, 2007, p. 8. 76 R. Kamuntavicus, Development of Lithuanian State and Society, Kaunas: Vytautas Magnus University, 2006, p. 73. 77 A. Jakubčionis and D. Kuodytė, The Unarmed Anti‐Soviet Resistance in Lithuania in the 1950s and 1960s, Vilnius: Genocide and Resistance Research Centre of Lithuania, 2011, p. 22‐23. 78 R. Kamuntavičius, Development of Lithuanian State and Society, Kaunas: Vytautas Magnus University 2006, p. 76. 79 B. van Arkadie and M. Karlsson, Economic Survey of the Baltic States, Washington Square, NY: New York UP, 1992, p. 34‐ 36. 80 Interview 43. 81 A. Jakubčionis and D. Kuodytė, The Unarmed Anti‐Soviet Resistance in Lithuania in the 1950s and 1960s, Vilnius: Genocide and Resistance Research Centre of Lithuania, 2011, p. 23‐25. 82 Ibidem, p. 28. 83 Ibidem, p. 20. 84 Ibidem, p. 16. 19

1.12 The move towards full independence

When Mikhail Gorbachev became General Secretary of the Soviet Union the political climate in the Soviet Union changed with the reforms of Glasnost and Perestroika. In June 1988, an organisation emerged that was committed to support Gorbachev´s reform programmes in Lithuania. The organisation consisted of party members and non‐communist intellectuals and was named Lithuanian Reconstruction Movement, or simply the Sajudis movement. Their aim was to pursue democratic reforms in Lithuania and win back national autonomy. The Sajudis movement became very popular and was also joined by a lot of members of the Communist Party.85 On 15 February 1989 the Sajudis proclaimed the re‐establishment of a free, independent and democratic Lithuania. Furthermore, after the Sajudis had won a majority at the election for the Congress of People´s Deputies in March 1989, they claimed that the incorporation of Lithuania into the Soviet Union was illegal.86 50 years after the conclusion of the Molotov‐Ribbentrop Pact, the habitants of Lithuania, Latvia and Estonia built a human chain from Vilnius to and then to Tallinn. With this human chain the people wanted to remind the world of the foreign aggression their countries were confronted with. The human chain was the highpoint of the , which received its name because people were singing national and patriotic songs to underline their cultural distinctiveness.87 On March 11 1990 the Sajudis also won the elections for the Lithuanian parliament and officially declared Lithuania an independent and sovereign republic.88 Moscow, however, was not willing to agree to this. After an economic blockade did not have a lot of impact, Red Army troops invaded Lithuania on 13 January 1991 to remove the new government and parliament and to re‐establish communist rule. When Lithuanian citizens tried to keep Soviet forces from taking over the television tower it came to a bloody conflict, which resulted in 14 dead and over 700 injured protestors.89 The end of Gorbachev’s leadership in Moscow in August 1991, however, also finally heralded the end of Soviet rule over Lithuania allowing the country to finally regain its full independence, and even to be recognised as an independent state by the newly founded Russian Federation.

85 T. Raun, ‘The Revolution of 1905 in the Baltic Provinces and Finland', Slavic Review, Vol. 43, No. 3 (1984), p. 467. 86 M. Butenschön, Estland, Lettland, Litauen: Das Baltikum Auf Dem Langen Weg in Die Freiheit, München: Piper, 1992, p. 354. 87 R. Kamuntavičius, Development of Lithuanian State and Society, Kaunas: Vytautas Magnus University, 2006, p. 176. 88 Nikžentaitis, Alvydas, ‘Geschichte Litauen: 1000 Jahre Litauische Geschichte', http://www.litauen.info/geschichte/, consulted on 22‐01‐2013. 89 T. Raun, ‘The Revolution of 1905 in the Baltic Provinces and Finland', Slavic Review, nr. 3 (1984), p. 470. 20

2. National history narrative: analysis

Usually, when countries are believed to have an undeniable ethnic‐national background, such as most Western nation‐states, they also have their own national historical narratives. During the 19th century, historiography played a crucial role in the construction of nations, through seeking to ‘document and thereby conjure a culturally or politically powerful nascent “national” consciousness from a welter of memories, myths, traditions, and established “facts”’.1 According to the majority of Western national historians of the 19th century, historical developments were an accurate reflection of the will of Providence through the people’s voice. However, despite the fact that present‐day postmodern academia concludes that such a historical interpretation is teleological and highly unbalanced, most nation states still maintain this concept of the unshakeable predetermination of their national origins as the only historical truth. Amongst other things, this is done through national education and popular historical awareness.2 Hence, contemporary historiography aims to deconstruct these biased narratives and to approximate them to what Ranke called writing about the past wie es eigentlich gewesen.3 Since Lithuania is a nation state which wants to emphasise its Western cultural origins, it has also constructed a national historical narrative. Therefore, the question arises whether this narrative also has a teleological foundation, and if so, whether this narrative and its teleological character have had any noticeable consequences for present‐day Lithuania. Other questions which arise are ‘How has the narrative developed since its very beginning?’ and ‘What is the position of current Lithuanian academia towards the historical narrative of the Lithuanian nation?’ All of these questions will be successively answered by means of a critical analysis of the official narrative of Lithuanian history, based on interviews conducted with several Lithuanian academics. The basis of the historical narrative of the Lithuanian nation was constructed during the 1930s by a number of scientists under the leadership of prominent Lithuanian historian Adolfas Šapoka. The official purpose of Šapoka’s doctoral dissertation thesis of 1938 was to reveal Lithuania’s past, highlight the most important moments and features of this past and to prove that Lithuania used to be more than a mere Polish province.4 However, despite these seemingly positive goals, according to a few interviewees, his dissertation also contained some harmful aspects, such as a negative attitude towards the Poles, ignorance about the Belarusians, admiration for the Russians, overall pessimism about society and a rejection of Lithuania’s multidimensional diversity. This attitude can largely be seen as a direct legacy of Šapoka’s past. In order to provide an understanding of the effects of these aspects, the national‐political context and interpretative discourse of Šapoka’s history will be analysed next. As discussed in chapter 1, the Lithuanian nation state was established after the collapse of Tsarist Russia in 1918. Next to Lithuania, Poland also declared its independence from Russia, and new borders between these two countries needed to be defined. Consequently, a severe

1 T.N., Baker, National History in the Age of Michelet, Macaulay, and Bancroft, in A companion to Western historical thought, L.S. Kramer and S. Maza eds. 185‐204, Blackwell Publishing: Malden, Oxford etc. 2002, pp. 185‐186. 2 Ibidem, pp. 185‐186, 200‐201. 3 Translation: how it actually was; German History Documents, ‘Leopold von Ranke. 1824. Geschichten der romanischen und germanischen Völker von 1494 bis 1535, p. vi.’, http://germanhistorydocs.ghi‐ dc.org/sub_document.cfm?document_id=358&language=german, consulted on 30‐03‐2013; Baker, National History in the Age of Michelet, Macaulay, and Bancroft, pp. 167‐168. 4 XXI Amžiaus Horizontai. ‘Alfonsas Šapoka’, http://xxiamzius.lt/archyvas/priedai/uzlaisve/20060215/4‐1.html, consulted on 30‐30‐2013. 21 boundary dispute between these two countries occurred instantly. Both countries claimed major territories, such as the Dzūkija country including Vilnius. Subsequently, Dzūkija was annexed by Warsaw authorities in 1923, but Lithuania did not recognise the new border and the relations between both countries remained hostile until the Second World War. In this very period, Lithuania needed to construct its own national history in order to, from a post‐modern perspective, confirm its sense of raison d’être as a nation state. This need to substantiate Lithuania’s national past and contemporary political discourse seems to be the main influence on Šapoka’s construction of national history.5 Based on this assumption, an interviewee concluded that Poland’s presence in Lithuania, irrespective of its form, was interpreted as negative: ‘[t]here is no handbook where it is written explicitly that the Poles are bad. But the depiction is predominantly negative’.6 Consequently, the Grand Duchy period (11th‐14th centuries) of pagan Lithuania, which was before Poland exercised any influence, has come to be exalted. Šapoka and his colleagues described Lithuania of that period as a strong, respected state; he left very little space for nuances and possible criticisms. As recurrent dynastic rivalries leading to overall instability were inconvenient to the consistency of Šapoka’s narrative, he partially ignored these events. After the Grand Duchy period, the Lithuanian state was polonised, which, as Šapoka implies, ultimately led to Lithuania’s structural decay, and justified Tsarist Russia’s annexation of the country. An interesting aspect of this interpretation is that the process of westernisation itself was not perceived as negative, even though it was enabled via Polish influences. Here, emphasising Lithuania’s affinity with the west was more important: ‘[t]he mediator is bad, but his message is good.’7 All in all, when speaking about the Poles in Lithuania, a rule can be derived: the larger the Polish influence in Lithuania, the greater the decline of Lithuania’s glory. Next to the Poles, Šapoka’s narrative has also influenced Lithuania’s perception of other neighbouring nations, such as the Russians and Belarusians. Concerning the former, although the relation with Russia had been rather complicated during the interwar period, one could understand USSR more as an ally than a rival of Lithuania through Šapoka’s narrative. Firstly, even though the Soviet Russian Republic and later the USSR were political successors of Tsarist Russia, the Soviets ideologically distanced themselves from the Romanov monarchy, which was perceived rather negatively. After all, Lithuania was subjugated and suppressed by Tsarist Russia for more than a whole century. Secondly, the Russian empire could be seen as a perpetually counterbalancing element to the Polish power ambitions.8 Concerning the latter, the Belarusians were not considered to be politically, culturally, or nationally self‐contained due to their contemporary historical‐political context. Šapoka’s narrative simply does not mention Belarus as a land of Belarusians. Belarusians were seen as having submitted their national sovereignty to the USSR or Poland, as a result of which, the Belarusian nation had not arisen and the people had not institutionalised itself as a modern nation. Subsequently, when Lithuania was annexed by the USSR, all of these perceptions appeared to be advantageous for the Soviet propaganda. The antipathy towards Poland and the Poles isolated Lithuania from the West and tied it to Moscow as the only alternative.9 Ambivalence towards Russia was also utilised by the Soviets. Negative feelings towards tsarist Russia were maintained whereas the USSR was constructed as being an utmost positive part of

5 Interview 24 and 50. 6 Interview 50. 7 Interview 50. 8 Interview 24. 9 Interview 50. 22 the Lithuanian nation’s Path of Life. This was done through a careful and selective distribution of memories: positive sides were intensified, overdone or even constructed and negative sides were simply deleted and forgotten. The USSR and its representatives were depicted as heroes and saviours of Lithuania. Consequently, a ‘constant debt feeling towards the Soviet people and heroes of the Second World War’ was developed across the Lithuanian society.10 Moreover, Šapoka’s ignorance towards the Belarusian nation was very convenient for Soviet propaganda, since the Lithuanian discourse regarded the Soviet incorporation of Belarus as natural and justified. Overall, even though unintended, Šapoka seems to have opened the door to Soviet propaganda.11 The Soviet narrative of the Lithuanian nation, which was based on Šapoka’s works, but extensively revised and manipulated by Soviet propaganda, also had some other elements. Firstly, it focused on the admiration and exaltation of Soviet heroes and daily life of the normal Lithuanian. Secondly, it followed lines of Marx’s dialectical materialism. It was strongly teleological, as the Lithuanians were struggling with inevitably emerging capital holders, which would eventually lead to an imminent emancipation of the international proletariat. Thirdly, ‘Lithuania’ was understood to be an ethnically unitary entity with no great aristocratic past. Retrospectively, reflecting an objective truth did not belong to principal aims of the Lithuanian historical narrative. Rather, it was strongly ideologically biased.12 Only after 1991 did some Lithuanian post‐Soviet academia initiate a far‐reaching reconsideration of the narrative content, thereby dismantling its overall misbalance, discursive subjectivity and ideological coloration. Subsequently, the sovietised narrative has been revised and nuanced and some alternative narratives have even been conceived. However, the revisionist process has been very protracted and, according to an interviewee, the form of the narrative has not been significantly altered so far. Elements of unbalanced exaltation, selection and simplification can still be traced in the current narrative; they have just moved from the focus from Soviet idols to the times of the Lithuanian Grand‐Dukes, 19th century and the Interbellum republic. For example, the Soviet heroes of the Second World War have been replaced by , such as the Forest Brothers (see chapter 1 on history). The de‐sovietised, albeit still somehow unbalanced narrative remains the most dominant one. It is even an integral element of Lithuanian primary education. Overall, the process of revision of the Lithuanian historical narrative has already started, but it is still far from its completion.13 Last but not least, interviewees detected three problematic issues present in today’s Lithuania, which might have been caused by the prevalence of sovietised Šapoka’s narrative. Firstly, this narrative might have contributed to the Lithuanians’ inclination to overall pessimism and the rise of emigration. At its very beginning in the middle ages, Lithuania was a prosperous country, growing into a major Christian empire, while, later on, it became a mere part of the Rzeczpospolita, tsarist Russia, the USSR, and nowadays, according to some, the EU empire. Even after it gained independence in 1919, Lithuania lost its historical capital and the independence period was soon ended by Soviet annexation, which is nowadays seen by many as one of Lithuania’s dark ages. In this context, Lithuania has failed to pick up the threads of its great past and Lithuanian history became, as an interviewee put it, a long ‘history of losers’. Consequently, in this view, the country has no promising prospects. In this perspective, if

10 Interview 50. 11 Interview 36 and 50. 12 Interview 24 and 50; W.L. Adamson, Marxism and Historical Thought, in A companion to Western historical thought, Lloyd S Kramer and Sarah Maza eds. 185‐204. Blackwell Publishing: Malden, Oxford etc. 2002. 13 Interview 24. 23 present‐day Lithuania is a consequence of its own historical regression, why should the Lithuanian citizens be optimistic about their country and their life in it? Overall, the Lithuanian citizen is biased, focuses on the negative and ignores many progressive developments that have been made in the country.14 Secondly, one interviewee is convinced that the Interbellum narrative has had a direct impact on the current perception that Lithuanians have of their neighbours and minorities. There is still some inequality between Belarusians and Lithuanians as independent nations and Russia’s role in Lithuania remains ambivalent. Even more confronting, the narrative might contribute to the difficult position of the Polish minority in Lithuania. One interviewee emphasised that the Poles are depicted in the narrative as being ‘bad’. Consequently, as an interviewee asserted: ‘When I ask students during a lecture: raise hands, to whom the Polish language sounds pretty, nice? For whom is the culture attractive? Maybe, there will be only one or two hands out of 200 students’. Logically, this antipathy nourishes the constant tensions full of mutual arrogance, intolerance, feelings of injustice on the one hand, and unwillingness to make compromising steps towards sustainable reconciliation on the other (see chapter 9 on human rights).15 Lastly, sovietised Šapoka’s narrative is a one nation‐state narrative. Because of this, Lithuanians tend to understand Lithuania as a country of one nation based on one history, one language, one culture, one religion etc. However, the most harmful effect of such an understanding is that all people who do not have these prescribed characteristics of a Lithuanian citizen (i.e. people living in Lithuania, but who do not consider Lithuanian as their native language, have no origins in Catholicism, perceive Lithuanian history in an unconventional way, have a deflecting identity and so on), are somehow excluded from the concept of the Lithuanian nation state. However, an interviewee emphasised that the Lithuanian state, especially its urban areas, have always had a multicultural society. Nevertheless, Jews, Muslims, Protestants, Russians, but also Lithuanian‐speaking parts of the population with a regional identity, such as the population of Mažoji Lietuva (Klaipėda) and other border regions, seem not to be able to identify themselves with the current concept of the nation state of Lithuania. Even more strikingly, an interviewee added that these groups are deprived of the status of a minority, thus the freedom to determine themselves as different, since they are often considered to be just temporarily deLithuanised: in the past and future Lithuanian, but currently only partially Lithuanian or even temporarily non‐Lithuanian. The situation of the Polish minority is probably the most obvious example of this discursive consequence. On the one hand, the Poles are perceived as strayed Lithuanians and Lithuania hesitates to guarantee them full majority rights (see chapter 9 on human rights) On the other hand, when Czesław Miłosz, who was born near Kaunas and considers himself to be fully Lithuanian, even though he wrote in Polish, received the Nobel Prize in Literature in 1980, he was not celebrated by the Lithuanians, due to his Polish background. According to an interview such an ambivalent position is a ‘humiliation’ and it is only a matter of time until this situation could escalate into an open tension or identity crisis.16 The current perception of the Holocaust in Lithuania confirms the exclusivist character of the Lithuanian historical narrative and, in accordance with the constructivist social theory, the Lithuanian society as well. Historically, Lithuania was home to a considerable Jewish minority, which particularly resided in Vilnius and its surroundings, regional centre for Jewish politics and thought. It even became known as the ‘ of Lithuania’. However, during the Second

14 Interview 50. 15 Ibidem. 16 Interview 24. 24

World War, about 96% per cent of the Jewish population was annihilated in Lithuania, which is the highest percentage in Europe.17 Nowadays, the graveness of the Holocaust in Lithuania is inter alia explained by the active participation of the Lithuanian population in assisting the Germans to eliminate the Jewish race. Nevertheless, the mass murder of the Lithuanian Jews does not seem to attract as much attention of the Lithuanian society as most attention goes to the crimes committed by the Soviets during their occupation of the country. For example, the ‘National Museum of Genocide Victims’ addresses the crimes of the Soviet regime against the Lithuanian people but does not discuss the Holocaust at all, and even though the ‘ Jewish State Museum’ investigates and exhibits the Holocaust, the exploration of the Soviet Genocide is carried out much more extensively. On the one hand, this unbalance in attention is understandable since the Nazis only stayed in Lithuania for about three years, whereas the Soviet Union occupied Lithuania for decades. On the other hand, however, it can be considered to be alarming, because between 220 and 240 thousands Jews disappeared during the Holocaust while the Soviets are responsible for approximately 120 thousands Lithuanian lives.18 One interviewee pointed out that large segments of the Lithuanian population think that Lithuanians must deal primarily with their own history such as the ‘Soviet Genocide’, while the Jewish people have to deal with their own history, including the Holocaust.19 Strikingly, such an assertion implies that Jews are not a part of the Lithuanian history, whilst in fact their objective place in Lithuanian past is more than obvious. Consequently, the Lithuanian Holocaust is not accepted as the gravest genocide of Lithuanian history. Big parts of Lithuanian society still refuse to accept and recognise the tremendous impact of the Holocaust and the Lithuanians’ co‐responsibility for the mass murder. Overall, the Lithuanian historical narrative excludes the Jews from the Lithuanian nation. Consequently, Jews, neither the Holocaust nor the Lithuanians’ role in it appear to have received adequate attention in co‐constructing the societal historical and national awareness. To conclude, the main aims of this chapter were to assess the interpretation of the Lithuanian national history on its possible purposefulness, adherence to Ranke’s historical objectivity ideal and possible impacts on the current Lithuanian society. It was demonstrated that the Lithuanian national narrative, as constructed by Adolfas Šapoka and the Soviet Marxist propaganda, is teleological in content. It has aimed at inventing a historical tradition and establishing historical continuation for the Lithuanian nation by means of, in particular, othering itself vis‐à‐vis Polish influences – all of which definitively contrasts with Ranke’s history wie es eigentlich gewesen. Aside from this, major historical errors can be found in the narrative, such as allowing the contemporary political discourse to influence the spirit of the whole narrative: stigmatising the Poles, admiring the Russians, especially during the Soviet period, and ignoring the Belarusians and Ukrainians as independent nations, irrespective of historical realities. A few interviewees stated that these errors might have had some impact on the current Lithuanian society, such as overall pessimism and excessively negative attitude towards the Poles. Importantly, the current concept of Lithuanian national state as an institutionalisation of one ethnic‐linguistic group entails an exclusion of Lithuania’s minorities and Lithuanians with deviating identities, such as the Poles, Jews and Klaipėdian ‘Balts’, thereby opposing the country’s long multicultural tradition. Yet, from a current post‐modern perspective, the

17 R. Tracevskis, ‘Lithuanian Holocaust Event is Duplicitous', http://www.thejc.com/news/uk‐news/94132/lithuanian‐ holocaust‐event‐duplicitous, consulted on 30‐03‐2013. 18 T. Snyder, Holocaust: The Bloodlands: Europe between Hitler and Stalin, New York:Basic, 2010, p. 243. 19 Interview 43. 25 population’s nationalist antipathy towards certain other groups and minorities is not unique in the context of national histories.20 However, the fact that the Lithuanian historical narrative seems to have failed to create wide‐spread patriotism, national pride and enthusiasm among the society, is quite unusual as this can be seen as the central purpose of any national history. A possible explanation might be that the narrative has become too separated from the historical truth, which would mean that society’s historical memory does not fully correspond with the constructed narrative. From this point of view, the Lithuanian case supports the reservedness of postmodern thinkers towards the modernist discourse of societal malleability. Nevertheless, the Lithuanian academia is aware of this and has already made serious commitments to approximate the narrative to wie es eigentlich gewesen, free of its harming teleology, tampered character and selectivity.

20 A. Wimmer, Nationalist exclusion and ethnic conflict: shadows of modernity, Cambridge: University Press 2002, 26

3. Culture

In Lithuania, culture is a very important part of everyday life. It provides the people with ontological wealth, background and identity. The main aim of this chapter is to outline various attributes of Lithuanian culture. The chapter begins with an analysis of Lithuania’s national identity, also including a description of the contemporary populations’ mentality and contextualisation of the Lithuanian language as an essential element of Lithuanian nationalism. Subsequently, Lithuania’s main present‐day religions, historical traditions, national symbols, myths, art and, finally, architecture are discussed.

3.1 National identity

From an imagologist1 perspective, a description of a nation´s representation can never be objective. On the contrary, it always includes a degree of author’s subjectivity, based on his background. So, what is defined as cultural identity is always a cultural difference, a sense in which one nation is perceived to be different from the rest, defined by the author. Consequently, ‘a nation is most itself in those aspects wherein it is most unlike the others’. The image, representing the cultural difference, arises from different literature sources, folklore and narratives and, while an image constructed externally can be considered to be a stereotype, an auto‐image can be perceived as an identity.2 This subchapter departs from this theoretical framework and aims to examine the national identity of the Lithuanians. According to imagologist Joep Leerssen, Lithuanian national identity has only partially developed itself based on Lithuania’s ethnic background.3 The geographic area of present‐day Lithuania has always been inhabited by an extraordinarily multicultural society in terms of languages, beliefs and identities. For more than five centuries it was a juncture of Baltic, Polish, German, Russian, Jewish and even Tatar cultural, linguistic, religious and political influences.4 By the 19th century, the Lithuanian culture and language in particular were marginalised into a minority group of local serfs as a result of fragmentation and subsequent russification of the upper layers of the local population (see chapter 1 on history). This historical development frustrated the rise of relevant literature, stories and narratives in which the Lithuanian people were depicted. Hence, Lithuania did not develop its own ethnic image and the country did not come to possess a national identity in the sense that West‐European countries did. Still, the Lithuanians consider themselves to be a Western nation. They use Latin characters, predominantly follow Roman‐Catholic liturgy and, importantly, do not identify themselves with the cultures of Russia and the Eastern Orthodox Church. Rather, connections with Western Europe have been emphasised for many centuries, both before and during the Lithuanian‐Polish political union and during the existence of the Lithuanian Interbellum republic (see chapter 1 on history). Even nowadays, as a member of the EU, which represents Western‐ European values and norms, Lithuania is one of the best performing Member States in terms of integration into the EU’s structures (see chapter 6 on EU law compliance). Therefore, even

1 M. Beller and J. Leerssen, Imagology: the cultural construction and literary representation of national characters: a critical survey, Amsterdam etc.: Rodopi 2007. 2 J. Leerssen, ‘Images‐Information‐National identity and nationale stereotype’, http://www.imagologica.eu/leerssen, consulted on 28‐01‐2013. 3 Personal discussion with Prof. Dr. Joep T. Leerssen on 20‐1‐2013. 4 Interview 24. 27 though many interviewees emphasised that there was no alternative to Lithuania’s becoming a member of the EU5, it could also be said that Lithuania now finally finds itself in a geopolitical area to which it has always belonged. Overall, the Lithuanians’ auto‐image portrays Lithuania as a country with more cultural ties to Western‐Europe than to Russian empires.6 According to many Lithuanians, Lithuania possesses a national identity. When asked to define themselves, Lithuanians usually lay a strong emphasis on their nation’s historical traditions and especially on their language: ‘Lithuanians would like to see the language as the key feature of the identity’7. Several interviewees stated that the national language is a basic criterion for the Lithuanian national inclusion. Consequently, only people that are able to speak Lithuanian and consider the Lithuanian language to be their native language belong to the Lithuanian nation. This belief, however, causes relational problems with language minorities inside the country, such as the Poles (see chapter 9 on human rights).8 Overall, from this point of view, the Lithuanian national identity is, in essence, based on a historical tradition and a linguistic prerequisite. Moreover, according to several interviewees, Lithuanians can be described as a conservative nation. As towns and cities of Lithuania were relatively ‘deLithuanised’ until the 20th century, the Lithuanian society persisted mainly in relatively peripheral and exclusively rural, forested and agricultural areas. The majority of the population living in these areas constituted of serf peasants and villagers, who did not come into contact with more progressive, open‐minded and tolerant urban cultures. Therefore, a large extent of retrospective is still present in the society, especially in rural areas, where various traditions, family values, small scale cultivation, old symbols, myths and past in general are still notable as a key element of individual identity. In addition, this wide‐spread conservatism also elucidates Lithuanians’ rigidity towards the minorities in Lithuania such as the Poles and homosexuals (see chapter 9 on human rights).9 Based on an analysis of most interviews, Lithuanians appear to be quite sceptical people.10 The society seems to be rather pessimistic about their own past (see chapter 2 on historical narrative), but also about their future prospects. Basically, negative occurrences receive more attention than country’s strengths and the many positive improvements. Therefore, the general public opinion seems to be rather negatively coloured. This scepticism is well noticeable in the Lithuanian position towards national politics, resulting in distrustfulness towards politicians and a lack of constructive criticism in society (see chapter 7 on democracy civil society). People are also pessimistic about their ambitions and their abilities. Some interviewees stated that this scepticism was inherited from the soviet era, when pessimism was the only way of un‐punishable protest of the regime. Consequently, present‐day Lithuanians seem to underestimate themselves and the possibilities which they and their country have.11 Additionally, as already concluded in the preceding chapter (see chapter 2 on historical narrative), the Lithuanian society has also some doubts about the national identity. According to some academics, this uncertainty might originate from the incongruence of the historical narrative, which has been rather frequently adjusted from its very beginning. Consequently, the Lithuanians might be confused about their origins and thus their national identity. Again, this

5 Interview 17. 6 Interview 50. 7 Interview 24. 8 Interview 24 and 50. 9 Ibidem. 10 Interviews 1; 40; 50 and 60. 11 Interview 60. 28 ontological uncertainty may lead to excessive nationalism characterised by simplifications and selection of facts, group’s exclusiveness and search for ideal purity.12 Moreover, a recent research has shown that Lithuanian people, compared to the people living in the other two Baltic States, feel least connected with their country.13 Overall, even though the Lithuanian national identity differs from the Western‐European model, there are still several attributes which have constituted a sense of cultural uniqueness, such as the nation’s historical tradition and language. Further, Lithuania’s auto‐image depicts the Lithuanian society as belonging to the Western‐European civilisation, despite the fact that Lithuania is situated on Europe’s eastern periphery. Further, Lithuania is still rather conservative, and its people are relatively sceptical and uncertain. However, after Lithuania regained its independence in 1991 and the whole country became substantially more open to the rest of the world, a major shift was observed in the young part of the Lithuanian society, which developed a more open‐minded, urban way of thinking. Consequently, a considerable gap has emerged between the older and younger generation in the Lithuania. In sum, as the forming of identities is a never‐ending dynamic process, the identity of the Lithuanian people seems to be changing.

3.2 Language

3.2.1 Importance to the society Although the Lithuanian language is currently a central element of Lithuanian national identity, it was not always seen as the most important language of the country. Throughout history, the country underwent many changes of regime and dominance, which often directly affected the usage of language. First, during the Polish‐Lithuanian Commonwealth, Polish was the language that was spoken in the cities. Polish was the major language in all administrative bodies, in the church and in the cultural sector. Consequently, the Lithuanian language was the language of the peasants. Also, using the Lithuanian language in the administrative sector, local government and everyday life was prohibited as from 1864 as a result of the 19th century incorporation of Lithuania into the Russian Empire. This also meant that the printing, distributing and importing of texts in the Lithuanian language and Latin alphabet became illegal after 1864. The use of the Russian language and Cyrillic characters became obligatory. This prohibiting of the use of the Lithuanian language lead to the flourishing of book smuggling from the United States and Prussia, later Germany. During this time, book smugglers were seen as national heroes. Many book smugglers are still commemorated with statues all over Lithuania. Knygnešiai is by far the most famous book smuggler of Lithuania. Only at the beginning of the 20th century did Lithuania regain its right to use the Lithuanian language (see chapter 1 on history). The oppression by the Soviet Union during the Second World War also had an impact on the use of the Lithuanian language. However, unlike the post‐1864 times, it was not forbidden to use the Lithuanian language during the Soviet era. To conclude, the main reason that the Lithuanian language was increasingly linked to national freedom and independence, was the recurrent marginalisation and oppression of the language. Therefore, the national movements of the 19th and 20th century used and promoted the

12 Interview 50. 13 V. Krebber, Bachelor thesis: Identity Questions in the Baltic States – An Analysis of Estonia, Latvia and Lithuania regarding their Attitudes towards a European Identity, 2012, p. 33. 29 language as the core of the Lithuanian identity. Because of this, the Lithuanian language is still very important for the people of Lithuania today.14

3.2.2 Genealogy and current use The Lithuanian language is part of the Indo‐European language cluster, wherein it belongs to the Baltic subdivision of the Balto‐Slavic branch, together with Latvian. Originally, Lithuanian and Latvian, together with Prussian, which is already extinct, evolved from a common Baltic language. The first written sources in Lithuanian date back from around 1503‐1525. The Lithuanians claim that their language shows the most similarities to the old Sanskrit, by which Lithuanian is claimed to be one of the most authentic, or even the most authentic language of the Indo‐European group.15 Additionally, there are two dialects of Lithuanian: Aukštaičių (higher Lithuanian) used in the western parts of Lithuania and Žemaičių or Samogitian (lower Lithuanian), spoken in the central, eastern and southern parts of Lithuania.16 Lithuanian is a complex language, so one has to use a lot of words to express ideas. It is also common to use diminutives to soften the language and to make it sound more personal.17 Currently 3.2 million people speak Lithuanian in Lithuania. Polish is the largest and one of the few minority languages in Lithuania.18 Furthermore, since 1991 Lithuanian is the official language of Lithuania and since 2004 it is also one of the official languages of the EU. 19

3.3 Religion

The following paragraphs look into the religions that are practiced in Lithuania. The country is predominantly religiously homogeneous, but as a result of Lithuania’s historical development, there are also many minority religions.

3.3.1 Roman Catholicism In the late 14th century Lithuania converted from Baltic paganism to Christianity, which made Lithuania the last European country to be Christianised. Saint Casimir (1458‐1484) became the patron saint of the Lithuanian people, confirming Lithuania’s attachment to Roman Catholic values. Nowadays, the majority of people living in Lithuania is still Roman Catholic (80%), making the Roman Catholic Church by far the biggest Church of Lithuania. Even during the Soviet regime, when Christianity was seen as obsolete, the majority of the people of Lithuania remained Catholic.

3.3.2 The Hill of Crosses The Hill of Crosses (Kryzių Kalnas), is a site near Šiauliai, and is the Lithuanian national pilgrim centre where many different crosses are erected by visiting pilgrims and tourists. The pilgrim traditions started in 1795, which was the year of the last partition of the Polish‐Lithuanian Commonwealth. In this year both Poles and Lithuanians fought against the Russians. Because the bodies of the deceased were often not found, their families started to leave crosses on the hill to remember the victims.

14 Interview 24. 15 W.R. Schmalstie, Early Lithuanian Grammars, in: Lithuanian Quarterly Journal of Arts and Sciences, 1982. 16 Ethonologue, ‘Lithuanian’, http://archive.ethnologue.com/16/show_language.asp?code=lit, consulted on 02‐05‐2013. 17 Countries and their Cultures, ‘Lithuania’, http://www.everyculture.com/Ja‐Ma/Lithuania.html, consulted on 27‐01‐2013. 18 Ethonologue, ‘Lithuanian’, http://archive.ethnologue.com/16/show_language.asp?code=lit, consulted on 02‐05‐2013. 19 European Commission, ‘Official Languages EU’, http://ec.europa.eu/languages/languages‐of‐europe/eu‐ languages_nl.htm, consulted 02‐05‐2013. 30

Until independence in 1918, the Hill of Crosses was used as a place for Lithuanians to pray for freedom and peace. When Lithuania was again occupied by the Soviet Union, the Hill symbolised Lithuanian life and culture. Therefore, the Soviets attempted to prevent Lithuanians from accessing the Hill and even made plans to flood the Hill and its surroundings. However, these attempts proved unsuccessful. Because of the Hill of Crosses, the art of Lithuanian Cross Crafting (Kryždirbystė) has been on the UNESCO World Heritage list since 2008.20 The great importance of crosses in the Lithuanian society can also be observed in the Lithuanian architecture and arts, such as blacksmith art, painting and sculpture art. Overall, The Hill of Crosses is one of the most valuable elements of Lithuanian identity.

3.3.3 Eastern Orthodoxy The second religion of Lithuania is Eastern Orthodoxy. A small part of the population of Lithuania (about 4%) practices this religion. This percentage is approximately equal to the percentage of Russians living in Lithuania. Although only a small part of the population is Eastern Orthodox, during the reign of the Russian Empire, many churches were built for this religion in Vilnius and in other parts of Lithuania. This created a special mix of architectural styles, with Catholic as well as Orthodox baroque churches in the old town centre of Vilnius, some of which are listed on the World Heritage list of UNESCO.

3.3.4 Other religions Some of the smaller religions that exist in Lithuania are Judaism and Islam. Unlike in the past, nowadays, only a small part of the population is Jewish. During the reign of the Grand Duchy of Lithuania, a large Jewish community lived in Lithuania. Before the Second World War, 7% of the population was Jewish. In Vilnius almost 45% of the people was Jewish.21 Vilnius was home to more than 110 synagogues at that time. However, during the Second World War, almost all the Jews that lived in Lithuania were deported or murdered (see chapter 1 on history)22. Nowadays there are about 4000 Jews left in Lithuania. Further, there is currently also a small group of Muslims living in Lithuania. During the reign of the medieval Grand Duchy of Lithuania and the Polish‐Lithuanian Commonwealth, the country was, unlike many other European countries, open to Muslims, making it easier for them to settle in Lithuania. Nowadays there are around 3000 Muslims living in Lithuania.

3.4 Traditions and etiquette

In Lithuania, several days are of great importance to the population. First of all, according to the national Labour Law, Lithuanians have 13 public holidays and four memorial days. Secondly, besides birthdays, people also celebrate name‐days. These name‐days are equally important to birthdays and are celebrated in the same fashion. Thirdly, there are seasonal celebrations that are connected to the eight seasons that existed in Lithuanian pre‐Christian religion. These seasons used to be named after gods. Today, these celebrations and rituals are named after Catholic Saints. However, many traditional Lithuanian celebrations were destroyed by Soviet repression.23

20 UNESCO, ‘Elements on the Lists of Intangible Cultural Heritage’, http://www.unesco.org/culture/ich/index.php?lg=en&pg=00311&topic=mp&cp=LT, consulted 15‐04‐2013. 21 U.S. Holocaust Memorial Museum, ‘Lithuania’, http://www.ushmm.org/wlc/en/article.php?ModuleId=10005444, consulted 15‐04‐2013. 22 Countries and their Cultures, ‘Lithuania’, http://www.everyculture.com/Ja‐Ma/Lithuania.html, consulted 27‐01‐2013. 23 Ibidem. 31

In Lithuania, several etiquettes are also very important. For example, it is a rule to always give an odd number of flowers as a present, because an even number is only thought to be appropriate when someone passed away. Also, in public transport it is inappropriate to look someone in the eye unless it is a friend. Lithuanians are also superstitious. For instance, people do not shake hands when standing in a doorway, because that might entail bad luck.24

3.4.1 The Singing Revolution and Dainų šventė As early as 1989, which was 50 years after the conclusion of the Molotov‐Ribbentrop Pact, the inhabitants of Lithuania, Latvia and Estonia organised a human chain between their capital cities, which ran from Vilnius to Riga and then to Tallinn. With this human chain, the people wanted to remind the world of the foreign aggression their countries had been confronted with. People in the chain sang songs to each other, which greatly contributed to the Baltic States’ singing revolution of 1991. During this revolution, people sang national and patriotic songs to underline their cultural distinctiveness. Because of these events, singing and dancing festivals in the Baltic States are nowadays very important to the people. Every four years at the beginning of July, a sing and dance festival, the Dainų šventė, is organised in Lithuania.25 This festival rotates between the Baltic states and the last time it was held in Vilnius was in 2009.26 About 150 choirs participate per celebration. These choirs practice the years before the festival and get selected to participate by the Dainų šventė organisation. In total, around 40.000 singers, dancers and spectators participate in the celebration. The festival is financed by the government and has a few sponsors. Lithuanians from all over the world return to Lithuania for these Celebrations. During the Soviet oppression, the festival was also held. Songs were mainly sung in Lithuanian and some in Russian.27 These Celebrations created a feeling of independence where Lithuanians felt united in singing and dancing together.28 The Dainų šventė is listed on the UNESCO immaterial heritage list.29

3.5 Symbols

National symbols have a strong emotional value and act as uniting elements in society and reflect the dominant values of the community. National symbols constitute a shared cultural meaning and are meant to illustrate a shared past and future for the society. National symbols give individuals within a community the feeling that they are part of the nation.30 For the Lithuanian people, four symbols are extremely important. Firstly, the Lithuanian national flag serves as an important symbol for the people. This yellow, green and red coloured flag was first used during Lithuania’s independence between 1918 and 1940. Afterwards, Soviet flags had to be used. From 1989 on, two years before independence, Lithuania started to use this yellow, green and red flag again. The colours on the flag represent three important elements of Lithuania. The yellow stands for the golden fields of Lithuania, the green for Lithuania’s countryside and the red for the blood that has been shed for

24 Countries and their Cultures, ‘Lithuania’, http://www.everyculture.com/Ja‐Ma/Lithuania.html, consulted 27‐01‐2013. 25 Interview 16. 26 CultureScope, ‘Litouwen’, http://www.culturescope.nl/index.php?option=com_content&view=category &layout=blog&id=225&Itemid=51&lang=en, consulted on 28‐01‐2013. 27 Interview 16. 28 Interview 16. 29 UNESCO, ‘Elements on the Lists of Intangible Cultural Heritage’, http://www.unesco.org/culture/ich/index.php?lg=en&pg=00311&topic=mp&cp=LT, consulted on 15‐04‐2013. 30 I. Adriansen, ‘Danish and German National Symbols’, Ethnologia Scandinavia. Vol 21 (1991), pp. 34‐52. 32

Lithuania.31 The national flag is noted in the Constitution of 1992. The flag can be hung vertically or horizontally from public buildings, private homes, businesses, ships, town squares or during official ceremonies. If the flag is hung horizontally, the yellow must be at the top. When the flag is hung vertically, the yellow must be facing left and the red facing right. There are a variety of days when the flag is supposed to be hung out, for example on Independence Day on February 16th and Constitution Day on October 25th. The second symbol for Lithuanians is the National Anthem Tautiška giesmė. This anthem was written by Vincas Kudirka in 1898, while Lithuania was part of the Russian Empire (see chapter 1 on history). The anthem was first publicly performed in Vilnius in 1905 and it became the national anthem in 1919.32 Two years before Lithuania became independent from the Soviet Union, in 1989 this national anthem was reinstalled and in 1992 the national anthem was noted in the Constitution. The national anthem is performed at official events. The third symbol of great importance for Lithuanian people is the coat of arms. The coat of arms of Lithuania is called Vytis which means ‘the chaser’. The coat consists of a white armour‐clad knight on a red field, who is holding a sword and a shield. The blazon is the following: Gules, a knight armed cap‐à‐pie mounted on a horse salient argent, brandishing a sword proper and maintaining a shield azure charged with a cross of Lorraine Or. The coat of arms in this shape was first used in 1366 during the times of Grand Duke Algirdas. The coat of arms is also used in the image of the State flag. The last symbol that is greatly important to Lithuanians is the Hill of Crosses (see paragraph on this topic above). Considering Lithuania’s turbulent history, the Hill of Crosses has become a symbol of the country’s struggles and spirituality. Other symbols that are important in Lithuania are Amber stone, the oak tree, the Baltic Sea, folk songs, and basketball. All these elements have been used as national symbols during the rebirth of Lithuania.

3.6 National myths

Interest in national myths in Lithuania developed during the Romanticist 19th century.33 During the 19th century, the Medieval Grand Dukes Mindaugas, Gedeminas, Algirdas, Jogaila and Vytautas the Great, which succeeded in creating a strong, independent and vast empire of Lithuania (see chapter 1 on history), figured in many idealised success stories. National prizes and awards are often named after these Grand Dukes, .e.g. the Grand Cross of the Order of the Lithuanian Grand Duke Gediminas or the Grand Cross of the Order of the Cross of Vytis. Lithuanian myths almost always have a Christian character, with elements concerning the relationship between people and nature, inner heroism of the human being and the god of morality. According to myths, people should act true and fair because there is always a god watching.34

31 Seimas, ‘The Lithuanian State Flag’, http://www3.lrs.lt/home/w5_viewer/statiniai/seimu_istorija/w5_show‐ p_r=4056&p_d=49324&p_k=2.html, consulted on 28‐01‐2013. 32 V. Kudirka, Encyclopedia Lituanica: I‐VI, Boston 1970, p. 178. 33 G. Beresnevičius, ‘Lithuanian Religion and Mythology’, http://ausis.gf.vu.lt/eka/mythology/relmyth.html, consulted on 28‐01‐2013. 34 Ibidem. 33

3.7 Architecture, art and literature

Lithuania’s socio‐political and religious past is also reflected in the country’s styles of architecture. Currently, there are still many Soviet‐era functionalist buildings in Lithuania, such as concrete blocks of flats. Many people live in small two‐ or three‐room apartments located in such flats. 35 Even though the Soviet functionalist architectural style came mostly from Russia, during Soviet times, buildings were usually designed by Lithuanians. Although the aesthetical quality of the buildings has sometimes been questioned, from an architectural perspective, they are still important remains of a specific discursive period. Therefore, these buildings are now monuments in Lithuania. Besides buildings, many areas are also appreciated for their historical value. For example, the old town of Vilnius is on the UNESCO World Heritage List for the baroque style of the churches as well as the combination of different architectural styles. Since 1990, propagandistic Soviet monuments in most main town centres have been replaced by more Lithuanian nationalist ones. The countryside looks quite different to the cities, as many traditional wooden houses and churches can be found here. There are museums in two cities of Lithuania: Kaunas and Vilnius. In Vilnius there are twelve museums, such the National Museum, a couple of art museums, etc. The Lithuanian Art Museum, which is one of the leading museums in Lithuania, has 2,500 paintings dating back to the 16th and 19th Century. Most of these paintings are portraits of nobility and clergy of the Lithuanian Grand Duchy in the 16th to the 18th century and religious works from Lithuanian churches and monasteries.36 The collection hosts over 8,000 drawings by Italian, German, French, Flemish, Dutch, Polish, English, and Japanese artists from the 15th to the 20th century. In 2009 Vilnius was proclaimed the cultural capital of the EU of that year. Lithuania’s first literary works were published in the 16th century and mostly had a religious character. From the first half of the 19th century on, the University of Vilnius started to promote the usage of Lithuanian in literary works; this was right before was banned. Because of this prohibition and the struggle for autonomy, Lithuanian literature now has a special place in society.

35 Countries and Their Cultures, ‘Lithuania’, http://www.everyculture.com/Ja‐Ma/Lithuania.html, consulted on 28‐01‐2013. 36 Lithuanian Art Museum,’Collections of Lithuanian Art Museum’, http://www.ldm.lt/LDM/rinkiniai_LDM_en.htm, consulted on 03‐05‐2013. 34

Section 2: The political and legal system

35

Introduction

Section two of this report examines the political situation in Lithuania since the independence. This will be done by discussing developments made in Lithuania in relation to the political Copenhagen Criteria. Candidate countries have to fulfil these criteria before being allowed membership of the EU. The countries that want to join the EU have to achieve ‘stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities’.1 In 1997, the European Commission decided that Lithuania had fulfilled these political criteria2.However, it also stated that further progress still had to be made before Lithuania could access the European Union. For example, problems occurred in the judiciary system, such as lengthy court procedures and insufficient education and training of officials concerning the judicial system.3 Moreover, efforts needed to be made in order to combat corruption and ensure a transparent application of administrative procedures.4 This section will further examine the transition of Lithuania towards becoming a full member of the EU and the country’s political performance ever since. The first chapter will discuss the major developments in the Lithuanian legislative, executive and judiciary power and reflect on the role national institutions have played in the political transition of Lithuania since independence. An important feature described in this chapter is Lithuania’s constitution, which serves as a basis for the further development of the country’s present political system. The second chapter gives an overview of Lithuania’s foreign policy and of its security‐and defence policy. These policy fields have greatly developed after Lithuania’s independence, as they used to be determined by Lithuania´s occupiers. The third chapter builds on the second, by elaborating on Lithuania’s performance regarding the adoption of and compliance with EU law. It examines the system of transposing EU law, but also gives a critical assessment of Lithuania’s seemingly outstanding performance. The fourth until the seventh chapter of this section will discuss topics related to criteria concerning a well developed democracy. In order to explore Lithuania’s transition into a democratic system, chapter four first examines the main developments in the area of democracy and civil society. Chapter five subsequently discusses the situation regarding corruption in Lithuanian society. Chapter six provides an overview of the situation regarding human rights, which is one of the major elements of the political criteria mentioned before. Chapter seven will elaborate on the Lithuanian media landscape. A discussion of the independence of the media, which is crucial for a democracy, will be included. The final chapter of this section analyses migration since Lithuania´s independence. Amongst other things, an overview of trends in migration, which is based on migration inflows and outflows, is provided.

1 European Commission, ‘Accession criteria’, http://ec.europa.eu/enlargement/policy/glossary/terms/ accession‐criteria_en.htm, consulted on 14‐05‐2013. 2 European Commission, ‘Agenda 2000 – Commission Opinion on Lithuania’s Application for membership of the European Union’, http://ec.europa.eu/enlargement/archives/pdf/dwn/opinions/lithuania/li‐op_en.pdf, consulted on 14‐05‐2013. 3 European Commission, ‘2000 Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/2000/lt_en.pdf, consulted on 05.01.2013 4 European Commission, ‘Agenda 2000 – Commission Opinion on Lithuania’s Application for membership of the European Union’, http://ec.europa.eu/enlargement/archives/pdf/dwn/opinions/lithuania/li‐op_en.pdf, consulted on 14‐05‐2013. 36

4. Institutions, power and politics

State building is rather a complex process that can be examined from historical, political and ethnical perspectives. However, this chapter limits its scope to the institutional development, as this is a crucial element of state building after the independence of any state. Departing from this logic, this chapter reviews the development of the main Lithuanian institutions, based on Montesquieu’s separation of powers: legislative, executive and judiciary. This approach is not only useful in order to include the main institutions in analysing the institutional development, but it also provides for the examination of the system of checks and balances1 between the Lithuanian institutions. Firstly, the Constitution will be discussed by analysing the main features, principles, and historical background, focusing on the features shaping the Lithuanian institutions after independence from the Soviet Union. Secondly the division of power will be discussed, starting with the legislative power. In this part the Parliament’s competences and political parties will be examined to assess the post‐soviet transition. Hereafter, both central and de‐central executive powers will be assessed. Finally, the last part of this chapter covers judicial power , examining the structure and importance of the judicial system for the institutional development.

4.1 The Lithuanian Constitution

This section reviews the constitutional history of Lithuania, starting from Lithuania´s first written constitution until the post‐Soviet constitution of 1992. The focus will be on the 1992 Constitution, as it provides the main characteristics and principles of the Lithuanian state since independence from the Soviet Union.

4.1.1 The constitutional history of Lithuania In 1569 the Lithuanian and Polish Commonwealth was established to form a sort of confederation with a common parliament and an elected king. The elected king was the ruler of Poland and the Grand Duke of Lithuania.2 The parliament, which was competent to exercise legislative powers, was presided by the king. Despite the incorporation into the Commonwealth, the Grand Duchy of Lithuania kept its own legal system. This was codified in the Lithuanian Statutes of 1529, 1566, and 1588. The Commonwealth lasted until 1795, when it was subjected to partition by Russia, Prussia and Austria. Towards the end of its existence, the Commonwealth was inspired by the French Revolution (1789) to announce what came to be known as the first written constitution of Europe.3 The Parliament of the Commonwealth adopted the first written constitution in Europe on 3 May 1791. Law on Government was the official title that was given to this document. Although this document provided for a hereditary monarch rather than an elected head of state, it gave expression to Montesquieu’s notion of the separation of powers: legislative, executive

1 ‘With checks and balances, each of the three branches of government can limit the powers of the others. This way, no one branch becomes too powerful. Each branch “checks” the power of the other branches to make sure that the power is balanced between them’. Source: http://www.factmonster.com/ipka/A0777009.html 2 The first Lithuanian Kingdom was formed by the unification of several duchies in the Baltic area by Mindaugas in the Thirteenth century. As the result of Mindaugas’ conversion to Christianity several dukes refused to accept the Christianisation of Lithuania. This conflict weakened the country’s status internationally from a kingdom to toe the Grand Duchy of Lithuania. 3 V.A. Vaičaitis, The Republic of Lithuania in Constitutional Law of 10 EU member states: The 2004 enlargement, Deventer: Kluwer 2006, p. VI 9. 37 and judicial powers.4 It also ended the principle of liberum veto that gave the nobility the right to veto any decision taken by the parliament. The document didn’t survive for long as the Commonwealth of Two nations completely disappeared from the map of Europe in 1795. It was not before World War I that Lithuania gained independence again and created the Lithuanian First Republic on 16 February 1918, inspired by the principle of national sovereignty; the idea of the nation as a founder of the state of Lithuania.5 The next paragraph will elaborate on the importance of the principle of national sovereignty in the Lithuanian context. Lithuania’s first Republic is to be regarded as the birth of the modern state of Lithuania. It was remarkable that the Act of Independence described the young Republic as the successor to the Grand Duchy of Lithuania, indicating a historical continuity of the Lithuanian state and independence. Although Lithuania’s first written constitution formed an important source of legitimization and inspiration for the young Republic, it did not proclaim any form of government. As such, there was some indecision among the creators of the First Republic with regard to this. The Lithuanian Council,6 which was mainly dominated by right‐wing politicians, invited Wilhem Karl von Urach in 1918 to become king of Lithuania. This decision was taken while Lithuania was still under German occupation. However, after Germany’s defeat in 1918 the situation changed. The main political forces elected to the Constituent Assembly in 1920 consisted of Christian Democrats and Social Democrats who were pro‐republican. They proclaimed Lithuania a democratic republic. This uncertainty about the form of government was repeated in post‐Soviet independent Lithuania, as will be discussed in the next paragraph.

4.1.2 The 1992 Constitution The previous paragraph described the historical processes of constitutional development in Lithuania. This paragraph concluded that those processes involved a complex interplay of struggle for independence and external factors, e.g., foreign threats and ideas which influenced the Lithuanian quest for independence, such as Montesquieu’s influence regarding the organisation of the state and the French Revolution. The coming paragraph will focus on the Lithuanian post‐Soviet Constitution of 1992. Also, the main features and principles of the current Lithuanian state as well as the elements that continue to form a source of continuity between the past and today with respect to the Lithuanian constitutional development will be explained.

4.1.2.1 The Second Republic of Lithuania and the quest for a new constitution As World War II came to a close, it became clear that the Soviet Union would defeat Nazi Germany and emerge as the new power in the region. As this happened, Lithuania was annexed by the Soviet Union, and was incorporated into one of its republics. When the Soviet troops entered Lithuania in the year 1944, they were however faced with an armed resistance movement under the leadership of General Jonas Zemaitis‐Vytautas. This movement, known as Resistance Movement for Freedom,7 came to an end when Zemaitis‐Vytautas was captured and

4 V.A. Vaičaitis, The Republic of Lithuania in Constitutional Law of 10 EU member states: The 2004 enlargement, Deventer: Kluwer 2006, pp. VI 3‐VI 4 5 A. Eidintas, V. Žalys, A.E. Senn, Lithuania in European Politics: The Years of the First Republic, 1918–1940, New York: St. Martin's Press, 1999, p. 20–28 6 After July 11, 1918, the council was given the executive authority and was granted with the task to establish an independent Lithuanian state. Source: Alfonsas Eidintas, Vytautas Žalys, A. E. Senn,, Lithuania in European Politics: The Years of the First Republic, 1918–1940, New York: St. Martin's Press, 1999, p. 24–31 7 This movement was an organized military movement which resisted the soviet occupation during its existence from 1944 to 1953. The movement had about 100.000 partisans from the three Baltic States. They formed small teams who hid in the forests and so became to be known as “Forest Brothers”. (see chapter 1 on history) 38 executed in 1953. During this period the Declaration of 16 February 1949 was signed by the Council of the Resistance Movement of Freedom. This same Declaration became part of the current Lithuanian constitution through an amendment in 1999.8 By the end of the 1980s the Soviet empire showed signs of disintegration and weakness. This contributed to the evolvement of new political parties, social groups and political movements. The main political movement that emerged as a national movement for independence, the Sąjūdis, succeeded to launch its programme of “independence” and won the first free elections on 24 February 1990, gaining more than 70% of the parliament seats. One day after the Parliament’s first session, it announced the Act of Restoration of the Independence of the Lithuanian State on 11 March 1990. By adopting this Act, the parliament symbolically restored the 1938 Constitution in order to demonstrate that the Lithuanian state had never ceased to exist. Thus, the Second Lithuanian Republic was created. However, the 1938 Constitution remained valid for just one hour. The Constituent Assembly adopted a new constitution9 in 1992 after it was approved by a popular referendum. Unlike countries such as Hungry and Poland, Lithuania decided to adopt a new constitution after its independence from the Soviet Union because its pre‐war constitutional documents were considered authoritarian10 in content and did not fit Lithuania’s post‐Soviet aspirations.11 The Lithuanian First Republic constitution of 1922 was considered as the first democratic constitution that declared Lithuania a democratic republic with a parliamentary system. This constitution granted the unicameral parliament (Seimas) the most political power. Not only the cabinet of ministers had to receive the parliament’s vote of confidence, but the parliament had the right to dismiss the president by two‐thirds of the votes. Later constitutions which were adopted in 1928 and 1938 after a coup d’état at the end of 1928, granted the president more powers which subjected the country to an authoritarian regime. Therefore, post‐ soviet Lithuania did not see an option in (re)installing the pre‐war constitution; thus decided to adopt a new constitution.12

4.1.2.2 Main characteristics and basic principles of the Constitution In accordance with Article 150, the Lithuanian Constitution consists of fourteen sections which are included in the main text of the constitution itself, as well as constitutional acts, e.g., the Constitutional Act (1991) and the Act (2004) on the membership of the Republic of Lithuania in the EU. Although these Constitutional acts are not part of the main text of the constitution, they are considered equal to the Articles of the Constitution, thus seen as part of the Constitution.13 With regard to the establishment of the new constitution, Lithuania requested Western

8 V.A. Vaičaitis, ‘The Republic of Lithuania in Constitutional Law of 10 EU member states: The 2004 enlargement’, Deventer: Kluwer, 2006, p. VI 5 ‐VI 7 9 Since the end of the Second World War more than the half of the members of the United Nations adopted a constitution. When the Soviet Union collapsed almost all former members decided for a constitution in their political system. Constitutions departed from the fact that organs of power operated exclusively on the basis of law. There had to be one act or a series of acts for all the principles of political, social and economic organization of the state, the power, the duties of state organs and some of the rights of people. Source: R.R. Ludwikowski, ‘Constitution making in the countries of former Soviet dominance: current development’, Journal of International and Comparative Law, nr. 2 (1993), p. 157. 10 This constitution was considered authoritarian because of an unelected and powerful president. 11 A. Rauličkytė, ‘Lithuania’s courts and the rule of law’, Journal of Baltic Studies, nr. 2 (2001), pp. 182‐184. 12 Peeter Vihalimm, Estonian Human Development Report 2010/2011: (s) of Human Develoment: Twenty Years On, Tallinn: As Eesti Ajalehed, 2011, pp. 150‐153. 13 V.A. Vaičaitis, ‘The Republic of Lithuania in Constitutional Law of 10 EU member states: The 2004 enlargement’, Deventer: Kluwer, 2006, p. VI 8‐ VI 11. 39 assistance.14 In the Lithuanian system there are fundamental principles of Western constitutionalism: sovereignty of people (Arts. 2, 3, 4 and 9), democratic and representative government (Arts. 4 and 33), division of power and judicial review (Art. 5). These principles were deeper and more natural than in constitutions of other countries formerly under Soviet dominance. The Lithuanian constitution has some features of the German constitution: the constructive vote of no confidence is the same and the system of legislative emergency is similar. Lithuania chose this system to secure stability; voting for a new President before the term of the President ended is now only possible if two third of the Seimas votes for this exception. However, the division of right and left wing parties has made this almost impossible.15 The Lithuanian civil procedure is based on the French example; the Lithuanian civil code is based on the Italian and the Dutch one;, while the USA system was a big influence as well. In fact, a significant number of lawyers had moved to the USA during the Soviet dominance, and as there were no law schools during this period in Lithuania, Lithuanian lawyers based in the US moved back and assisted in the construction of the new legal system.16 As mentioned in the previous paragraph, the principle of the national sovereignty represented a major inspiration for the birth of the Lithuanian first Republic. Therefore, sovereignty of the nation as a natural right is a sensitive topic in the Lithuanian case. The first chapter of the 1992 Constitution entirely covers the principle of national sovereignty. Also the Act of Independence of 1918, the Constitutions of the First Lithuanian Republic, the Declaration of 16 February 1949 and the Act of 1991 all enshrine the basic principle of national sovereignty. This sense of national sovereignty is derived from a long history of occupation and alienation between the Lithuanian state and the Lithuanian nation for many centuries, including the modern time of Lithuania’s pre‐war independence until the disintegration of the Soviet Union. Therefore, the post‐Soviet independence of Lithuania is to be considered as a revival of the principle of national sovereignty after almost 45 years of Soviet occupation. This represents a process of state (re)building which will be analysed here from a perspective of national institution building.17 With regard to the judicial power, the 1992 Constitution created a four‐tiered court system with regional and district courts and an Appeal and Supreme Court as well as the Constitutional Court. However, the Constitutional Court was not incorporated into the general court system. In the Provisional Basic Law of 1990 there was no reference to a similar institutional mechanism as the Constitutional Court, but it was the general trend in former communist countries and Lithuania followed this idea.18 The Lithuanian judicial system, including the constitutional court will be elaborated on in the paragraph about the judiciary. Furthermore, the main historical sources of Lithuanian constitutional law include the Lithuanian Statutes of the sixteenth century, the Constitution of 1791, the Declaration of Independence of 1918 and the Constitution of 1922. Another source of constitutional law in Lithuania is European law: the European Convention on Human Rights and the EU treaty.19

14 R.R. Ludwikowski, ‘Constitution making in the countries of former Soviet dominance: current development’, Georgia Journal of International and Comparative Law, nr. 2 (1993), pp. 174‐175. 15 Ibidem, pp. 174‐175. 16 V. Mikilenas, ‘Unification and harmonization of law at the turn of the Millennium: the Lithuanian experience’, Uniform Law Review, nr. 5 (2000), p. 249. 17 V.A. Vaičaitis, ‘The Republic of Lithuania in Constitutional Law of 10 EU member states: The 2004 enlargement’, Deventer: Kluwer, 2006, p. VI 9. 18 A. Rauličkytė, ‘Lithuania’s courts and the rule of law’, Journal of Baltic Studies, nr. 2 (2001), pp. 182‐184. 19 V.A. Vaičaitis, The Republic of Lithuania in Constitutional Law of 10 EU member states: The 2004 enlargement, Deventer: Kluwer, 2006, p. VI 9. 40

Furthermore, the Constitution takes precedence over any other national legal act; it is directly applicable law. There are only two bodies that have the power to change the constitution: the Seimas and the nation.20 Some of the main constitutional principles are democracy, equity and justice, separation of powers, and the sovereignty of the nation.21

4.1.2.3 Form of government The draft constitution did not define the basic form of the state. It left two options: a parliamentary system with a president selected by the parliament or a semi presidential system with a president elected by popular votes. The semi presidential system seemed to be the more legitimate regime as the constitution of 1938 was based on this model; the Supreme Council considered it logical to restore this system. A referendum was held in 1992 on whether the Lithuanian people wanted a semi presidential system, in which the President would participate in all the meeting of the cabinet to guide them, or whether they wanted a president who did not become part of the government. Although the Lithuanian people were in favour of a one‐man leadership, this option did not receive enough votes, which can be explained by the fact that the probable leader, Landsberg, lost much popularity, and the people feared a powerful leader at the top.22 The form of government is not a strict legal matter, but rather a political issue. The Constitution of 1992 is thus a mixture between a parliamentary regime and a semi‐presidential regime: the final text includes elements of both models. The President is elected directly, but the government must have the confidence of the parliament. The President appoints the Prime Minister with the consent of the parliament. This system shows similarities with the political system in : a directly elected President with a strong Constitutional Court.23

4.1.2.4 The Europeanisation of the Constitution Article 138 of the constitution states that international treaties that have been ratified by the Seimas, are incorporated into the Lithuanian legal system. Although the Law on International Treaties states that ratified international treaties or agreements take precedence over ordinary and organic legislation, according to Article 7, international treaties and agreements must conform the constitution. This raises the question whether the Lithuanian constitution takes precedence over EU laws, e.g., the Treaty on the European Union. From the perspective of the European Court of Justice, European legislation overrides national legislations that contradict EU laws. The 2004 Constitutional Act on Membership in the EU granted the EU a powerful position within the Lithuanian legal system in which the EU membership is considered to be a part of the Constitution. Therefore, it can be argued that the relationship between the international law and Lithuanian legal system contain elements of both the dualistic and monistic24 constitutional models.25

20 V.A. Vaičaitis, The Republic of Lithuania in Constitutional Law of 10 EU member states: The 2004 enlargement, Deventer: Kluwer 2006, pp. VI 7‐13. 21 Ibidem, pp. VI 7‐8. 22 K. Matsuzato en L. Gudžinskas, ‘An eternally unfinished parliamentary regime? Semipresidentialism as a prism to view Lithuanian politics’, Acta Slavica Iaponica, nr. 23 (2006), pp. 152‐157. 23 Ibidem, pp. 152‐157. 24 ‘The terms monism and dualism are used to describe two different theories of the relationship between international law and national law. Monists accept that the internal and international legal systems form a unity. While Dualists emphasize the difference between national and international law, and require the translation of the latter into the former’. Source: Pieter Kooijmans, Internationaal publiekrecht in vogelvlucht, Groningen:Wolters‐Noordhoff, 1994, p. 82. 25 No author, ‘The Europeanisation of National Constitutions’, http://www.proyectos.cchs.csic.es/europeconstitution/content/lithuania‐constitutional‐provisions, consulted on 02‐06‐ 2013. 41

4.2 The legislative power: Seimas

This paragraph first discusses the main competences of the parliament; secondly outlines the democratic transition onwards the 1990s; thirdly the elections until 2012; and finally the political parties currently active in the Seimas.

4.2.1 Competences The Seimas is a unicameral parliament with 141 members in which each member holds a seat.26 Parliamentary elections take place every four years and every adult aged 18 or older is allowed to vote. Legislation is the main instrument available to the Seimas to exercise its powers. The Seimas possesses broad legislative competences which makes it possible to adopt legislation on any matter in the economic and private sphere. However, legislation adopted by the Seimas must be in compliance with the Constitution, the ruling of the Constitutional Court, and EU law since Lithuania’s accession to the EU. In addition to its legislative power, another task of the Seimas is to control government activities. The power of parliamentary scrutiny in Lithuania is limited to the government (cabinet of ministers) and doesn’t include the President as he is not considered a member of the government. These powers cannot always be used in an effective way since the government is formed by the parties that have a majority of seats in the parliament. The main instrument of the parliament to control the government is though parliamentary committees which correspond with ministries. The parliament also has other traditional competences, such as setting taxes and approving the annual budget of the state. The Seimas has also the competence to ratify or reject international agreements and to call elections for the municipalities and the President of the Republic. Furthermore, it must approve the post of the prime minister, appointed by the President.27

4.2.2 Democratic transition after the independence Lithuania’s democratic transition since the independence is mostly based on the democratic experience of the inter bellum period. The first Lithuanian political parties came into existence in the late 19th and early 20th century. After the elections of 1920 a fully functioning parliamentary democracy came into being. Parties were granted legal and practical means to implement their function in society. After the coup d’état in 1926 by the Lithuanian Nationalist Union, only one party ruled.28 When the Soviet Union occupied the country in 1944, the one‐ party political system remained dominant: the Communist party was the only party allowed.29 Since 1991, however, there has not been any anti‐democratic or anti‐systemic political party in the party system, no political force has suggested alternatives to democratic norms and procedures for resolving political issues.30 After the period of Soviet dominance, the political system had to be changed in order to create a well‐functioning democracy. The Lithuanian political parties had only one goal: the

26 Constitution of Lithuania: article 57. 27 V.A. Vaičaitis, ‘The Republic of Lithuania in Constitutional Law of 10 EU member states: The 2004 enlargement’, Deventer: Kluwer, 2006, p. VI 15 – VI 21. 28 A. Krupavivius, ‘The Post‐Communist Transition and Institutionalization of Lithuania’s Parties’, Political Studies, nr. XLVI (1998), p. 465. 29 J. Vaiciuniene and S. Nefas, ‘Lithuania: Brave enough to implement daring democratic reforms?’, http://www.oxfordhandbooks.com/view/10.1093/oxfordhb/9780199562978.001.0001/oxfordhb‐9780199562978‐e‐27, consulted on 17‐01‐2013. 30 T.D. Clark, ‘Introduction: The Democratic Consolidation of Lithuania’s State Institutions’, Journal of Baltic Studies, nr. 2 (2001), p. 126. 42 restoration of independence, and the country therefore based its institutional democracy of 1992 on the different constitutions of the inter bellum. This was done in order to emphasize that the Soviet dominance was unlawful and thus to make the political continuity of the Lithuanian Republic stand out.31 The democratic transition of Lithuania was based on the Constitution of the interwar experience. A major element in this transition was the re‐establishment of multi‐party democracy.32 A democratization of the electoral procedures was established in order to create this type democracy.33 A multi‐party system was thus created that allowed new political parties to emerge. The first party to be re‐established after the Soviet dominance was the independence‐party Sajūdis, while another main political party after the independence was the Lithuanian Communist Party (LCP). The system was divided in two blocks: one supporting a rapid break with the Soviet Union, Sajūdis, and the other, LCP, which wanting a more gradual break. This division can be considered as a positive development as it made the emergence of a monolithic elite impossible.34 In order to participate in a democratic society the LCP reformed itself into a representative parliamentary party. Soon after the declaration of independence of Lithuania, free and fair elections took place and the power was transferred to Sajūdis.35 Although they won the elections in 1990, they were too fragmented and instable to stay in force.36 The period after the independence was of political importance, because different ideological preferences started to play a role in political parties and society. However, although the multi‐party system functioned quite well, the ideological differences also divided the parties and eventually caused political instability.37

4.2.3 Elections since 1990 Since 1990 sixteen different governments were in office. The only government to complete the term of 4 years is the government that was in place from 2008 until 2012.38 Elections for the Seimas since 1990 are held under a parallel, mixed electoral system: 71 members are elected through single‐member constituencies and 70 members are elected by proportional representation. The threshold for representation in the Seimas is 5 per cent for parties and 7 per cent for coalition parties.39 There has been political instability ever since the independence of 1991. Governments are dependent on a majority coalition in the Seimas. As there are significant number of political parties in Lithuania: the number of parties needed in the coalition in order to form a majority is large. This can prove difficult to coordinate effectively over long periods of time. Moreover interparty competition and competition between fractions of parties are causes for instability;

31 Interview 55 32 A. Krupavivius, ‘The Post‐Communist Transition and Institutionalization of Lithuania’s Parties’, Political Studies, nr. XLVI (1998), p. 469. 33 Ibidem, pp. 472‐474. 34 T.D. Clark, ‘Introduction: The Democratic Consolidation of Lithuania’s State Institutions’, Journal of Baltic Studies, nr. 2 (2001), p. 132. 35 Ibidem, p. 126. 36 Interview 55 37 A. Krupavivius, ‘The Post‐Communist Transition and Institutionalization of Lithuania’s Parties’, Political Studies, nr. XLVI (1998), pp. 472‐474. 38 Parties and Elections in Europe, http://www.parties‐and‐elections.eu/lithuania1.html, consulted on 16‐01‐2013. 39 Office for Democratic Institutions and Human Rights OSCE, ‘Republic of Lithuania: Parliamentary elections 14 October 2012’, http://www.osce.org/odihr/elections/92379, consulted on 03‐01‐2013, 43 the inability to compromise on certain decisions is the main reason for this.40 Finally financial scandals and corruption within parties is also a cause for the division of parties.41

Tabel 4.1: Prime Minister and Government 1990‐201342 Prime Minister Term of Office Government Kazimira Prunskienė (S) 1990‐1991 S Albertas Simenas (S) 1991 S (S) 1991‐1992 S Aleksandras Abisala (S) 1992 S 1992‐1993 LDDP Adolfas Slezevicius (LDDP) 1993‐1996 LDDP Laurynus Mindaugas Stankevicius (LDDP) 1996 LDDP Gediminas Vagnorius (TS‐LK) 1996‐1999 TS‐LK, LKDP, LCS (TS‐LK) 1999 TS‐LK, LKDP, LCS (TS‐LK) 1999‐2000 TS‐LK, LKDP, LCS Rolandas Paksas (LLS) 2000‐2001 LLS, NS, LCS, MKDS LDDP, LSDP, DP, NS, NDP, Algirdas Mykolas Brazaukas (LSDP) 2001‐2004 LRS Algirdas Mykolas Brazaukas (LSDP) 2004‐2006 LSDP, DP, NS, VNDS LSDP, LiCS, LVLS, PDP; NS (LSDP) 2006‐2008 joined in 2008 Andrius Kubilius (TS‐LKD) 2008‐2012 TS‐LKD, TPP, LRLS, LiCS Algirdas Butkevivicus (LSDP) 2012 ‐ LSDP, DP, TT, AWPL Source: Parties and Election in Europe

As the table above shows, a lot of different governments have been in office since 1990. The government between 2008 and 2012 was the first one to fulfil the four year term. The success of the government in office since 2012 will be dependent on different factors, such as interparty stability and the ability to find political compromises between the different parties.43

4.2.4 Current political parties The current Seimas contains eight political parties. A significant number of new parties were set up since the independence of 1991; whereas only a few managed to remain. Political parties in Lithuania are not based on an ideology and consequently there is no clear distinction between right or left wing parties. An interviewee gave the example that some parties claim to be centre left, even though their actions are more right wing oriented.44 This is a cause for concern,

40 Interview 38 41 T.D. Clark, ‘Introduction: The Democratic Consolidation of Lithuania’s State Institutions’, Journal of Baltic Studies, nr. 2 (2001), p. 133. 42 S: Sajudis; LDDP: Democratic Labour Party of Lithuania; TS‐LK: Homeland Union ‐ Lithuanian Conservatives; LKDP: Lithuanian Christian Democratic Party; LCS: Centre Union of Lithuania; LLS: Liberal Union of Lithuania; NS: New Union ‐ Social Liberals; MKDS: Modern Christian Democratic Union; LSDP: Lithuanian Social Democratic Party; DP: Labour Party; NDP: New Democratic Party; LRS: Union of Russians in Lithuania; VNDS: Peasants and New Democracy Party Union; LiCS: Liberal and Centre Union; LVLS: Lithuanian Peasant Popular Union; PDP: Civic Democratic Party; TS ‐ LKD: Homeland Union ‐ Lithuanian Christian Democrats; TPP: Party of National Progress; LRLS: Liberals' Movement of the Republic of Lithuania; TT: Order and Justice; AWPL: Electoral Action of Poles in Lithuania. 43 Interview 6. 44 Interview 38. 44 because for many voters it makes it difficult to define the values of a political party and who they represent. 30% of the Lithuanian voters therefore do not know whether they are left or right wing supporters. This is a reason for weak party affiliation and thus for weak electoral preferences. An explanation for the weak links between political parties and political ideologies is that a lot of parties are relatively new. These new parties have not yet been able to accommodate to ideologies and the social structures within society.45 The current government contains four parties, as a result of the elections of October 2012 (86 seats, 51.4% of the votes):  Labour Party or Darbo Partija (DP): The DP claims to be a social liberal party. It was founded in 2003. Although this party is relatively young, it will merge with Order and Justice due to financial scandals.46 Interviewees portrayed this party as a populist party, with strong ties to Russia.47  Lithuanian Social Democratic Party or Lietuvos Socialdemokratų Partija (LSDP): The LSDP is a social democratic party founded in 2001. Their main goal is to create social equality in Lithuania.48 This party obtained the biggest amount of seats in the last election.  Order and Justice or Tvarka ir Teisingumas (TT): The TT was founded in 2002 and is based upon the principles of a free and individualistic society; its ideology is nationalist conservatism. They support the idea of open and democratic liberalism.49 According to the interviewees this is a populist party. The party is expected to merge in the foreseeable future due to a significant decline of supporters.50  Electoral Action of Poles in Lithuania or Akcja Wyborcza Polaków na Litwie (AWPL): This Christian democratic party has existed since 1994. Their main goal is to support the Polish community in Lithuania.51 The opposition in the Seimas is formed by three independents and the following four parties (54 seats, 35.6% of the votes):  Homeland Union – Lithuanian Christian Democrats or Tėvynės Sąjunga – Lietuvos Krikščionys Demokratai (TS‐LKD): TS‐LKD is a Christian democratic party founded in 1993. They mainly focus on family life, a friendly business climate and support to communities.52  Liberals’ Movement of the Republic of Lithuania or Lietuvos Respublikos Liberalų Sajūdis (LRLS): This liberal party was founded in 2006 and wants to create a Third Republic of Lithuania. They want the state system to serve the fair‐minded, educated and wealthy Lithuanians.53  Way of Courage or Drąsos Kelias (DK): This party was founded in 2012. Its main focus is the fight against corruption and the improvement of the judicial system.

45 Interview 38 46 Ibidem 47 Interview 14 48 LSDP, ‘Progama’, http://www.lsdp.lt/lt/straipsniai/273‐lsdp‐ilgoji‐rinkimu‐programa.html, consulted on 26‐012013. 49 TT, ‘Programme’, http://www.tvarka.lt/en/programa, consulted on 26.01.2013. 50 Interview 38 51 AWPL , ‘History’, http://www.awpl.lt/index.php?option=com_content&view=article&id=55&Itemid=55&lang=en, consulted on 26‐01‐2013. 52 Interview 6 53 LRLS ,‘Manifesto of Establishment’, http://www.liberalai.lt/en/policy, consulted on 26‐01‐2013. 45

 Lithuanian Peasant and Greens Union or Lietuvos Valstiečių ir Žaliųjų Sajunga (LVZS): The LVZS used to be two separate organisations: the farmers Union and the Socialistic Peoples Democratic Party, who formed a political party together in 1922. The party is re‐ established in 2005. Its main goal is to create 30,000 new jobs and to stop the construction of a new nuclear power plant.54 Political parties in Lithuania are thus not based on a clear ideology. This makes it difficult for Lithuanians to establish strong affiliations with parties (see chapter 7 on democracy and civil society).

4.3 The executive power

This section analyses the executive power by discussing the main executive institutions: the president, central government and local governments. Besides examining the relation between the executive institutions, to what extent the Lithuanian state system is (de)centralised will be investigated.

4.3.1 The president and the Central government The Constitution states that the head of the state is the President of the Republic. He or she is elected by popular elections. The presidency candidate must receive more than half of the votes during the first vote, to which at least half of the registered voters must have participated, in order to be elected. If less than the half of the registered voters have participated in the first vote, the candidate that receives the most votes, but not less than one‐third of the votes, will be elected president. If the candidate doesn’t meet the criteria, a second election will be organised after two weeks between the two candidates with the most votes.55 The president’s most important tasks concern national defence and foreign affairs. Being competent in these areas, the president directs important decisions on foreign policy and represents the country in the international arena. He or she is also responsible for appointing ambassadors of Lithuania, commander in chief of the , and the head of the secret services.56 The latter two require consent of the parliament too. The role of the president depends upon the person in office, and be either active or passive.57 The president can dissolve the parliament and has a lot of competences, but always needs the approval or the advice of the parliament or the government.

4.3.1.1 Semi‐presidentialism in Lithuania After the collapse of the communist regimes in Central and East Europe, the interest in semi‐ presidentialism58 increased for two reasons: besides the fact that the majority of post‐ communist countries chose for this model of government, the inheritance of the communist system easily led to this type of government, namely that of a two‐headed executive power (executive diarchy) of the one‐party regimes in the Soviet Union (SU). According to Maurice

54 LVŽS, ‘Programa’, http://www.lvls.lt/lt/index.php?option=com_content&view=article&id=859&Itemid=77#.UQPy H79VmPQ, consulted on 26‐01‐2013. 55 V.A. Vaičaitis, The Republic of Lithuania in Constitutional Law of 10 EU member states: The 2004 enlargement, Deventer: Kluwer, 2006, p. VI 23 – VI 30 56 Constitution of Lithuania: Article 140 57 V.A. Vaičaitis, The Republic of Lithuania in Constitutional Law of 10 EU member states: The 2004 enlargement, Deventer: Kluwer, 2006, p. VI 13. 58 Semi‐presidentialism is a form of government in which the executive power has a President and a prime minister. In such a system the cabinet of the ministers including the prime minister must gain the confidence of the parliament. Source: Horst Bahro, Bernhard H. Bayerlein, en Ernst Veser, ‘Duverger's concept: Semi‐presidential government revisited’, European Journal of Political Research, nr. 2, (1998). 46

Duverger59, semi‐presidential system shows similarities with the Soviet constitutional and administrative law because of the distinction it makes between strategic and administrative functions. In the USSR, these two types of functions were fulfilled, respectively, by the Central Committee of the Communist Party and the government.60 In other words, Duverger refers to the resemblance between these two functions in the SU with the functions of the President and the Prime Minister in a semi‐presidential system. However, the degree of similarities depends on whether the president and the prime minister belong to the same party or of different parties. In the current Lithuanian plural political landscape, it is possible to have a president and a prime minister from different parties.61 However, in Lithuania there may have been another reason for choosing semi‐ presidentialism. Liutauras Gudzinskas and Kimitka Matsuzato argue that the choice of this system in Lithuania is related to the population’s preference for a strong president and a practical balance between the elites in the preparation of the present constitution. In addition, fear of new popular parties was another factor in the choice of semipresidentialism,62 as semi‐ presidentialism offered a means to control the executive power of Parliament. With respect to semi‐presidentialism, the Lithuanian model shows more similarities with parliamentarism than with presidentialism. Matsuzato uses five elements to determine to what extent Lithuanian semi‐presidentialism shares the characteristics of presidentialism. These five parameters, which are demonstrated below in table 1, include: (1) the president’s power in appointing and dismissing the prime minister, denoted in the column with ‘GF’ (2) the president’s ability to preside over the cabinet of the ministers, denoted with ‘CM’ etc. (see below the table for an explanation about the other parameters). In the table, valuations of 0, 1 or 2 are given. 2 stands for characteristics that are presidential, while 0 stands for characteristics that are typical for the parliamentary system. Lithuania’s score is 0 for almost all parameters, except the VT parameter. This indicates that the Lithuanian form of government mainly consists of parliamentarian features.

Table 4.2: Closeness to Full Presidentialism GF CM AP RV VT Total France 1962‐2006 1 2 0 0 2 5 1991‐1995 2 2 2 2 2 10 Armenia 1995‐2006 1 2 0 1 2 6 1991‐2006 0 1 0 2 2 5 1991‐1994 0 1 0 2 0 3 Moldova 1994‐2000 0 1 0 0 0 1 Poland 1990‐1992 0 0 0 0 2 2 Poland 1992‐1997 0 1 2 0 2 5 Poland 1997‐2006 0 0 0 0 2 2

59 The concpet of semi‐presidentialism was first described by Maurice Duverger in 1978 in his writing work on the fifth Republic of France. Source: Horst Bahro, Bernhard H. Bayerlein, en Ernst Veser, ‘Duverger's concept: Semi‐presidential government revisited’, European Journal of Political Research, nr. 2, (1998). 60 Kimitka Matsuzato, ‘Differing Dynamics of Semipresidentialism across Euro/Eurasian Borders: Ukraine, Lithuania, Poland, Moldava, and Armenia, Demokratizatsiya nr. 3, (2006) , p. 318 61 Ibidem, p. 318. 62 Kimitaka Matsuzato en Liutaurus Gudzinskas, ‘An Eternally Unfinished Parliamentary Regime?’Semipresidentialism as a Prism to view Lithuanian Politics’, Acta Slavica, nr. 23 (2006). pp. 146‐70. 47

Lithuania 1992‐2006 0 0 0 0 2 2 Ukraine 1991‐1996 1 0 0 0 0 1 Ukraine 1996‐2005 1 0 0 0 0 1 Note: GF: President’s initiative in appointment and dismissal of the prime minister. CM: President’s prerogative to preside over the cabinet of ministers directly. AP: Direct appointment of ‘strategic ministers’ by the president. RV: Lack of rivalry between the president and prime minister. VT: Parliamentary confirmation of programs of prime ministers. Source: K. Matsuzato, ‘Differing Dynamics of Semipresidentialism across Euro/Eurasian Borders’

4.3.1.2 The central government The executive power in Lithuania is granted to the government. However, this does not mean that to execute legislation is the only task of the government. . Generally, the government’s legal basis lies in legislation from the parliament, while the Constitutional Court has stipulated that the government is also competent to a certain degree to adopt acts in the absence of necessary legislation. The government consists of the prime minister and the ministers.63 The president is not part of the government. According to the Constitution and the ruling of the Constitutional Court, the ministers, including the prime minister, may be chosen from the parliament but may not have any other position outside the parliament. Although the ministers are directly under the prime minister’s control according to Article 98, the relation between them is dependent on whether the ministers are members of the same political party as that of the prime minister or not.

4.3.2 Local government: the administrative division into districts and municipalities

4.3.2.1 Centralization and national sovereignty in Lithuania Before proceeding with the structure and division of the local governments in Lithuania, centralisation or decentralisation will be discussed, as this is important in order to understand the organisation of the Lithuanian local government. The thirteen century Kingdom of Lithuania, also the Grand Duchy and the First Republic, are to be described as fairly centralized and unitarian states. The Polish‐Lithuanian Commonwealth was an exception, between the sixteenth and the eighteenth centuries it was a mix between a confederation and a federation. Even in this period, the Lithuanian part of this Commonwealth was more centralized than the power structures in Poland. According to the 1992 Lithuanian Constitution, Lithuania is to be considered a unitarian state. It is to be argued that the centralized character of the political system in Lithuania is derived from the urgency to unify the country and consolidate the state power when the state and its nation faced foreign occupation and national sovereignty was threatened. As mentioned above, the Constitution states that current Lithuanian state is centralized. The question is, to what extent is Lithuania a centralised or decentralised country? The Constitution doesn’t provide details nor a clear answer to this question, but from observing the structures of state institutions, we can say it is a rather centralized state. The decentralisation64 of power in Lithuania used to be organised at two levels: municipalities and counties. Since the tier of governors was abolished, municipalities are the

63 Constitution of Lithuania: article 91. 64 Decentralisation here is not the same as the tiers of administration. Decentralised power excludes the central government. Currently the country consists of two tiers: central government and municipalities. However, the decentralised power uses to be organised on the level of counties and municipalities. After the abolishment of the counties tier, the decentralised power is limited to the municipalities. 48 only level at which power is decentralised in Lithuania. Municipalities have directly elected representatives, City Councillors, while the governors of the counties used to be appointed by the central governors, according to some an undemocratic way of installing governors. Although municipalities have the ability to produce their own separate budget autonomously from the central government, they do not have the right to collect taxes. Therefore, the financial resources for the municipalities come from the central government. This makes it difficult to speak of an autonomous decentralised government up until now. This suggests that the Republic of Lithuania was and still is a centralised state.

4.3.2.2 Districts Lithuania currently consists of 10 districts that are only to be regarded as an administrative division without being a tier in the decentralized structures of the government. As a result, the country has two tiers: the central government and the municipalities. In the past, Lithuania had districts with governors as an administrative layer. The previous government chose to abolish the tier of county governors and give the power that was given to the governors to the central government or the municipalities instead. The main reason for this choice is the inefficiency in the administration costs and the objection to the undemocratic appointment of the governors by the central government. See the table below for the number of districts and number of inhabitants per district, as well as the capital of the districts.65

Table 4.3: Lithuanian districts and its capitals Districts/capitals66 district67 capital68 (1) Vilnius (805,915) [533,279] (2) Kaunas (599,638) [310,773] (3) Klaipeda (334,744) [160,142] (4) Siauliai (295,824) [107,689] (5) Panevezys (246,298) [98,469] (6) (154,980) [58,515] (7) Mariampole (159,273) [60,459] (8) Utena (149,001) [42,531] (9) Telsiai (149,843) [46,273] (10) Taurage (108,125) [43,124] Source: Statistics Lithuania, Official Statistics Portal, population at the beginning of 2012.

4.3.2.3 Municipalities Municipalities are currently functioning as a second tier of government and as the only decentralized state power since the tier of governors was abolished. Lithuania currently has 60 municipalities, which are divided into county and city municipalities. Each of the of the 10 districts has its own capital. Municipalities in Lithuania are large in size, with an average of sixty thousand habitants. There are also smaller administrative branches, subordinated to the municipalities, called seniunas. They provide public services in villages and are responsible for minor trading activities. The mayor of each municipality is elected by the municipal council. The mayor exercises his administrative powers along with the director of the municipal administration.. Since 2003

65 Interview 3. 66 The name of the of the districts are equal to the names of the capitals. This means that the 10 districts of Lithuania have exactly the same name as the 10 capitals of these districts. 67 Inhabitants of each district. 68 Inhabitants of the capital of each district. 49 the municipal administration is nominated by the mayor and appointed by the city council. This model was introduced to meet the principle of separation between the executive and legislative branches69. By doing so, the post of the mayor became more independent of the municipal council.

Table 4.4: The 60 municipalities of Lithuania 1.Vilnius 2. Kaunas 3. Klaipeda 4. Siauliai 5. Panevezys

(1) Elektrenai (1) Birstonas (1) Klaipeda (1) Akmene (1) Birzai (2) Salcininkai (2) Jonava (2) Klaipeda (2) Joniskis (2) Kupiskis (3) Sirvintos (3) Kaisiadorys (3) Kretinga (3) Kelme (3) Panevezys (4) Svencionys (4) Kedainiai (4) Neringa (4) Pakruojis (4) Panevezys (5) Trakai (5) Prienai (5) (5) Radviliskis (5) Pasvalys (6) Ukmerge (6) Raseiniai (6) Skuodas (6) Siauliai (6) Rokiskis (7) Vilnius (7) Kaunas (7) Silute (7) Siauliai (8) Vilnius (8) Kaunas 6. Marijampole 7. Taurage 8. Telsiai 9. Utena 10. Alytus

(1) Kalvarija (1) Pagegiai (1) Plunge (1) Utena (1) Varena (2) Kazlu Ruda (2) Silale (2) Rietavas (2) (2) Alytus (3) Marijampole (3) Taurage (3) Telsiai (3) Zarasai (3) Alytus (4) Sekiai (4) (4) Mazeikiai (4) Anyksciai (4) Druskininkai (5) Vilkaviskis (5) Ignalina (5) Lazdijai (6) Moletai Source: Settlements of Lithuania, http://www.lithuaniangenealogy.org/databases/lithuania/counties/ 4.4 The judiciary

The Lithuanian Constitution states that courts have the exclusive right to administer justice.70 In order to administer justice, courts are completely independent.71 There are three different types of courts: ordinary, administrative and the Constitutional court. This part will outline their composition and their function.

4.4.1 Ordinary Courts Ordinary courts mostly deal with civil and criminal cases. There is no jury system in Lithuania and all judges are appointed, not elected. The President is responsible for appointing members of the judiciary for ordinary courts according to article 112 of the Constitution. Judges of the ordinary Court of Appeal are appointed by the President with the consent of the Seimas. Judges of the Supreme Court are nominated by the President and appointed by the Seimas.72 Ordinary courts are divided into four different types: local courts, district courts, the Court of Appeal and the Supreme Court. The local and district courts can function as courts of first instance; depending on the amount of money involved in the case. There are 45 local courts

70 European Judicial Network, ‘Organisation of Justice – Lithuania’, http://ec.europa.eu/civiljustice/org_justice/org_justice_lit_en.htm, consulted on 08‐05‐2013. 71 Ibidem. 72 V.A. Vaičaitis, ‘The Republic of Lithuania in Constitutional Law of 10 EU member states: The 2004 enlargement’, Deventer: Kluwer, 2006, p. VI 44. 50 with 480 judges, and they are established in almost every municipality. There are five district courts with 194 judges; which are located in the five largest cities in Lithuania. The district court can also function as a court of second instance; but only if the first instance took place in a local court. Lithuania has one Court of Appeal which is located in Vilnius and has 27 judges. The Court of Appeal reviews the facts of a case established in the first instance. The Supreme Court is located in Vilnius as well and it acts as a court of cassation. There are 35 judges and there is a division between criminal and civil cases.73

4.4.2 Administrative Courts In 1991 changes in the judicial process were initiated. The plan of legal reform of the Seimas started in 1993; this plan provided the option for special courts. A special court for administrative cases was established in 2000.74 This created two separate judicial systems and two separate highest courts. There are 5 district administrative courts and one High Administrative Court. There is no cassation system, because of the desire for more rapid administration of justice.75 Administrative courts deal with cases regarding public administration, taxation and minor misdemeanours. The President is responsible for appointing members of the judiciary for administrative courts, also according to article 112 of the Constitution.76 Administrative courts settle disputes between private and public entities. It is established to improve the protection of individuals against infringement of their rights by public authorities. From this perspective, the administrative courts could have been seen as courts of human rights, but the judges were selected from the ordinary courts which resulted in them viewing the courts merely as administrative.77 An explanation for this was given during the interviews we conducted: because the administrative court has to balance the public interest and the rights of a particular person, it is not merely a court for human rights. Furthermore, the administrative court is pro‐European; this is the court with the highest number of preliminary ruling at the European Court of Justice.78

4.4.3 Constitutional Court The Constitutional Court was established in 1993. The Constitutional Court is not part of the court system, but it is an independent judicial body. This court determines whether the laws and legal acts are in conformity with the Constitution. The Constitutional Court consists of nine judges appointed for a nine year non‐renewable term of office. Every three years one third of the members are replaced. The judges of the Constitutional Court are selected by the President, the Chairperson of the Seimas and the Chairperson of the Supreme Court; the judges are appointed by the Seimas. In the Constitutional Court there is a balance of active judges and legal theoreticians.79 Most of the applications for the Constitutional Court come from the opposition of the government. The Constitutional court is thus important in political life. The influence of the court is furthermore seen in the role it played in the formation of democratic values within the

73 V.A. Vaičaitis, The Republic of Lithuania in Constitutional Law of 10 EU member states: The 2004 enlargement, Deventer: Kluwer 2006, pp. VI 44‐46. 74 A. Rauličkytė, ‘Lithuania’s courts and the rule of law’, Journal of Baltic Studies, nr. 2 (2001), pp. 182‐184. 75 V.A. Vaičaitis, ‘The Republic of Lithuania in Constitutional Law of 10 EU member states: The 2004 enlargement’, Deventer: Kluwer, 2006, p. VI 47. 76 76 V.A. Vaičaitis, ‘The Republic of Lithuania in Constitutional Law of 10 EU member states: The 2004 enlargement’, Deventer: Kluwer 2006, p. VI 44. 77 Ibidem, pp. VI 47‐48. 78 Interview 55 79 A. Rauličkytė, ‘Lithuania’s courts and the rule of law’, Journal of Baltic Studies, nr. 2 (2001), p. 190. 51 society.80 The court can be seen as an institutional buffer, it is a very democratic, pro‐European institution. It played an important role in the development of the society since Lithuania’s independence, as politicians addressed the Constitutional Court to justify unpopular but democratic decisions.81 The Constitutional Court normally controls laws a posteriori. It only examines cases when the entities prescribed by the Constitution address the court with a petition requesting the determination of conformity.82 However, only in some exceptional cases, like the ratification of the European Convention for Human Rights, the court does apply constitutional review a priori. All three kinds of courts play an important role in society, as they have the exclusive right to administer justice. The courts fulfil their function well, although remarks can be made about access to justice (see chapter 9 on human rights). Since Lithuania’s independence, the court system underwent crucial changes: the administrative court was established to take of some of the workload of the ordinary courts, while a Constitutional Court was established in order to guarantee the compliance with the Constitution. Overall, the judiciary is an independent, well‐functioning organ.

80 Ibidem, pp. 190‐191. 81 Interview 55. 82 Council of Europe, ‘World Conference on Constitutional Justice 2010: the principal of separation of powers and independence of the Constitutional Court of the Republic of Lithuania’, http://www.venice.coe.int/WCCJ/Rio/Papers/LTU_Constitutional_Court_E.pdf, consulted on 05‐05‐2013 52

5. Foreign, Security and Defence Policy

During the last century Lithuania was under Soviet rule for many years. Due to this, the country was not able to exert an own foreign and defence policy. After Lithuania’s independence in 1991 the country regained control over these policy fields and rebuilt the Ministry of Foreign Affairs and the Ministry of Security and Defence. This chapter will first analyse Lithuania’s foreign policy, by looking into the bilateral, international and regional relationship Lithuania maintains with other countries. Subsequently the chapter covers Lithuania’s security and defence policy.

5.1 Foreign policy

5.1.1 Ministry of Foreign Affairs Lithuania’s first Ministry of Foreign Affairs was created in 1918. However, during Soviet rule this ministry did not have any real power, as Lithuania was not allowed to develop or maintain its own international relations. The situation changed after Lithuania became an independent country with the ability to establish relations with other international organisations and countries. These relations were of great importance to Lithuania, as the Soviet past had caused the country to lag behind in many areas and it had to learn from other more developed states. Over the past 20 years, Lithuania has thus been developing its foreign policy. Recently the country established the ‘Action Plan of the Fifteenth Government’. The main objectives regarding foreign policy in this plan are stated as follows:

The objectives of our foreign policy are to ensure national security from any external threat that might arise from the policies of other nations, to support democratic development in the geopolitical environment of Lithuania, to promote democratic values in the sphere of international relations and to achieve a favourable external environment for the country's safe existence.1

The Action Plan outlines the objectives and tasks of the Ministry of Foreign Affairs. Also, it includes special chapters on Russia and regional cooperation, as well as relations with other countries special to Lithuania. The plan furthermore includes European Policy and Lithuania’s compliance with EU regulations, building a stronger transatlantic cooperation within the NATO and the Eastern Neighbourhood Policy.2 All these topics will be described in the following paragraphs, divided in three parts: first; Lithuania’s bilateral relations, focusing on Russia, Poland and the United States of America, second; Lithuania’s place in international organisations and third; the country’s regional policy.

5.1.2 Bilateral relations Like almost all other countries in the world, Lithuania maintains relations with specific countries it has an interest in. In the case of Lithuania these are Russia, Poland and the United States of America. The relations with these countries will be analysed in the following paragraphs.

1 Seimas of the Republic of Lithuania, Resolution No. XI‐52 on the Programme of the Fifteenth Government of the Republic of Lithuania, 2008, p. 37. 2 Ibidem. 53

5.1.2.1 Russia Lithuania has had a special relationship with Russia for a very long time. Despite the formerly negative character of this relationship as a result of the oppression of Lithuania first by the Russian Empire and later the Soviet Union (see chapter 1 on history), Lithuania tries to have an open dialogue and good neighbourhood policy with Russia. It aims at building mutual trust on the basis of democratic values, justice and respect for universally recognised international law principles.3 In addition, Lithuania wants to promote trade relations and cooperation without violating the its national security laws. Two main issues are of special interest in the Lithuania‐ Russia relationship, namely the Russian enclave ‘’ and the energy dependence of Lithuania of Russia. Kaliningrad Oblast is an important region for Lithuania, as it is a part of Russia, which directly neighbours Lithuania. The isolation of this Russian region, which is surrounded by European Union territory has posed quite some difficulties regarding visa. In 1995, Lithuania and Russia concluded on the Provisional Agreement on Travel of Citizens. This Agreement made it possible for Russian citizens to travel through Lithuania. This Agreement existed until 2003.4 Currently, Lithuania and the EU are considering restoring the old visa‐free regime for the citizens of Kaliningrad Oblast. This is expected to have a positive effect on Russia‐Lithuania relations, especially for the residents of Kaliningrad Oblast. Even more determining for the relationship between Russia and Lithuania is the issue of energy supply. Because Lithuania’s natural resources endowment is rather low, the country is highly dependent on Russia for energy resource imports. Despite the fact that Lithuania is now independent from Russia, its infrastructural network is still better integrated into the former USSR structure. Interconnections with Poland and other EU Member States, however, are deficient or even non‐existent. Consequently, Lithuania has become predominately dependent on Russia’s supply of fossil fuels, such as crude oil and natural gasses.5 Moreover, Lithuania’s nuclear power plant ‘Ignalina‘ was recently decommissioned forcing Lithuania to also buy electrical energy from Russia. According to data from 2010, Lithuania’s dependence on Russia’s supply of natural gas, crude oil and electricity, was about 80% of its overall energy consumption. Lithuania is mainly dependent on Russia in the fields of electrical energy (72%) and natural gas (100%) For more information, see the chapter on infrastructure. The popular and political understanding of energy dependence in Lithuania is that Russia is using Lithuania’s energy dependence as a tool for political subordination. This understanding is realistic since energy is a basic precondition for the proper functioning of the modern society. Lithuania’s high dependence of Russia makes it very vulnerable. Even though Lithuania has become a member of the EU, it still remains under Russia’s sphere of influence. Russia’s behaviour regarding Lithuania’s energy supply since 1991 has only strengthened such discourse. Firstly, in the early 1990s, Lithuania experienced cut offs from natural gas supplies and in 2007, an important crude oil pipeline was closed to a Lithuanian oil refinery in Mažeikiai. Secondly, Russian is said to misuse its monopoly position over the Lithuanian gas market, leading to inappropriately high natural gas prices in the entire country. After some failed negotiations with Gazprom, Lithuania felt deceived and initiated a

3 Seimas of the Republic of Lithuania, Resolution No. XI‐52 on the Programme of the Fifteenth Government of the Republic of Lithuania, 2008, p. 44. 4 Lithuania in the EU, ‘Transit from/to Kaliningrad Region’, http://www.euro.lt/en/lithuanias‐membership‐in‐the‐ eu/transit‐from‐to‐kaliningrad‐region/, consulted on 06‐05‐2013. 5 Ministry of Energy of Lithuania, ‘National Energy Independence Strategy of the Republic of Lithuania, Vilnius 2012’, http://www.enmin.lt/lt/activity/veiklos_kryptys/strateginis_planavimas_ir_ES/Energy_independence_strategy0919.pdf, consulted on 15‐2‐2013. 54 number of legal procedures against the company on behalf of the Lithuanian consumer. Thirdly, Russia has constructed a new nuclear power plant near the Lithuanian borders which should also supply Lithuania with electrical energy, while Lithuania’s own nuclear power plant project in Visaginas was discredited by, according to many, an unbalanced national referendum.6 In response to this Russian threat to Lithuania, the country’s energy sector has been highly securitised, which is reflected in the country’s ‘National Energy Independence Strategy’ approved by the Seimas in 2012.7. Dependence on a ‘single supplier’ is considered as a threat to Lithuania. Consequently, the country is taking extraordinary measures in energy supply, such as the construction of an LNG terminal in Klaipéda and going through with the Visaginas nuclear power project irrespective of the referendum outcomes. Also, Lithuania supports continued commitment to building the Internal Energy Market through energy sector liberalisation and major enhancements in energy interconnectedness with other Member States. The Lithuanian government partially justifies all of this with Russia’s unpredictability and unreliability. In this way, Lithuania aims to escape from the Russian sphere of influence, and to simultaneously become more intertwined with the EU geopolitical space.8

5.1.2.2 Poland Poland and Lithuania have had a special relationship for many years. After the fall of communism between 1989 and 1991, Poland was one of the countries that supported Lithuania in breaking free from Soviet Russia. In February 1991, it was also one of the first countries to recognise Lithuania as an independent state. Despite this seemingly good relation between the two countries, some tensions also occurred at the beginning of the 1990’s for two main reasons. Firstly, according to Poland, the Polish minority living in Lithuania was not properly taken care of,9 for which they demanded extra efforts from the Lithuanian government. A second issue was that the Lithuanians believed that Poland tried to exert an excessive amount of influence over Lithuania. However, these tensions did not last long. The relationship got better and subsequently both countries agreed on a Declaration of Friendship in 1992. With this Declaration of Friendship, both countries agreed on respecting each other’s sovereignty and they promised to recognise the traditions of the minorities living in their countries.10 Despite the signing of the friendship declaration, in the early 2000’s tensions between Poland and Lithuania again occurred. This was because Poland experienced problems with the implementation of the Declaration of Friendship in Lithuania on one major issue. In Lithuania it is a rule to write down names in formal documents phonetically, however, this was unacceptable for the Polish minority living in Lithuania, because this rule changed the spelling of their names (see chapter 9 on human rights). 11 It became a case at the European Court of Justice, which ruled in favour of Poland.12 This still causes tension in Lithuania. So despite ties of friendship between the two countries, there are still some sensitive disagreements.

6 Interview 1, interview 39 and Agnia Grigas, ‘The Means and Ends of Russian Influence Abroad Series. Briefing paper: Legacies, Coercion and Soft Power: Russian Influence in the Baltic States’, Chatham House, 2012, http://www.chathamhouse.org/sites/default/files/public/Research/Russia%20and%20Eurasia/0812bp_grigas.pdf, consulted on 10‐05‐2013. 7 Ministry of Energy of the Republic of Lithuania, ‘National Independence Strategy 2012’, http://www.le.lt/media/dynamic/files/481/nationalenergyindependencestrategy.pdf, consulted on 05‐05‐2013 8 Interview 39. 9 R.D. Petersen, Understanding Ethnic Violence: Fear, Hatred, and Resentment in Twentieth‐century Eastern Europe, Cambridge: Cambridge University Press, 2002, p. 153. 10 A. Ashbourne, Lithuania: the rebirth of a nation, 1991‐1994, Oxford: Lexington Books, 1999, p. 87. 11 Interview 13. 12 European Court of Justice, C‐391/09 ‐ Runevič‐Vardyn and Wardyn, http://curia.europa.eu/juris/liste.jsf?language=en&jur=C,T,F&num=C‐391/09&td=ALL, consulted on 05‐05‐2013 55

5.1.2.3 United States of America Like most Western countries, Lithuania maintains good relations with the United States of America (USA). For the USA it was of great importance to have countries like Lithuania, which border the Soviet Union, on their side. The relationship between the USA and Lithuania started in 1922, when the USA recognised Lithuania’s independence. When Lithuania was suppressed by the Soviet Union as from the Second World War, the USA never recognised Lithuania’s incorporation into the Soviet Union. During this time there was a diplomat representing Lithuania present in the USA. After Lithuania became independent again in 1991, the USA worked closely with the country to rebuild democratic values and a market economy, both of great importance for the USA because of the geographic location of Lithuania. In 1998 a Baltic‐ US Charter for a long‐term partnership was founded for strategic reasons. In this Charter the USA promised to support democracy, stability and security in Lithuania. Strategically, Lithuania is an important relation for the USA, while, as mentioned before, Lithuania functions as a bridge between the USA and Russia.13 The USA is also one of the most popular countries to emigrate to for Lithuanian people. In 2011 almost 2.000 Lithuanians were living in the USA (see chapter 11 on migration).14

5.1.3 International organisations Lithuania is a member of the following international organisations: the United Nations, the Organisation for Security and Cooperation in Europe, the Council of Europe, the North Atlantic Treaty Organisation and finally the European Union. Also, this year Lithuania will hold Presidency of the Council of the EU. This paragraph will analyse Lithuania’s accession processes and current position within these organisations.

5.1.3.1 United Nations After becoming independent in 1991, Lithuania became a member of the UN. Since 1996 it has been a candidate for non‐permanent membership of the UN Security Council for 2014‐2015, for which elections are due in October 2013. In order to obtain membership, the Lithuanian Ministry of Foreign Affairs organised a large international campaign.15Also, Lithuania has been active in many UN peace‐keeping missions since 1994. It has participated in the following missions:  United Nations Protection Force in ;  United Nations Transitional Administration for Eastern Slavonia, Baranja and Western Sirmium;  UN Civilian Police Support Group in Croatia;  UN Mission in ;  UN Assistance Mission in Afghanistan;  UN Assistance Mission for Iraq;  UN Observer Mission in Georgia;  UN Interim Administration Mission in ;  United Nations Stabilisation Mission in Haiti and;  United Nations supervision Mission in Syria.

13 Seimas of the Republic of Lithuania, Resolution No. XI‐52 on the Programme of the Fifteenth Government of the Republic of Lithuania, 2008, p. 46. 14 Еuropos migracijos tinklas, ‘Top 10 emigration countries’, http://123.emn.lt/en/emigration/top‐10‐destinations, consulted on 03‐05.2013. 15 No author, ‘Lithuania Candidate to the United Nations Security Council 2014‐2015’, http://www.urm.lt/umr/m/m_files/wfiles/file4015.pdf, consulted on 03‐05‐2013. 56

Lithuania’s involvement with the UN shows the country’s willingness to support and cooperate in peace building missions and its commitment to global cooperation.16

5.1.3.2 Organisation for Security and Cooperation in Europe Besides becoming a member of the UN, Lithuania was also admitted to the Organisation for Security and Cooperation in Europe (OSCE) in 1991. On January 1st 2011 Lithuania took over OSCE Chairmanship. Lithuania wanted to focus on freedom of media, protracted conflicts and fostering regional co‐operation. Other important issues were promoting energy security in Europe and building synergies between regional organisations.17 The concluding report of the one‐year term chairmanship stated that Lithuania had reached most of the set targets.18

5.1.3.3 Council of Europe In 1993 Lithuania became a member of the Council of Europe. Lithuania already requested membership of the Council of Europe in 1990, but because Lithuania’s national sovereignty was too unstable at that time, the Council could not honour the application. However, after Lithuania’s independence, the government again applied for membership of the Council of Europe. Most countries of the Council of Europe had by then already recognised Lithuania as an independent country and the Council of Europe subsequently acknowledged the democratic constitution and newly elected parliament in Lithuania. In 1992, Committees of the Council visited Lithuania to gather information that was needed to draft a report with accession information. Lithuania, in the meantime, maintained good relations with the Assembly of the Council. The Council concluded that although the Lithuanian democracy left room for improvement, the country was doing its best to become a European country in which democracy and human rights are highly valued, and which was separated from the old Soviet Union. Although Lithuania is doing its best, in 2011 ten cases were brought to the European Court of Human Right, of which nine were ruled against Lithuania.19 Nonetheless, Lithuania honours the work of the Council by contributing to its annual budget. (547,342 euro in 2013, of the total budget of 243,970,300 euro). 20

5.1.3.4 North Atlantic Treaty Organisation Lithuania has waited a long time before being admitted as a member of NATO, which became reality in 2004 it. As early as 1994 the former president of Lithuania, Algirdas Brazaukas, officially applied for NATO membership, and even before that Lithuania had appointed an ambassador for EU and NATO issues. The actual procedure to enter NATO started in 1996 when the law on the Basics of National Security was adopted. This law defined integration into European and Transatlantic structures, which was a priority of Lithuanian foreign policy. One year after, at a NATO Summit in Madrid, it was noted that Lithuania together with the two other Baltic countries had stabilised and secured the region and later that year the Lithuanian mission to enter NATO was established. The former Minister of Defence, Linas Linkevičius, was sent to NATO as Lithuanian Ambassador. In 1999, at the Washington NATO Summit, Lithuania’s

16 Permanent Mission of Lithuania to the UN, ‘Thematic Issues’, http://mission‐un‐ny.mfa.lt/index.php?3343711020 , consulted on 22‐01‐2013. 17 OSCE, ‘Lithuania takes over OSCE Chairmanship, will focus on freedom of the media, protracted conflicts, fostering regional co‐operation’, http://www.osce.org/cio/74792, consulted on 06‐05‐2013. 18 OSCE, ‘Report on progress made during Lithuania’s Chairmanship of the OSCE’ , http://www.osce.org/mc/86008 , consulted on 18‐01‐2013 19 Council of Europe, ‘Lithuania’, http://hub.coe.int/country/lithuania?p_p_id=56_INSTANCE_5MIu&p_p_lifecycle=1&p_p_state=maximized&p_p_col_id=col umn‐2&p_p_col_count=2, consulted on 21‐01‐2013. 20 Council of Europe, ‘Lithuania‐member’, http://hub.coe.int/country/lithuania, consulted on 06‐05‐2013. 57 progress towards NATO membership was again acknowledged and NATO leaders launched the Membership Action Plan, which was meant to assist several new candidates, among which Lithuania, to become a member of NATO. A year later, in 2000, foreign Ministers of the countries in the process of joining NATO had a meeting in Vilnius. During this meeting they decided on a Statement in which they promised “to undertake the commitment to the creation of an alliance including the whole of Europe, the United States and Canada”. In 2002 in Prague, seven of the NATO candidate countries, were invited to start accession negotiations with the NATO. The Washington Treaty was signed and in March 2004 the Seimas ratified the Treaty. On March 29 Lithuania became a full‐fledged member of the NATO.21 Currently, one of Lithuania’s main priorities is to keep a strong bond with the transatlantic countries. Because Lithuania has a small army of only 14,500 active personnel, of which 2,100 are civilians, Lithuania has signed an agreement with to join forces from 2006 on. The Siauliai airport of Lithuania is a NATO Baltic Air Space which provides all Baltic countries with security. This airport used to be the largest military airport of the Soviet Union and is capable of handling some extraordinary planes.22 Concluding, Lithuania has worked hard for membership of the NATO for many years to safeguard its security interests through intensive cooperation with other western nations. Lithuania has moved its focus away from Russia towards western States. In foreign affairs cooperation, Lithuania has tried to avoid Russian dominance by becoming a member of many international and regional bodies. By being involved in such organisations, Lithuania is safeguarding and establishing its own position.

5.1.3.5 European Union For Lithuania, European Union membership was the most important step away from communism and towards the Western world. In 2004 it became a European Union Member State along with nine other countries. The process of becoming a member state of the EU took several years, just as it did with NATO accession. It started with the Agreement on Trade and Commercial and Economic Cooperation that came into force at the beginning of 1993. The decision of the European Commission later that year to support Lithuania through the PHARE programme, instead of through TACIS, meant that Lithuania was seen as a Central European country rather than one of the former Soviet countries. Also in 1993 at the Copenhagen European Council meeting, it was decided that Association Agreements with the Baltic States should be concluded. From 1995 onwards, Lithuania signed a Free Trade Agreement with the EU. The country also signed the Association Agreement which is also known as the Europe Agreement. This Agreement came into force in 1998, and extended the scope of the Free Trade Agreement. During the summer of 1995, Lithuania started integrating its first institutions: the Governmental European Integration Commission, the Department of European Integration at the Ministry of Foreign Affairs and the European integration units and working groups within the Ministries and agencies. Later that year, Lithuania officially applied for EU membership. The European Commission Delegation to Lithuania opened up in Vilnius in February 1996. The Committee on European Affairs was established in the Seimas at the end of 1997, also the European Council decided to launch accession negotiations with Lithuania and six other candidate states. In March 1998 ten countries started the common accession process, among which was Lithuania. However, this process failed. Nonetheless, from 1998 onwards

21 Ministry of Foreign Affairs Lithuania, ‘Membership of Lithuania in NATO’, https://www.urm.lt/index.php?3997250056, consulted on 18‐01‐2013. 22 Interview 19. 58

Lithuania began reviewing its national legislation according to the Acquis Communautaire. The failed recommendation of 1997 was redone during the 1999 Helsinki European Council meeting and in February 2000 Lithuania officially started the accession negotiations. These negotiations ended in Copenhagen in 2002. In 2003 in Athens the Treaty of Accession was officially signed by Lithuania and the nine other countries: the , , Estonia, Hungary, Latvia, , Poland, , and . Later that year the Lithuanian government organised a referendum for all Lithuanians to vote whether or not to become an EU member state. 63,37% of the Lithuanians voted and EU membership was accepted with 91,07% of the votes.23 As from the 1st of May 2004, Lithuania became an EU Member State together with the nine other countries. The new Member States still had to fulfil some requirement such as regarding the accession of the Schengen area and the Euro zone. Later in 2004, the Lithuanian Seimas was the first EU country that ratified the EU Constitution, which was however abandoned one year after. Subsequently in 2008 the Seimas ratified the Lisbon Agreement and in 2007 the country entered the Schengen area. For Lithuania it was of great importance to enter the EU and until today we can see from the EU rankings regarding compliance with EU rules and regulations that Lithuania is making an effort to be an EU Member State. The next chapter will elaborate further on the Lithuanian compliance with EU law. However, despite good performance according to several interviewees from various branches, the public opinion about the EU is not that good. According to one interviewee, for many Lithuanians the EU is just another Union to belong to.24 Also, membership of the EU and the Schengenzone might cause some negative aspects. For example the emigration numbers were very high during the years after accession. For more information, see the chapter on migration.25

5.1.3.6 Presidency of the Council of the European Union In July 2013, Lithuania will be the first Baltic state to hold the Presidency of the Council of the European Union, for which it has been preparing the past two years.26 Lithuanian politicians have been talking to countries that have already held the Presidency of the Council of the EU.27 In total Lithuania prepared 560 dossiers to discuss during its Presidency.28 The main priorities for this Presidency will only be a small number of topics. In the first place Lithuania wants to stabilise the financial situation within the EU. Lithuania also prepared 20 legal acts for the banking sector. Second, growth and jobs are a salient issue. Third, Lithuania wants to complete the internal market of the EU. Fourth, Lithuania wishes to accomplish the internal energy market. Last but not least, Lithuania wants to establish better relations with the Eastern partners of the EU. Countries like Belarus, Armenia, , Moldavia, Georgia and Ukraine are crucial for Lithuania because of their geographical position. Lithuania’s aim is to bring them closer to the EU and further away from Russia.29

23 Lithuania in the EU, ‘Historic Overview of Lithuanian‐EU Relations’, http://www.euro.lt/en/lithuanias‐membership‐in‐the‐ eu/historic‐overview‐of‐lithuanian‐eu‐relations/, consulted on 06‐05‐2013. 24 Interview 60. 25 No author, ‘Еuropos migracijos tinklas’, http://123.emn.lt/en/emigration/top‐10‐destinations, consulted on 06‐05‐2013. 26 Lithuanian Presidency of the Council of the European Union, ‘Presidency priorities’, http://espirmininkavimas.urm.lt/en/lietuvos‐pirmininkavimas‐es‐tarybai/lietuvos‐pirmininkavimo‐es‐tarybai‐prioritetai, consulted on 06‐05‐2013. 27 Interview 52. 28 Interview 52. 29 Interview 52. 59

5.1.4 Regional organisations Besides the abovementioned large international organisations, there are also various regional organisations that Lithuania is a member of. These include the Baltic Council and the Nordic‐ Baltic 8. The following paragraphs describe these two organisations and analyse the role they have played in Lithuania’s developments.

5.1.4.1 Baltic Council In 1990, the three Baltic states, Estonia, Latvia and Lithuania, founded the Baltic Council. This is an organisation in which the three countries cooperate and negotiate common positions in economic, political and cultural areas. However, decisions taken by the Council are not binding. The Baltic Council meets three times a year and consists of 20 parliamentarians in total, which are from the three countries. In the Council there are various committees, are made up of parliamentarians from specific fields of expertise. The Baltic Council was very helpful for the three countries during the EU membership procedures. The Baltic Council was there to help with the harmonisation of legislation that could be difficult for the three countries separately. Lithuania overall maintains a good relationship with the other Baltic States, of which this Council is a good example. Latvia is even investing most of its money in Lithuania. There are however also tensions between the Baltic states, such as the dispute over sea borders between Latvia and Lithuania.30

5.1.4.2 Nordic‐Baltic 8 Lithuania is also a member state of the Nordic‐Baltic 8 (NB8). This is a cooperation organisation between eight Nordic and Baltic countries, namely: , , Sweden, Finland, Denmark, Estonia, Latvia and, finally, Lithuania. The main reason for creating NB 8 in 1992 was trade relations among the member countries. The Nordic countries have always supported the ‘Baltic Three’ during their independence processes and further on with their membership in the EU and NATO. The countries in the NB 8 mainly created a network in which they can share experiences and best practices. Cooperation takes place between politicians, civil servants and NGO’s.31 Heads of State and Ministers regularly have meetings concerning different topics. The Nordic‐ Baltic 8 cooperates for example in political, military, economic, environmental and cultural areas. After the Baltic countries joined the EU and NATO, the cooperation between the NB8 countries increased further. This enhanced cooperation resulted in the NB8 taskforce against human trafficking and the foundation of a common policy on education and research. In 2010, seven of the eight countries (all except Iceland) agreed on The Nordic‐Baltic Cooperation Agreement on Cross‐border Financial Stability, in which the countries support each other financially and try to prevent that financial crises become trans‐border issues. The countries of the NB8 also cooperate diplomatically and with a signed memorandum, diplomats from one country can represent another country on certain events worldwide. The NB8 has been a great example for Lithuania of how a Western democratic state is designed and how the government should act in a democratic system.32

30 Ministry of Foreign Affairs of the Republic of Latvia, ‘Co‐operation among the Baltic States’, http://www.mfa.gov.lv/en/policy/4595/cooperation‐among‐the‐baltic‐states/, consulted on 06‐05‐2013. 31 Norden, ‘Nordic co‐operation with Estonia, Latvia and Lithuania’, http://www.norden.org/en/about‐nordic‐co‐ operation/areas‐of‐co‐operation/estonia‐latvia‐and‐lithuania/nordic‐co‐operation‐with‐estonia‐latvia‐and‐lithuania, consulted on 06‐05‐2013. 32 Interview 26. 60

5.2 Security and Defence Policy

Lithuanian National Security and Defence policies were created after the country gained its independence, simply because before that, Lithuania was attached to the Soviet Union and Soviet policies. The defence policy of Lithuania falls under the national security policy, which is attached to both the Ministry of National Defence and the Ministry of Foreign Affairs. The first concept that was written was the ‘Outline of the Concept of National Security’ in 1990, which can easily be noted as Lithuania’s new security and defence policy. The outline covered maintaining Lithuania’s own sovereignty and making a clear distinction between the inside and the outside world.33 It did not have much to do with actual policies that we are familiar with today. When Lithuania joined the United Nations in 1991, a second document concerning security and defence policies was drafted: ‘The Conception of National Security of the Republic of Lithuania’. Both documents, however, created some problems. The first document got accepted only by a small elite remaining from the communist system, while parliamentarians felt they did not have a say in the new document. In general, some issues were perceived as threats to the Lithuanian security. First of all, at the time of writing this new policy, Russian troops were present in Lithuania. The second issue was the instability of the Eastern European countries regarding economic, social and ethnic level. Thirdly, as Lithuania was a new democratic, market orientated state, multinational corporations and other states could still subject Lithuania’s economy.34 On the other hand, some of the parliamentarians thought Lithuania was becoming a ‘Westernised’ state way too early in its independence process. This modus operandi was thought to be against the national identity of the Lithuanians and would harm the cultural values of the country.35 At this stage, Lithuania felt related to the other Baltic countries that were going through the same processes and to the Scandinavian countries that were supporting Lithuania in the formation of security and defence policies.36 In 1996 things began to change dramatically for Lithuania’s policies on the areas of security and defence. ‘The Basics of National Security of Lithuania’, a new document concerning these policies was adopted by the Seimas in December of that year. The whole country had sight on a new future, namely membership in the EU and the NATO, and Lithuania’s policies had to fit those systems. Therefore, a new direction of policies had to be made, in order to change the security and defence policies into NATO and EU accepted strategies. In the following paragraphs the resulting security and defence policies will be analysed.

5.2.1 Security policy As was the case with foreign policy, after the Soviet era, Lithuania was able to decide on security and defence policy itself. Lithuania is geographically located in an important place, bordering both Russia and Belarus whose developments are hard to predict. For the Western world, including the NATO and EU, on the one hand, it was of great importance to gain confidence in Lithuania and for Lithuania on the other hand to trust these countries in security policy

33 G. Miniotaite, The Security Policy of Lithuania and the ‘integration dilemma, Vilnius: Lithuanian Institute of Philosophy and Sociology, 1999, p. 13. 34 V. Bagdonavicius, ed., Lietuvos nacionalinis saugumas: teorija ir realijos, Vilnius: Flosofijos, sociologijos ir teises institutas, 1999, p. 132. 35 G. Miniotaite, The Security Policy of Lithuania and the ‘integration dilemma, Vilnius: Lithuanian Institute of Philosophy and Sociology, 1999, p. 15. 36 Ibidem, p. 28. 61 matters.37 Therefore, membership of both organisations was important for Lithuania as well as for the other members of the organisations. Lithuania is, together with Latvia and Estonia, among the military weakest members of all the NATO countries.38 Lithuania is doing its best to cope with NATO standards such as spending at least 2 per cent of its GDP on defence and the capabilities of the Lithuanian National army that have to match NATO’s requirements, but at this moment this is not sufficient. Lithuania realised that although it is a member of NATO and enjoys collective defence, it has to be able to individually defend itself. Hence, Lithuania is strengthening its military forces.39 Nonetheless, Lithuania and some of the Scandinavian countries are cooperating in security systems and especially Sweden plays an important role in Lithuanian security. Above, the cooperation in defence has been described. Lithuania, however, also maintains ties with non‐NATO countries. The most important ones are Belarus, Ukraine, Moldavia, Russia and the South Eastern European countries. The aim of Lithuania’s actions is to create stability and democracy in these countries, because instability and conflict will have impact on the whole region. Lithuania furthermore supports Georgia in trying to join Euro‐ Atlantic alliances and European integration. Also, ties with Central Asian states such as , Kyrgyz Republic, Tadzhikistan, Turkmenistan and Uzbekistan, as well as with the People‘s Republic of China and the Republic of Korea have been established by Lithuania.40

5.2.2 Defence system As mentioned above, Lithuania’s Defence Policy is integrated ito its National Security Policy. The Lithuanian Defence system consists of four armed branches working together in the Lithuanian Armed Forces, which are: Air Force, Land Force, Naval Force and the Special Operations Force. The president of Lithuania is the commander in chief of these Forces. In 2012, the Lithuanian army comprised of 14.828 persons in total. Although there is no compulsory conscription, 2,190 persons within the army were there on a civilian basis.41 The main objectives of the Defence policy are:  To ensure effective fulfilment of functions of the National Defence System in peacetime;  To ensure readiness to conduct reliable defence in case of armed aggression, including readiness to conduct mobilisation and instruction of citizens;  To contribute to the strengthening of NATO defence capacity and to other international‐security building initiatives, including participation in multinational operations;  To maintain readiness to respond to non‐military threats by deploying military assets to assist state and municipal agencies.42

37 CSIS Eastern Europe Project Institute of International Relations and Political Science, ‘Lithuania’s Security and Foreign Policy Strategy’, http://csis.org/files/media/csis/pubs/2002_lithuaniasecurity.pdf, consulted on 19‐02‐2013. 38 Atlantic Council, Nordic‐Baltic Security in the 21st century: The regional Agenda and the Global Role, September 2011, p.3. 39 Ministry of National Defence, ‘Main Directions of the Lithuanian Defence Policy’, http://www.kam.lt/en/international_cooperation_1089/nato_1282/main_directions_of_the_lithuanian_defence_policy.ht ml, consulted on 19‐02‐2013. 40 Ministry of National Defence, ‘Cooperation with non‐NATO states’, http://www.kam.lt/en/international_cooperation_1089/cooperation_with_non‐nato_states.html, consulted on 19‐02‐ 2013. 41 Ministry of National Defence, ‘Facts and Figures’, http://www.kam.lt/en/human_resource_policy_1062/facts_and_figures.html, consulted on 13‐02‐2013. 42 Ministry of National Defence, ‘Defence Policy of Lithuania’, http://www.kam.lt/en/defence_policy_1053/defence_policy_of_lithuania.html, consulted on 13‐02‐2013. 62

Since Lithuania joined NATO in 2004, it is trying to strengthen its military forces to meet the requirements in terms of number of personnel as well as in terms of equipment and technology. Besides that, Lithuania can rely on Sweden’s military assistance if necessary. This is written down in a document that Sweden signed in 2010, a so called “Solidarity Declaration” because Sweden is not a member of NATO. Sweden and other Nordic states would like to cooperate in both operational terms and joint acquisition of equipment.43 Concluding, over the past twenty years Lithuania has been developing its national security and defence policy, mostly through cooperation with other countries. Even though Lithuania has not yet accomplished its goal of matching all NATO requirements, it has taken action by strengthening its army and working towards creating a solid security and defence system.

43 Atlantic Council, ‘Nordic‐Baltic Security in the 21st century: The regional Agenda and the Global Role’, http://www.acus.org/files/publication_pdfs/403/090711_ACUS_NordicBaltic.PDF, consulted on 19‐02‐2013. 63

6. EU Policy in Lithuania

In order for Lithuania to become a member of the European Union in 2004, the country had to align its national law with EU law, since the EU is based on common rules and regulations. Though the process of EU law compliance officially took effect with Lithuania’s accession in 2004, the country worked towards creating a proper system for taking on the Acquis Communautaire since the early 1990’s, when Lithuania became independent from the Soviet Union. The following chapter will first discuss the Lithuanian system of EU law transposition and implementation, currently coordinated by the EU law department under the Ministry of Justice. Secondly, the chapter will elaborate on Lithuania’s performance regarding the compliance with EU law so far, by looking at EU statistics, followed by an explanation and critical review of Lithuania’s seemingly outstanding performance.

6.1 Lithuanian system of transposing EU Law

The European Union can only effectively operate if there is common abidance of EU laws, which requires the Member States to implement the EU’s legal acts. Naturally, Member States have the opportunity to express their opinion in EU decision making and to negotiate their national interests, but once a law is adopted, every Member State has to ensure that it is implemented and enforced in their national law. Since the total of EU legislation is voluminous and the processing of it is taken up by several government bodies, a complex system of transposition and implementation of EU Law has been developed in Lithuania. The transposition and implementation of EU law falls under the responsibility of approximately 40 units, such as the ministries and a number of supporting agencies.1 Before the Lithuanian accession to the EU in 2004, this EU law implementation system was developed under the Office of the Government. Until 2009, two departments under the Office were responsible for processing all EU related measures. The first was responsible for coordinating the national positions regarding EU law, while the second department was responsible for coordinating EU law transposition and implementation. This second department, the Department of Coordination and Monitoring of EU Law Implementation, controlled all the planning and deadlines and was dealing with problems regarding the implementation of EU law. It demanded the responsible institutions, especially the ministries, to submit concrete programs for the transposition and implementation of EU acts to the Office of the Government. Accordingly, national programs were formed, including the deadlines for preparation and adoption. Every month, these programs were discussed by the vice‐ministers responsible for the specific law area. The most difficult issues were taken up on the Government agenda and were discussed in the Seimas Committee on a similar monthly basis.2 However, since a new government entered office in 2009, the attention of the Lithuanian government shifted from a focus on the EU towards a focus on national measures to respond to the economic crisis occurring in Europe since 2008. This placed the issues related to adopting EU laws on a lower priority level. Government reforms took place, which resulted in the division and relocation of the two EU law departments formerly under the Office of the Government. The department coordinating the national position and negotiations regarding EU laws was

1 No author, ‘Implementation of European Union Law in Lithuania’, http://www.euro.lt/en/lithuanias‐membership‐in‐the‐ eu/coordination‐of‐eu‐affairs‐in‐lithuania/implementation‐of‐eu‐law‐in‐lithuania/, consulted on 19‐01‐2013 2 Interview 21. 64 relocated to the Ministry of Foreign Affairs. The Department for coordination of European law transposition and implementation was moved to the Ministry of Justice. With regard to the latter, content wise the function of the department did not change, as it still coordinates the implementation of EU law in all the ministries and has to notify the government and the Seimas of the achievements of the ministries. The latter make the plans on how European laws are to be transposed into national law. The Department is presenting the progress of the ministries to the governmental European commission every month, after which it is discussed by the vice‐ ministers. After the laws have passed government, the Department starts to work with the Committee of European Affairs in the Seimas, while the drafts have to be approved by Parliament as well. Close relationships are maintained between the Department, the government, and Seimas in order to avoid infringement procedures for incorrect or late transposition and implementation of EU law in the Lithuanian law.3 According to one of the interviewees, a change has occurred concerning the Department of Coordination of European Law Transposition and Planning. It has lost its central influential position in the Office of the Government and has had to continue its coordinating role under one of the ministries. Ministries tend not to keep to deadlines as conscientiously and strict as before and are less impressed by cautions of the Department. Also, the Department has been diminished to half its earlier size during the reforms of 2009, which has increased the workload of its employees.4 One interviewee, however, told us that this does not mean that the system has become ineffective. The Department of Coordination and Monitoring of EU law implementation still has some influential instruments to make sure the laws are adopted in time. First of all, the Department has an extensive database which makes it possible to see both the status of a law which has to be adopted and what institution is responsible for its adoption. The ministries have to provide the Department with a correlation table, so that the latter is able to check whether it is drafted correctly. The database contains all the information on the progress regarding Directives and EU regulations and decisions. This helps them to deal with the workload of coordinating the transposition of EU Law.5 Annually, Lithuanian institutions transpose a bulk of over 100 Directives into national law, and implement over 2000 regulations and decisions. Also, approximately 50 laws, 30 government regulations and 200 legal acts on the level of Minister’s orders are adopted6 Secondly, our interviewee stated that despite the fact that the department is not operating from a central position anymore, it still wields the instrument of notification. All ministries are responsible for taking up the EU law in their specific field and have to notify the Department in time of the programs they draw in order to adopt these laws. According to one interviewee, if these programs are not delivered to the Department on time, then the latter takes on the role of the ‘bad guy’ refusing to notify the government of the developments made by the ministries. These refusals are feared by the ministries, as the result of missing a deadline can be a financial sanction of the EU, for which the ministries do not want to be held responsible. In this way the department can still exert its influence.7

3 Interview 21. 4 Ibidem. 5 Ibidem. 6 No author, ‘Implementation of European Union Law in Lithuania’, http://www.euro.lt/en/lithuanias‐membership‐in‐the‐ eu/coordination‐of‐eu‐affairs‐in‐lithuania/implementation‐of‐eu‐law‐in‐lithuania/, consulted on 19‐01‐2013. 7 Interview 21. 65

Lithuania has thus been developing a proper system for the transposition and implementation of EU laws since its independence in 1991. Despite reforms of the coordinating bodies due to the economic crisis and the necessity of cutting costs, it is still able to systematically take on EU law.

6.2 Monitoring EU law compliance

The Member States of the EU are continuously monitored by the European Commission on their performance regarding the adoption of EU law in their national law. The three criteria for this performance are: whether or not a specified deadline for the adoption of EU law is met, whether national law is conform with EU law, and whether the law is implemented correctly. If a Member State performs inadequately or does not meet the deadlines, the European Commission can start an EU law infringement procedure. The procedure starts with a ‘letter of formal notice,’ in which the European Commission explains its position on the infringement to the Member State regarding a specific law area.8 In the case of such occurrence, the Commission asks the Member State to take action within a given timeframe. In starting such a procedure, the Commission gives the Member States the opportunity to comply with the requirements of the implementation of a certain law voluntarily, before taking further action. Where necessary, the case could be referred to the European Court of Justice.9 The EU can thus exert its influence on EU Member States by taking action and by sanctioning the Member States if they do not perform adequately regarding EU law compliance.

6.3 EC statistics regarding Member States EU law compliance

Following the statistics of a European Commission report in 2011, Lithuania is performing very well regarding compliance on EU law. As figure 1 shows, the country is situated among the best ranking of missing deadlines and performing inadequately. The blue bars indicate the amount of late transposition infringements (LTI’s); the red bar shows the total sum of LTI’s and infringements procedures based on content. Lithuania is in the bottom three, which shows that it is doing its best to perform well on transposing EU law into its national law.10 By the end of 2011 the Commission had opened only 36 infringements against Lithuania. In its reference group, containing similar sized countries (Denmark, Slovakia, Finland and Ireland), Lithuania performed best. Although 36 infringements is a low number compared with other countries, Lithuania’s performance has deteriorated compared to the 24 infringements in 2010 and 28 in 2009. However, despite the slightly worsened performance, Lithuania has always been one of the top performers compared to the other EU Member States in terms of complying with EU law since its accession in 2004. From 2009 to 2011 there were no court cases against Lithuania, which, by contrast, did occur against other countries in the reference group mentioned above.11 Looking at the difference between the black and grey bars in figure 1, one

8 No author, ‘Implementation of EU Law in Lithuania’, http://www.euro.lt/en/lithuanias‐membership‐in‐the‐ eu/coordination‐of‐eu‐affairs‐in‐lithuania/implementation‐of‐eu‐law‐in‐lithuania/, consulted on 19‐01‐2013 9 European Commission, ‘Infringements of EU Law’, http://ec.europa.eu/eu_law/infringements/infringements_en.htm, consulted on 19‐01‐2013. 10 No author, ‘Implementation of EU Law in Lithuania’, http://www.euro.lt/en/lithuanias‐membership‐in‐the‐ eu/coordination‐of‐eu‐affairs‐in‐lithuania/implementation‐of‐eu‐law‐in‐lithuania/, consulted on 19‐01‐2013. 11 European Commission, ‘29th Annual Report on Monitoring the Application of EU Law’, http://ec.europa.eu/eu_law/docs/docs_infringements/annual_report_29/sg_annual_report_monitoring_eu_law_121130.p df, consulted on 10‐01‐2013. 66 can also notice that Lithuania had only a small number of infringements based on content, while this difference gets larger moving up to the Member States on the right end of figure 1.

Table 6.1: Infringement procedures in the EU in 2011

Source: European Commission, ‘29th Annual Report on Monitoring the Application of EU Law’, p.11

The areas in which Lithuania was most often subject to infringement procedures over 2011 were transport (10 infringements), environment (5), internal market & services (5) and energy (4). In the area of transport the European Commission even started nine procedures concerning late transposition of EU Directives. However, Lithuania has never received any threats of financial sanctions. This is partly the result of Lithuania’s efforts for an early resolution of the infringements. On average, the Lithuanian response took 62 days, which is slightly below the average Member State response of 10 weeks. Also, the Lithuanian government worked actively on settling the issues which lead to the infringements as they took measures to change their system in compliance with EU standards.12 Examples of key infringements against Lithuania in 2011 were the ban on registration of right‐hand drive cars and priority rights for leasing land by incumbent lessee at the Klaipeda State Seaport. So far, all of these infringements have been settled.13 Another indicator used by the EC to assess the Member States performance on compliance with EU law is the number of filed complaints. Complaints are submitted to the European Commission by citizens, businesses, NGOs or other organizations concerning issues with EU law. In 2011 the Commission received 25 complaints against Lithuania. This number is the third lowest among the 27 EU Member States. If we compare this to the countries in

12 European Commission, ‘29th Annual Report on Monitoring the Application of EU Law’, http://ec.europa.eu/eu_law/docs/docs_infringements/annual_report_29/sg_annual_report_monitoring_eu_law_121130.p df, consulted on 10‐01‐2013. 13 Ibidem. 67

Lithuania’s reference group, a significant difference can be noticed. Over 2011, there were 77 complaints against Denmark, 63 against Slovakia , 46 against Finland and 90 against Ireland.14 One interviewee posited that this low number of complaints in Lithuania is due to unfamiliarity of the Lithuanian people with this possibility. Lithuania is a young democracy and therefore people may be afraid to step up and fight for their interests. Information is available to everyone, but the mentality from the pre‐independence era has not yet disappeared.15 As such, Lithuania can be seen as a country diligently trying to perform well on EU matters, although the fact that it is still a young democracy could partly account for the positive score in terms of the low number of complaints.

6.4 Foundation of the Lithuanian EU law transposition system

In his book on EU law compliance of the CEECs, Dimiter Toskov states that Lithuania creates most problems for analysis, because it never shows significant problems with the transposition of EU law. Toshkov states that all CEECs are in general performing well in the transposition of EU law, for which three main factors serve as an explanation. The first is that the CEECs had already accepted the commitment to legal alignment through the Europe Agreements at the start of the 1990s. Alignment with the EU thus started just after Lithuania regained its independence and had to build up the country anew.16 The second factor is the conditionality with regard to the accession process, for which the candidate countries were required to have sufficient capacity and preparation to adopt the complete Acquis Communautaire. As such, the foundation for transposing EU law had already been laid down in the pre‐accession stages. The third factor is that complex coordination structures had been established in the candidate countries, because the EU saw the accession of the ten CEECs as a major challenge, to be tackled through well‐structured systems.17 Lithuania is a good example of such a system; as mentioned before, there is a strong form of coordination from the Lithuanian Government Office, which provides for a well‐structured instrument to process European laws.18 Membership in the European Union did not only pose challenges for the members of the already existing EU, but foremost for the acceding countries. It was therefore very important for those countries to have a good coordination framework on the work of the government apparatus. In Lithuania, each Ministry, department and all levels of the public administration thus needed a proper system for the integration of EU policy. This was initially accomplished by strict coordination of the Lithuanian Inter‐ministerial Commission on European Integration, chaired by the prime minister, while in other CEECs coordination of European integration was often executed by the Ministries of Foreign Affairs. This posed difficulties in those countries, as the EU not only touches upon foreign affairs, but on all areas in society.19 Lithuania’s alternative approach to dealing with EU laws, from a central point in government, can thus serve as a distinctive feature in explaining why Lithuania encounters little difficulty in transposing EU laws.

14European Commission, ‘29th Annual Report on Monitoring the Application of EU Law’, http://ec.europa.eu/eu_law/docs/docs_infringements/annual_report_29/sg_annual_report_monitoring_eu_law_121130.p df, consulted on 10‐01‐2013. 15 Interview 21. 16 D. Toshkov, Between Politics and Administration: Compliance with EU Law in Central and Eastern Europe, Leiden: University of Leiden, 2009, p.30. 17 Ibidem, p. 82. 18 Ibidem, p. 161. 19 Ibidem, pp. 27‐29. 68

6.5 Challenges to the Lithuanian EU law compliance

After the independence in 1991, Lithuania immediately started working towards cooperation with, and later accession to, the European Union. In a fairly short period of time, the country reformed its institutions, transposed approximately all EU laws and responded to a wide array of conditions in order to be accepted as a member of the EU. For this, a strong administrative capacity had been built in the pre‐accession phase, enabling Lithuania to avoid major cases of non‐compliance. However, these non‐compliance cases do exist. Klaudijus Maniokas, professor at the University of Vilnius, highlights a few of them and says they seem to be the result of voluntary non‐compliance, since the system is too strong to do so involuntarily.20 This raises the question whether Lithuania usually performs so well in the statistics because of the inheritance of a proper system from the pre‐accession period, or because there are still enough incentives at present. According to one interviewee, a socialisation effect has occurred, implying that transposition has become a rational behaviour; it is not only about sanctions, but it is also about being socialised into the system.21 However, as mentioned earlier, another interviewee focused more on a rational explanation, stating that it is important for ministries to keep the deadlines to avoid the responsibility for financial sanctions.22 Furthermore, there are cases in which the European Commission knows that it is not easy for Lithuania to comply with EU laws, and where voluntary non‐compliance can occur. This is, for example, the issue concerning European regulations on IVF23 treatment, which the Catholic Church in Lithuania heavily opposes. Another example is legislation in the field of energy, for example in the Gas Directive, which is a sensitive issue for Lithuania (see chapter 18 on infrastructure). However, the European Commission knows these sensitive issues need more time in order to be transposed into national law.24 The question therefore remains if there is still a strong will for Lithuania to follow EU law now the incentive of conditionality no longer exists. Of course, the EU still has some power, as fear of sanctions and reputational damage remains. However, the question is whether EU law will work in practice as much as on paper.25 According to one interviewee, laws are implemented and enforced unevenly in different areas. In some cases this is due to weak inspections, but sometimes this is also because there has not been preparation of structuring these laws. Also, the interviewee mentioned that problems of the functioning of the law in practice are due to the low level of trust in the government, which is mostly the result of a post‐ Soviet trauma (see chapter 7 on democracy and civil society).26

6.6 Concluding remarks

Lithuania has over the last years performed well in complying with EU law. Data show that Lithuania does not only rank low in infringement procedures due to the fact that it is a small country, but it also scores best among countries of a similar size in its reference group. The question that remains concerning this compliance is whether Lithuania actually agrees with the

20 K. Maniokas, ‘Conditionality and Compliance in Lithuania: the Case of the Best Performer’, European Online Integration Papers, nr. 2, (2009), p.10. 21 Interview 25. 22 Interview 21. 23 In Vitro Fertilisation, an infertility treatment surrounded by controversy 24 Interview 21. 25 K. Maniokas, ‘Conditionality and Compliance in Lithuania: the Case of the Best Performer’, European Online Integration Papers, nr. 2, (2009), p.12. 26 Interview 25. 69

EU law that it implements, or follows the requirements of a new system to replace the Soviet system. After a long pre‐accession period of working towards institutional and law alignment with the EU, Lithuania has established a proper transposition and implementation mechanism, which enables them to keep complying with EU law. However, Lithuania is facing some challenges regarding the adoption and implementation of sensitive EU legislation and the functioning of EU law in practice. Thus, while the country is performing well, it still has its challenges to overcome.

70

7. Democracy and civil society in Lithuania

In order to provide a better understanding of the contemporary status of civil society and democracy in Lithuania, this chapter describes several features of these concepts. First of all, it gives an explanation of what exactly is understood by the term ‘Civil Society’ and democracy. Also, the situation of civil society until 1991 will be described. Second, the current situation of civil society will be described, with a special focus on political participation due to its importance for the functioning of the democracy. Third, the chapter describes the influence of the Lithuanian government and the EU on civil society. Last, possible explanations will be given for the underdevelopment of civil society.

7.1 Civil society and democracy until 1991

Karl Popper once defined democracy as a contrast to dictatorship, thus focusing on the opportunities that people have to control their leaders and to oust them without needing a revolution. In order to carry out this controlling function, people would have to be able to participate. Civil society and democracy are two concepts that are closely linked since civil society is mostly seen as a means to limit state power or ensure interests are being defended within the community.1 Concluding, if civil society is underdeveloped which i.e. means people don’t participate in civic action, democracy is underdeveloped too since civil society is not functioning as a controlling mechanism. Though many definitions can be given of civil society, the most simple and covering is that ‘civil society is an area of life where people interact without mediation of the government and on an entirely voluntary basis’.2 This definition is mostly linked with political participation, but participation can be interpreted broadly ranging from hearing the opinion of fellow citizens or employees trying to affect their management to engaging in voluntary activities.3 Because of Soviet occupation, both civil society and democracy were unable to thrive until 1991. Since 1945, the Soviet Republic tried to control every space of life, including family life and private spheres.4 Moscow always had the final say. Every aspect of everyday life was incorporated in a Soviet system of which several examples can be given.5 First of all, communication was impossible without mediation by the government, which meant no societal organization was voluntary.6 More specifically, annual neighborhood clean‐ups, public festivities and other ‘social’ initiatives’ were obligatory for everyone.7 Existing organisations were infiltrated by institutions such as the KGB, who were given the task to investigate and interrogate. Second, school and work were organized and planned centrally, meaning no individual schedule was allowed. Instead, every discipline was dedicated to socialism.8 Third, no

1 N. Götz, and J. Hackmann, Civil society in the Baltic Sea region, Hampshire: Ashgate, 2003, pp. 3‐4. 2 Eastern Europe Studies Centre, ‘Over the hedge: Attitudes on civil society and Belarus’, http://www.eesc.lt/public_files/file_1288349779.pdf , consulted on 15‐01‐2013. 3 R. Tijunaitiene, B. Neverauskas , S. Balciunas, ‘Expression of Collectivistic Motives of Lithuanian Citizens Participation in Civil Society Organizations’ Engineering Economics, nr.3, (2009), pp. 67‐68. 4 BTI, ‘Lithuania Country Report’, http://www.btiproject.de/fileadmin/Inhalte/reports/2008/pdf/BTI%202008%20Lithuania.pdf, consulted on 16‐01‐2013. 5 Interview 41. 6 BTI, ‘Lithuania Country Report’, http://www.btiproject.de/fileadmin/Inhalte/reports/2008/pdf /BTI%202008%20Lithuania.pdf, consulted on 16‐01‐2013. 7 Eastern Europe Studies Centre, ‘Over the hedge: Attitudes on civil society and Belarus’, http://www.eesc.lt/public_files/file_1288349779.pdf, consulted on 15‐01‐2013. 8 Interview 41. 71 free expression of opinion was allowed.9 Thus, during the Soviet occupation, democracy and civil society did not exist. This changed after Lithuania regained independence in 1991.

7.2 Current civil society in Lithuania

Civil society in Lithuania is generally considered to be underdeveloped compared to western EU‐ member states since percentages of participation are low.10 However, Lithuania has come a long way since the independence in 1991 as the government has tried to create a favourable environment by implementing several financial and legislative measures. Also, in some areas of civic action, such as social or religious domains, more participation is becoming apparent. Political participation attracts the most attention. Not only is this very important to the functioning of democracy, it also illustrates that there is an increasing tendency to participate.

7.2.1 Measures taken by the Lithuanian government In order to strengthen civil society, the Lithuanian government has taken both financial and legislative measures. Financial measures included changes in the tax regime. For instance, NGO’s only have to pay a 5% income tax rather than the regular 29% rate. Moreover, donations from abroad are excluded from value added tax and donations from companies are tax exempt.11 Also, a tax reform in 2003 obliges citizens to invest up to 2% of their income tax to private or public non‐profit entities.12 Furthermore, NGO’s do not pay registration fees. The legislative measures included improvements of the regulatory and legal framework. First of all, a Constitution was adopted ensuring civil rights such as the right to private property and contract and the right to form societies, political parties and associations.13 Second, a new Civil Code was enacted on the 18th of July 2000 which elaborated on these rights.14 Last, structures are laid down within the law so civil society can influence the policy‐making process. For example, NGOs and interest groups may take part in the political process through policy advocacy, counseling and other forms of participation. Business associations and trade unions such as the Tri‐partite Council15 have the most influence on policy formulation.16 Concluding, the Lithuanian government has taken several financial and legislative measures in order for civil society and democracy to thrive.

7.2.2 Participation Several institutes investigated the participation of Lithuanian citizens in civil society, but many of them were rather negative about the development of public participation up until now. Most surveys conclude that Lithuanian society still lacks the initiative and trust in order to develop further. However, in some areas of civil society, people are more willing to participate than in others.

9 Interview 41. 10 Eastern Europe Studies Centre, ‘Over the hedge: Attitudes on civil society and Belarus’, http://www.eesc.lt/public_files/file_1288349779.pdf, consulted on 15‐01‐2013. 11 N. Götz, & J. Hackmann, Civil society in the Baltic Sea region, Hampshire: Ashgate, 2003, p. 90. 12 Ibidem, p. 90. 13 Government of Lithuania, ‘Constitution of the Republic of Lithuania’, http://www3.lrs.lt/home/Konstitucija/Constitution.htm, consulted on 20‐01‐2013. 14 N. Götz, & J. Hackmann, Civil society in the Baltic Sea region, Hampshire: Ashgate, 2003, p. 95. 15 The Tri‐partite Council consist of representatives of trade unions, employers’ organisations and the Lithuanian Government. They signed a Tripartite Agreement which obliged the Government to adopt decrees on labour, social and economic issues only after consideration in the Tripartite Council. The Tripartite Council also obtained a right to attach its conclusions to draft laws on these issues. 16 Civil Society Institute ‘Conclusions: Diagnosis of the State of Lithuanian Civil Society, http://www.civitas.org.uk/, consulted on 17‐01‐2013. 72

As stated by the Eastern European Studies Centre (EESC) in a report called ‘Over the Hedge’ which was issued in 2010, participation within the Lithuanian society appears to be rather limited even though people have the legal opportunities to do so. As the figure below shows, 30% of the population did not participate in any civil society initiative this year. This percentage is almost the same as that of Belarus, where conditions for civil society are less favourable since there is no financial or legal base to support civil society.17

Figure 7.1: Participation in civil society in 2009, Lithuania

33% Percentage of people who have participated in three or more civil society initiatives 30% Percentage of people who have participated in civil society initiative of any type this year 18% Percentage of people who have participated in two civil society initiatives

18% Percentage of people who have participated in one civil society initiative

Source: The Eastern European Studies Centre

The Civil Society Institute (Civitas) also investigated the state of the Civil Society in Lithuania in 2006 and published its findings in a report called Undiscovered Power: Map of the Civil Society in Lithuania. They researched why people refrain from civil action and concluded that:

Lithuanian society is suffering from the syndrome of impotence… The most severe civil disability that hinders the development of civic initiatives in Lithuania is the society’s prevailing disbelief that citizens’ collective action can make a difference or help achieve significant outcomes.18

According to a 2005 survey from the same institute, over the past six years approximately one‐ fifth of the population was a member of NGOs or participated in civil movements. It is hard to describe what form of civic activity people engage in most since information about this topic is contradictory. For example, the 2005 report stated that sports and recreational groups have the largest membership consisting of 3.5% of the population. However, it has also been stated several times that most people participate in civil society organisations

17 Eastern Europe Studies Centre, ‘Over the hedge: Attitudes on civil society and Belarus’, http://www.eesc.lt/public_files/file_1288349779.pdf, consulted on 15‐01‐2013. 18 Ibidem. 73 concerning social issues such as poverty and elderly people.19 The reason for this popularity is that such problems are most visible in daily life.20 Also, in the 2005 survey it was concluded that 2.5% of the Lithuanian citizens belonged to youth groups while other sources stated that youth groups have a large amount of members. This is due to the fact that there are many youth organisations and that they can involve young people through primary and secondary school.21 Moreover, though the report concluded that only 2.2% of the Lithuanian population was a member of a religious organisation, it was stated by an interviewee that about 75% of the population was related to the Catholic Church, of which 10‐15% was an active member.22 What’s more, only a small percentage of 2.6% was considered to have been a member of an educational and cultural organization. This number seems somewhat unrealistic due to the importance of singing organisations and the promoting of educational organisations. Singing organisations are a very important part of daily life within Lithuania due to the ‘Singing Revolutions’ (see chapter 2 on historical narrative).23 Regarding the educational organisations it has already been mentioned that many young people participate in youth organisations which makes it seem unlikely that participation levels are low.24 Thus, it cannot be said with certainty in which kind of civic organisation people participate the most. People in Lithuania and several research reports agree that people’s willingness to participate is greatly influenced by their level of education and whether they are living in a rural area or a city. For example, in the 2005 survey it was said that people with higher education participate the most, namely 29%. Also, in the Civic Empowerment Index created in 2007 by Civitas, it was stated that ‘younger citizens who have higher educational attainment, are employed or are still studying, live in major cities and receive higher income, tend to participate in civic activities more often’.25 What’s more, it has been stated that people who live in rural areas tend to participate less than people that live in a large city such as Vilnius. According to an interviewee this is mostly the result of lack of civic organisations in the area but also lack of knowledge about such organisations.26

7.2.3 Political participation Though it cannot be said with certainty in which form of civic activity people engage the most in Lithuania, it can be said that most Lithuanian citizens describe civil society as political participation.27 For this reason and due to its importance for the functioning of the democracy, extra attention will be given to the current situation of political participation. The level of political participation is dependent on three different manners of participation: voting for the elections, party membership and voter volatility. The turnout at the elections and the membership of political parties are direct participation, while voter volatility shows whether the participation is stable.

19 Interview 41 and 22. 20 Interview 22. 21 Ibidem. 22 Interview 22. 23 Interview 16. 24 Interview 22. 25 Civil Society Institute, ‘Civic Empowerment Index’, http://www.civitas.lt/en/?pid=24&id=81, consulted on 04‐05‐2013. 26 Interview 22. 27Eastern Europe Studies Centre, ‘Over the hedge: Attitudes on civil society and Belarus’, http://www.eesc.lt/public_files/file_1288349779.pdf, consulted on 15‐01‐2013. 74

7.2.3.1 Voter turnout The voter turnout has been low since the independence of Lithuania, although are free and fair and the public confidence in the electoral process is secure. The low voter turnout can be explained by the fact that the parliament and political parties are unpopular political institutions.28 Furthermore, people do not feel like they can influence politics.29 From a normative point of view, half of the voters is disengaged from democracy, which is not a good development. However, according to an interviewee, the group of people that tends to vote is diverse; it is thus not a heterogeneous group of non‐voters. People that grew up during Soviet Union dominance are most willing to vote. Most non‐ voters live in the country side and experienced long term unemployment as a consequence of the economic transition. They see themselves as victims of the transition and are less inclined to vote. These non‐voters are mostly supporters of populist parties. Young people also do not tend to vote regularly, but when they do, they are most likely to vote for liberal parties.30

Table 7.1: Voter turnout elections 1993‐2012 Turnout at the presidential elections (%) Year 1993 1997 2002 2004 2009 First round 78.07 71.45 53.92 48.40 51.76 Second round 73.66 52.65 52.46 Turnout at the parliamental elections (%) Year 1996 2000 2004 2008 2012 The first vote 52.92 52.83 36.71 48.58 52.90 Repeated voting 48.08 40.26 32.37 35.90 Turnout at the local government Councils (%) Year 1997 2000 2002 2007 2011 Voting 39.93 49.63 49.23 36.50 44.08 Source: The Central Electoral Commission of the Republic of Lithuania

7.2.3.2 Party membership The number of citizens that is a member of a political group has been decreasing from 1990 until 2004. In 1990, 7.4% of the electorate participated in party activities. At this time there were only 5 political groups. In 1999 there were approximately 20 political groups, but only 2% of the electorate was a member of one of these parties. A greater choice in parties thus does not seem to inspire more people to participate. There is even a tendency for people who used to be active to become passive, which is a direct result of the lack of confidence in political parties.31 Since 2004 the number of citizens belonging to a political party is increasing, although it is still far under the average of the European Union. In 2008 2.71% of the electorate was a member of a

28 A. Paisecka, ‘Nations in Transit 2007: Lithuania’, http://www.unhcr.org/refworld/pdfid/4756ad 5912.pdf.com, consulted on 16‐01‐2013, p. 425. 29 Interview 38. 30 Ibidem. 31 J. Vaiciuniene, S. Nefas, ‘Lithuania: Brave enough to implement daring democratic reforms?’, http://www.oxfordhandbooks.com/view/10.1093/oxfordhb/9780199562978.001.0001/oxfordhb‐9780199562978‐e‐27, consulted on 17‐01‐2013. 75 political party in Lithuania, while the average in the European Union in the same year was 4.65%.32

Table 7.2: Party membership as % electorate of Lithuania Total party Membership as % of Year Electorate membership electorate 2004 2,666,196 54,569 2.05 2008 2,696,090 73,133 2.71 Source: I. van Biezen, P. Mair and T. Poguntke.

Table 7.3: Members per political party in Lithuania Year LSDP DP TS‐LKD NS LiCS LRLS 2004 13,000 12,900 12,269 4,500 4,500 2007 15,480 13,601 6,485 4,343 1,528 2008 15,601 12,808 18,160 5,622 4,538 2,228 Source: I. van Biezen, P. Mair and T. Poguntke.

The Homeland Union has the highest number of members, which can be explained by the fact that this party is the oldest party still participating in the elections. The more recently founded political parties have low numbers of members, which can be explained by the fact that political parties do not want to invest in building strong party organizations.33 However, according to the interviewees, political parties are starting to realize the importance of having a stable group of party members. Therefore party elites are nowadays more focused on attracting new members.34

7.2.3.3 Voter volatility The voter volatility is a way of measuring the stability of the democracy and is presumed to be high in Lithuania, due to the lack of party affiliation. However, this is the case in most communist countries, where there is no sense of belonging to a political party. As mentioned previously, Lithuanian political parties are not based on ideologies and their programs are not straightforward. This is one of the main reasons for the lack of party affiliation.35 Before 2000, high voter volatility was due to the possibility to choose between two main parties, namely Homeland Union and the Social Democratic Party. After 2000, many new political parties were founded.36 High levels of voter volatility can be caused by strong inner dynamics of a party system or by the emerging of strong, new political parties. In Lithuania new political parties receive a significant number of votes; 12.1 %of the seats are filled with new political parties. This shows that the party system is highly dynamic and that voter volatility remains high.37 According to interviewees in Lithuania, only a quarter of the voters has a stable electoral preference; three quarters of the voters tend to switch between parties. However, voter

32 I. van Biezen, P. Mair, T. Poguntke, ‘Going, Going, … gone? The decline of party membership in contemporary Europe’, European Journal of Political Research, nr. 1, (2012), p. 45. 33 R. Ibenskas, ‘Does Party Membership matter for a Party System Institutionalization? The Case of Lithuania’, Trinity College Dublin , (2010), p. 6. 34 Interview 38. 35 Interview 38. 36 T. Saarts, ‘Comparative Party System Analysis in Central and Eastern Europe: The Case of the Baltic States’, Studies of Transition States and Societies, nr. 3, (2011), p. 88. 37 A. Sikk, ‘How Unstable? Volatility and the Genuinely New Parties in Eastern Europe’, European Journal of Political Research, nr. 1, (2005), pp. 401‐410. 76 volatility is not necessarily a negative phenomenon; it is argued that in relatively new democracies it is better to have higher levels of voter volatility. These high levels show that voters react to political trends.38

7.2.3.4 Public opinion on democracy Lithuanians think democracy is an important and positive system. However, when asked whether Lithuania is a well‐developed, functioning democracy, the interviewees’ answers were mostly negative; they do not think that democracy has developed enough.39 In fact, according to several studies, Lithuanians are unhappy with the levels of democracy in their country. The report shows that 84% of the Lithuanians believe that political and business elites have benefited the most in the last twenty years, while the normal citizen has been left behind. Only 28% of Lithuanians are satisfied with the functioning of democracy in Lithuania. 40 Finally, 82% of the Lithuanians do not believe they have any influence on the government and they do not identify with political parties.41 The main reasons for the underdevelopment of democracy are, according to the interviewees, the low levels of participation of citizens and the low trust in political institutions. But it was also stated in the interviews that the functioning of democracy is improving and the participation of citizens is gaining importance.42

7.3 Explanations for the current situation of civil society and democracy

In general, the situation of civil society and democracy can be considered to be underdeveloped, though some facets of both concepts are more developed than others. Several explanations can be given for this current situation, such as the ‘Soviet legacy’, lack of trust and initiative amongst citizens, inadequate financing and know‐how of civil society organisations and influences from the accession to the EU.

7.3.1 Soviet legacy Due to the Soviet Union’s continuous control over the private sphere and family life , people lost trust in each other and stopped interacting socially.43 As a result, there was nothing that could contribute to the development of norms of participation or models of behaviour.44 Also, because all initiatives were taken by the government, people became passive and expected the government to solve problems in society.45 No grass‐roots organisations existed nor did activism that was organized bottom‐up. Moreover, since membership or activities towards various societal or civil organisations was compulsory, Lithuanian citizens did not have a positive attitude towards civil society.46 Consequently, the current civil society of Lithuania now lacks initiative and trust among the citizens which makes it hard for the Lithuanian government to strengthen civil society.

38 Interview 38. 39 Interview 6; 18 and 38. 40 PewResearch Center, ‘Twenty years later: Confidence in Democracy and Capitalism Wanes in Former Soviet Union’, Global Attitudes Project: (2011), p. 1. 41 R. Rose, ‘New Baltic Barometer VI: A Post‐Enlargement Survey’, University of Strathclyde 2005: Studies in Public Policy nr. 401, (2005), pp. 22‐26. 42 Interview 6; 18 and 38. 43 Eastern Europe Studies Centre, ‘Over the hedge: Attitudes on civil society and Belarus’, http://www.eesc.lt/public_files/file_1288349779.pdf, consulted on 15‐01‐2013. 44 Interview 22. 45 Eastern Europe Studies Centre, ‘Over the hedge: Attitudes on civil society and Belarus’, http://www.eesc.lt/public_files/file_1288349779.pdf, consulted on 15‐01‐2013. 46 Interview 22. 77

However, it can be questioned to what extent this ‘Soviet legacy’ can still be used as an explanation for the underdevelopment of civic action because it has been two decades since the independence of Lithuania.47 On the one hand, the fact that the Soviet Union abolished all forms of civic initiative, norms of behaviour and trust amongst Lithuanian citizens, had an important influence. On the other, the Lithuanian government has taken legislative measures in order to ban all sorts of oppression concerning civil activities. Until now, not many citizens have taken this opportunity to participate since they are not used to it.

7.3.2 Mindset of the Lithuanian citizens Another explanation for the low percentages of participation could be the mindset of Lithuanian citizens concerning participation. A lack of trust, initiative and interest exists among the Lithuanian citizens, which is caused by several factors. People are embarrassed to join civil society uninvited, and do not dare to express their position on political and social matters in public.48 Also, this soviet legacy has caused mistrust amongst the citizens regarding the government as the cause of low political participation. Another factor is that Lithuanian citizens do not trust the political class as a whole as a result of several scandals. Though no examples have been given of what kind of scandals occurred, it has been stated that several politicians abuse the democratic system for own gains.49 These scandals changed the image of politicians, who are now believed to be greedy and only trying to gain ground within the public sphere.50 A last factor is that Lithuanian citizens do not believe that collective action will actually matter or change their situation and therefore refrain from taking such initiatives. It can also be said that there is a lack of interest in engaging in civic activities. It is hard to explain why exactly such disinterest exists. It has been said though that it is mostly due to the fact that people are more concerned with their private issues such as getting employment or food for the day. This has become even more apparent since the economic crisis. Therefore, people are not very concerned with public life. It is also a result of lack of knowledge about civic action, which will be explained below. It must be taken into account that this is not the case for every citizen, since there is no such thing as a national character. If people do not participate, this should be evaluated from their point of view and motivations.51 However, in general the abovementioned mindset is characteristic for Lithuanian citizens.

7.3.3 Inadequate financing and know‐how of civil society organisations Another possible explanation for the underdevelopment of Civil Society and low participation is inadequate financing and know‐how of civil society organisations. As a result, these organisations are unable to organize activities and set up networks to involve people. Moreover, it is hard to sustain such organisations causing the amount to decrease. This amount is hard to increase since not enough know‐how exists amongst Lithuanian citizens on how to create new civic organisations. Regarding inadequate financing, this is the result of lack of funding by both the EU and the business networks, especially the philanthropic branch.52 The lack of funding by the EU is

47 Interview 29. 48 Civil Society Institute ‘Conclusions: Diagnosis of the State of Lithuanian Civil Society, http://www.civitas.org.uk/, consulted on 17‐01‐2013. 49 Interview 41. 50 Civil Society Institute ‘Conclusions: Diagnosis of the State of Lithuanian Civil Society, http://www.civitas.org.uk/, consulted on 17‐01‐2013. 51 Interview 22. 52 Ibidem. 78 caused by the complexity of the procedures and high demands made by the EU on those who ask for funding. Also, when Lithuania joined the EU, the Open Society Fund withdrew its financial support from Lithuania since according to this organisation, the country now had reached an adequate standard of civil society. However, when the funding by the Open Society Fund stopped, the situation deteriorated since local funders did not manage to take over the responsibilities. As a result, civil society now mostly is funded by governmental programmes. This raises the question to what extent these civil organisations are independent since much depends on the government. On top of that, funds are decreasing due to the economic crisis. Concerning lack of funding by the philanthropic business, this is due to a low tradition within these businesses.53 Because of lack of funding, it is hard to keep civil organisations standing, organise civic activities and projects and involve people at the same time.54 Also, lack of financial resources makes it hard to create civil organisations in the first place, causing a low number of these organisations to exist. A division can be made between rural and urban areas where more civil organisations can be found in the larger cities such as Vilnius. As a result, not everybody has the chance to actually participate. It has been stated that many citizens would actually participate if there was a civil organisation nearby that would invite them to civic action.55 However, the shortage of civil organisations and lack of networks involving citizens are not only the result of lack of funding. This also has to do with lack of know‐how concerning the creation and functioning of civil organisations and the development of networks involving citizens. Good prospects exist in this case since people now are being educated about the functioning of civil society and related organisations.56

7.3.4 Influences from the accession to the EU When Lithuania joined the EU, the process of accession affected the development of civil society and participation in both positive and negative ways. On the one hand, joining the EU made it possible to share best practices through travelling and communication. On the other hand, because of meeting the political accession criterion of the EU, Lithuanian legislation was more focused on meeting these criteria than on the dialogue with civil society. Also, the funding provided by the EU proved to be inadequate in several ways. On the one hand, when Lithuania joined the EU, citizens were able to travel within the EU. This made it possible for Lithuanian citizens to share best practices concerning civic action of the western EU‐member states. Nevertheless, it must be taken into account that many of the people who travel do not return to Lithuania and therefore do not contribute to a possible development of the participation within civil society. On the other hand, the accession to the EU has affected civil society negatively in many ways. In the case of the political accession criterion such as democracy and rule of law, Lithuania was eager to fulfill any criteria in this area, since joining the EU had top priority. However, meeting these criteria ‘has largely constrained any effective self‐rule by Eastern democratic governments’ since the criteria had been drawn up conform western norms and values.

53 Interview 22. 54 It has been said that some civil organisations only have an annual budget of 3000 euro’s which is insufficient to actual create proper networks to get citizens involved. 55 Interview 22. 56 Ibidem. 79

Therefore, any form of local initiative in civil society was constrained since no input from these groups was being used during the democratization of the country.57 Concerning the funding programmes, first of all many NGO’s and ‘foundations’ were created just for receiving Western funds. Second, these new organizations also proved to be artificial, since they did not serve any local communities nor did they represent indigenous interests because they were created by a small elite. 58 Third, only a small elite seemed to benefit from these funds. For example, only the leaders of NGO’s or highly educated people were reached by these programmes.59 Fourth, because of administrational complexity it was very hard for civil society organisations to actually apply for such funding.60 Regarding the reforms and adaptions of the aquis communautaire, they turned out to have a constraining effect on civil society. Approximately since 1997, reforms in Lithuania have been determined by requirements made to implement the aquis communautaire and harmonize Lithuanian legislation. However, in order to achieve these goals, the government overburdened its agenda.61 Consequently, the role of interest groups diminished and the actors of civil society have almost been excluded from the decision making process.62 It must be said though that currently there is more room for this dialogue. For example, when Lithuania was exempt from the Eurozone since they did not meet the criteria, a possibility was created to actually involve civil society in a dialogue about the advantages and disadvantages of introducing the euro.63

7.4 Conclusion

Lithuania has been under Soviet rule for many years, which brought oppression of initiative and social interaction. According to the statements of several interviewees, these years of oppression have had a negative influence on the development of democracy and civil society. They claimed that there was a lack of models of behaviour, initiative and trust amongst the citizens of Lithuania. As a result, participation is low. This makes it hard for civil society to function as a control mechanism towards the government. As a result, some aspects of democracy are functioning less well as desired by some of the interviewees.64 However, when Lithuania regained independence and joined the EU, numerous legislative and economic measures have been taken by both actors in order to improve civil society. It remains questionable though, whether this course of action was favourable or not, since nowadays civil society is still underdeveloped considering the low percentage of citizens actually participating. Notwithstanding, in some areas of civic activity there is more participation than others such as in social and political domains. Concerning the latter, there even is a trend of increasing participation. It must be taken into account though that participation still remains unstable in this area.

57 S. Saulias, ‘Europeanization of Civil Society in the Baltic States: Promotion or Constraint of Democratization?’ in: VIEÐOJI POLITIKA IR ADMINISTRAVIMAS, nr. 22, (2007), pp. 59‐60. 58 Ibidem, p. 61. 59 Ibidem, p. 61. 60 Ibidem, p. 61. 61 Alone in the years 1990 to 2000 about 3000 legal acts were passed by the Seimas and 14000 resolutions were adopted by the government. Also, about 520 laws were passed and 1516 governmental resolutions. In order to approve such an amount of legal acts, it is nearly impossible discuss its content with interest groups, and for the interest groups how to prioritize and represent their interests. 62 S. Saulias, ‘Europeanization of Civil Society in the Baltic States: Promotion or Constraint of Democratization?’ in: VIEÐOJI POLITIKA IR ADMINISTRAVIMAS, nr. 22 (2007), pp. 62‐63. 63 Interview 41. 64 N. Götz, & J. Hackmann, Civil society in the Baltic Sea region, Hampshire: Ashgate, 2003, p. 87. 80

Several explanations have been given for this low percentage of participation, which can be divided into three categories, namely Lithuanian citizens, civil society organisations and the EU. Regarding Lithuanian citizens, there is a lack of trust, initiative and interest. When it comes to civil society institutions, there is lack of financing and know‐how to create and sustain organisations. Concerning influences by the EU, the political accession criterion ‘has largely constrained any effective self‐rule by Eastern democratic governments’ since the criterion were drawn up conform western norms and values ignoring any input by civil society. Also, the EU programmes for democracy promotion and direct aid caused the formation of artificial organisations and only reached a small elite. Moreover, the reforms and adaptions of the aquis communautaire that had to be made overburdened the agenda of the Lithuanian government leaving little time for consultation with civil society. What is needed in order to improve this situation is a mentality‐switch amongst the citizens of Lithuania, making them willing and able to participate. This mentality‐switch includes regaining trust and gaining awareness about the fact that civil society needs to be built from the bottom‐up. This awareness is already apparent in several political parties, who have been starting campaigns to attract new members. To foster such a change amongst Lithuanian citizens, education and stronger financial structures are needed. Nevertheless, the development of civil society did come a long way since 1991 considering no civil society existed before this period. Also, participation is expected to grow within the coming decades. What’s more, a low percentage of participation in civic activities is not something only present in Lithuania but also in ‘older’ EU‐countries such as the Netherlands and France. The number of civic participation in the Netherlands is 0.73 and in France it is 0.36, where in Lithuania this number is only slightly lower; 0.12.65 This number, however, becomes even lower due to the recent economic crisis, causing people to be less preoccupied with society and more with their own living standards. Concluding, civil society still has a long way to go within Lithuania to adequately function as a control mechanism for the government but major developments have been made so far.

65 Eurostat, ‘EU‐SILC 2006’, http://epp.eurostat.ec.europa.eu/portal/page/portal/income_social_inclusion_living_conditions/data/database, consulted on 04‐05‐2013. 81

8. Corruption in Lithuania

In Lithuania, corruption is regarded as a daily issue and has for the past ten years been in the top rankings of national problems. TV and newspapers often report corruption scandals and it has become part of the public discourse.1 Lithuania is regarded as one of the most corrupt countries in the EU2, which seemingly has an effect on the trust of the people of Lithuania, as well as of foreign investors in the Lithuanian system. Quite recently, a number of studies was done on corruption in Lithuania. The Lithuanian chapter of the NGO ‘Transparency International’ has in 2011 and 2012 for example published several reports about corruption in Lithuania. Also, reports have been written by the ‘European Research Centre for Anti‐Corruption and State‐ Building’ and ‘Civil Society Against Corruption’ in 2010. The following chapter will give some more perspective to the situation. The chapter will start by discussing corruption in society, divided in three areas: public institutions, the general public and also the private sector is very briefly touched upon. Secondly, the chapter will discuss anti‐corruption measures, such as the legal framework and its enforcement and finally it will address problems regarding these anti‐corruption measures.

8.1 Corruption: Public institutions, the general public and the private sector

8.1.1 Public institutions In the introduction it is already stated that Lithuania is well aware of the corruption occurring in its society. According to an interviewee one of the reasons for this is that corruption is a very well‐researched topic in Lithuania and much is known about its forms and occurrences, for example about petty corruption in the police force, bribes given in the health sector and illicit practices in politics. This extensive knowledge about the phenomenon is very important to react to the problem, which would be hard if one does not know what the problem entails exactly. As the interviewee explained: ‘People are very much like the Indians expecting the Spanish to come, (…) because one of the hypotheses why the Indians did not see the Spanish coming, is that they didn’t see the ships, because they did not recognize the forms. They saw them only when it was too late.’3 Furthermore, research has not only been done on the actual occurrence of corruption in Lithuania, but maybe even more important on how people perceive corruption in society. These surveys reflect the trust of the Lithuanian people in the government. According to the Lithuanian Map of Corruption from 2008, the Lithuanian Government, the Parliament and the political parties are perceived by society as being very corrupt.4 In the surveys for this map, approximately half of the respondents judged that the public institutions are corrupt and almost 90% of the respondents blamed politicians for being responsible for the corruption in the country.5 This mistrust is understandable, since many political parties and their party‐leaders have been involved in corruption scandals over the past 20 years.6 It is, however, important to

1 Interview 46. 2 D. Velykis, ‘A Diagnosis of Corruption in Lithuania’, ERCAS working paper, nr. 32, (2010), p.2. 3 Interview 46. 4 Transparency International, ‘Lithuanian Map of Corruption’, http://transparency.lt/media/filer_public/2013/01/22/lietuvos_korupcijos_zemelapis_2008.pdf, consulted on 12‐02‐2013. 5 Ibidem, p.7. 6 D. Velykis, ‘A Diagnosis of Corruption in Lithuania’, ERCAS working paper, nr. 32, (2010), p. 11. 82 bear in mind that the numbers above do not prove that Lithuania is indeed an extremely corrupt country, but instead are an indicator of the trust of the people in public institutions and of them blaming the government for this.7 Politicians are well aware of the problems of corruption and the low trust in the government. They are trying to fight this by promoting anti‐corruption programmes and measures. One could question the motives of political parties choosing anti‐corruption strategies, since it is such a hot topic among the electorate. It cannot be said that this is the case in general, while there are of course politicians genuinely having the wish to fight corruption.8 One clear example of a political party promoting an anti‐corruption strategy is the Homeland Union, which led the ‘Clean Hands’ campaign in 1996, and until today still focuses on anti‐ corruption and a high morality stance. Another example of this is the anti‐corruption strategy of the current president of Lithuania Dahlia Grybauskaitė. Although politicians increasingly have attached themselves to anti‐corruption policies, one can argue if these really have a sound character. Rolandas Paksas, one of the candidates for president in 2003, won the elections based on his intention to combat corruption. However, during his time in office, several corruption scandals were addressed and his victory was over as soon as he got accused of corruption himself in 2004. Numerous of these examples can be given on bribes, shady deals and misuse of office in politics, which account partly for the low trust in public institutions.9 The main problem of the low trust of the people in politicians, one interviewee emphasized, is that the people think that politicians can never get caught. Big politicians are hardly ever prosecuted. This is also the case regarding parliamentary immunity. Members of the Seimas cannot be prosecuted or investigated upon. This is a blow in the face for the public, which is expected to trust the politicians fighting corruption.10 It are not just the politicians who are perceived as being corrupt. Lithuania also suffers from administrative corruption. In a survey conducted in 2008 the general public gave civil servants a 32% rate on being corrupt. Company managers even rated municipalities with 60% on corruption. Next to politics and civil service, the court system was also evaluated in the 2008 report. It got a 25% corruption‐rate from the responding public servants and an alarmingly 49% corruption‐rate of the general public.11 Corruption is thus a well known issue in the public sector and causes a lack of trust of the general public in the institutions.

8.1.2 The general public Fact is that the trust in public institutions is rather low. However, data show that the Lithuanian people themselves are also party responsible for the high level of corruption in the country. In several surveys over the years 2004‐2009, the percentage of respondents who admitted that they or persons in their household had been giving bribes that particular year, was in all cases close to 30%.12 Another survey in 2008 provided the same result, in which 68% of the respondents answered the question if they had been paying bribes over the last 12 months negatively.13 Interestingly, as mentioned earlier, nearly 90% of the respondents in the 2008 Lithuanian Map of Corruption say the responsibility for corruption is to be charged to politicians

7 Interview 46. 8 Ibidem. 9 D. Velykis, ‘A Diagnosis of Corruption in Lithuania’, ERCAS working paper, nr. 32, (2010), p.11. 10 Interview 46 11 Transparency International, ‘Lithuanian Map of Corruption’, http://transparency.lt/media/filer_public/2013/01/22/lietuvos_korupcijos_zemelapis_2008.pdf, consulted on 12‐02‐2013. 12 D. Velykis, ‘A Diagnosis of Corruption in Lithuania’, ERCAS working paper, nr. 32, (2010), p.2. 13 European Commission, ‘Special Eurobarometer 325/wave 72.2, Attitudes of Europeans towards Corruption’, http://ec.europa.eu/public_opinion/archives/eb_special_en.htm, consulted on 30‐01‐2013. 83 and only 18% of the respondents think they are also to be blamed for it themselves.14 This number is considerably lower. According to an interviewee, over the past five years an important development has taken place. If five years ago one would ask a Lithuanian who commits a crime: the one who asks a bride, receives it, extorts it or pays it, they would usually refer to the first three categories. The one who gives it was associated with being a victim. After recent surveys, however, people understand that giving a bribe is also a crime.15 This was also showed in the 2011 Lithuanian Map of Corruption, where a majority of the respondents think that the bribe‐giver and bribe‐taker are equally responsible. Also, the number of respondents who would give a bribe in a problem situation has shrunk from 64% of the population in 2008 to 57% in 2011.16 So although the people themselves are responsible for corruption as well, there seems to be a positive turn in the way people are seeing their own involvement in it.

8.1.3 Private sector Part of the problem of corruption also lies in the private sector. However, although corruption is present in this sector, the corruption in public institutions forms a greater problem, since these institutions should gain the public trust for being corruption combatants. This does not lessen the fact that still a lot has to be done to avoid corruption in the private sector as well, which is involved in activities such as bribing public officials, embezzlement, illicit enrichment and laundering. Supported by the European Union, Lithuania is active in forming legal frameworks for combating these ill‐practices, which will be further elaborated in the next part of this chapter.17

8.2 Anti‐corruption measures: Legal framework

The government is well aware of the problem posed by corruption in society and has together with the EU and the UN taken various measures over the past 20 years. Lithuania has been adopting legal acts, making changes to the public administration system, implementing various national anti‐corruption programmes and establishing anti‐corruption agencies.18 After its independency in 1991, Lithuania has already been receiving structural support from the European Union. It has received technical assistance since 1993 and has found itself in a rollercoaster of taking up anti‐corruption laws and programmes for many years. For joining the EU Lithuania needed to have a more EU compliant law system. This was one of the major concerns of the European Commission, because Lithuania had a bad reputation regarding corruption. The commission urged for visible progress. In 1999 the state of corruption in Lithuania was again mentioned, as being one of the two major shortcomings in the Lithuanian compliance with the Copenhagen criteria.19 Placed in these European spotlights, Lithuania has made a huge effort in creating an effective anti‐corruption legal framework. Further efforts resulted in Lithuania’s first national anti‐corruption action programme in 2002 for a period of five years, which consisted of three elements: first corruption prevention, second investigation

14 D. Velykis, ‘A Diagnosis of Corruption in Lithuania’, ERCAS working paper, nr. 32, (2010), p.11. 15 Interview 46. 16 Special Investigation Service (SIS), ‘Corruption Map 2011 Reflects Positive Trends’ http://www.stt.lt/en/news/,cat.1,nid.1427, consulted on 03‐02‐2013. 17 N. Mickeviucite & R. Mrazauskaite, ‘Transparency International and UNCAC, UN Convention against Corruption’, Lithuania: Civil Society Review, (2011), p.5. 18 D. Velykis, ‘A Diagnosis of Corruption in Lithuania’, ERCAS working paper, nr. 32, (2010), p.5. 19 Open Society Institute, ‘Monitoring the EU Accession Process: Corruption and Anti‐corruption Policy’, http://www.soros.org/resources/articles_publications/publications/euaccesscorruption_20020601, consulted on 30‐01‐ 2013. 84 and third education. At the same time, in 2002, the Lithuanian Parliament adopted the Law on Prevention of Corruption, which mandated state and municipal institutions to implement internal anti‐corruption programmes.20 A few important events helped Lithuania in further developing its anti‐corruption policy towards joining the EU. A first event was that the country already became a member of the Council’s Group of States against Corruption (GRECO) in 1999. This body is based on the peer reviewing of Member States anti‐corruption frameworks compliance with the EU Conventions. Secondly, in 2002 and 2003 Lithuania ratified the Council’s Criminal and Civil Law Conventions against Corruption. And third, Lithuania signed the United Nations Convention against Corruption (UNCAC) in 2003, which it ratified in 2006.21 According to an interviewee, UNCAC is less important in Lithuania then regional conventions, in the sense of mutual cooperation between enforcement agencies. Mutual enforcement coming from the EU is feared by Lithuanian institutions, because they value the EU very highly and regard the laws as being drafted very well. 22 Article 36 of the UNCAC requires that specialized agencies for combating corruption are being established. The Special Investigation Service (SIS) fitted the profile, since being an agency for fighting corruption. The SIS was already established in 1997 and became an independent agency in 2000 and it is now accountable to the president and the Seimas. SIS is responsible for the coordination of Lithuania’s national anti‐corruption strategy, for solving and prevention of corruption‐related crimes, for encouraging the public to show intolerance towards and engage in an active fight against corruption, and for coordination of anti‐corruption measures between governmental institutions and society. Important is that the SIS is open to the public, so everyone can approach SIS with information on corruption‐related crimes.23 SIS has been quite successful in fighting corruption since its establishment. It can be seen in the number of corruption‐related crimes, solved by SIS. An important indicator of SIS’ success is the constantly increasing number of corruption‐related reports from society, which shows that SIS is more trusted and that society is more willing to participate in fighting corruption. In 2008, SIS was perceived to be the second most‐effective institution in Lithuania in fighting corruption after the media.24 Several actions and agreements have thus been enacted to combat corruption in Lithuania en many efforts are undertaken to continuously fight the problem. However, not all of these are as effective as hopes for, which will be discussed in the next paragraph.

8.3 Problems regarding anti‐corruption measures

Lithuania has been working very hard to implement measures for fighting corruption. Over the past 20 years laws have been adopted, international conventions are signed and a strong anti‐ corruption agency has been developed. However, time has shown that the 2002 national anti‐ corruption programme was largely ineffective. In July 2008, the Parliament approved a new national anti‐corruption strategy for 2008‐2013, which is currently being implemented. In 2008, the National Audit Office revealed that Lithuania’s largely stagnant anticorruption programme, launched in 2002, had failed, with corruption prevention efforts limited to fragmentary policies.

20 D. Velykis, ‘A Diagnosis of Corruption in Lithuania’, ERCAS working paper, nr. 32, (2010), p.6‐7. 21 Ibidem, p.5. 22 Interview 46. 23 N. Mickeviucite & R. Mrazauskaite, ‘Transparency International and UNCAC, UN Convention against Corruption’, Lithuania: Civil Society Review, (2011), p.7. 24 D. Velykis, ‘A Diagnosis of Corruption in Lithuania’, ERCAS working paper, nr. 32, (2010), p.5. 85

The Lithuanian Chapter of Transparency International said it was impossible not to notice the “patchwork” approach to corruption used by state authorities, instead of applying complex anti‐ corruption measures. Lithuania’s implementation of anti‐corruption measures turned out to be a failure.25 In 2008, 84% of Lithuanian residents believed that the government’s efforts to counter corruption were ineffective, while the media did the best job at fighting corruption. 49% of the residents considered the media to be most successful in fighting corruption, and 28% of the Lithuanian residents believed the independent SIS to be the most important combater.26 As we have seen earlier, the Lithuanians are extremely critical about their government. A 2009 survey showed that 84% of the respondents perceived the governments’ anti‐corruption efforts as ineffective. To compare, the only country ranked even worse by its inhabitants in the same report was with 86%.27 Numbers of the World Bank show that even though Lithuania has been making many efforts, the international ranking of the country has not altered. At the start of the first five‐year programme in 2002, Lithuania received 63.6 points out of 100 for the indicator ‘control of corruption’ in the Global Integrity Report. Disappointingly, that score even dropped a little to 63.3 in 2008.28 Numbers from Transparency International also show only a minor change; 0.1 increase on their Corruption Perception Index (CPI) score, from 4.8 in 2001 to 4.9 in 2009.29 A 2012 Transparency International report says this can be explained by the fact that although the legal regulation in Lithuania can be assessed as very good and strong, the major problem lies with law enforcement. The report states that Lithuania is tackling too many problems by forming legal acts. The great challenge lies with bringing those acts into practice.30 So the anti‐corruption law base in Lithuania is very strong and comprehensive. This was shown for example in the UN Global Integrity Report of 2008, where Lithuania’s anti‐corruption law received a maximum score of 100 and was thus considered being very strong. The SIS scored 83 point in the category of anti‐corruption agencies, which was a satisfying score as well. Very alarming however was Lithuania’s score on law enforcement, which received 63 points and was considered weak.31 According to an interviewee most problems are indeed occurring on the enforcement side. Perfect laws are produced and there are fine strategy documents, but the problem is that the measures in the programmes hardly relate to an end goal. There is an old model of fighting corruption through investigation, prosecution, prevention and anti‐corruption education, however, the emphasis lies on the first two measures. So in Lithuanian there is a fight against the rotten apples, while the focus should be on the whole barrel they are in.32 Lithuania thus tries to fight corruption, however, the measures taken to accomplish this, even though sometimes showing good results, have proven to not always be the most effective ones.

25 D. Velykis, ‘A Diagnosis of Corruption in Lithuania’, ERCAS working paper, nr. 32, (2010), p.6. 26 Transparency International, ‘Lithuanian Map of Corruption’, http://transparency.lt/media/filer_public/2013/01/22/lietuvos_korupcijos_zemelapis_2008.pdf, consulted on 12‐02‐2013. 27 Transparency International, ‘Global Corruption Barometer 2009’, http://issuu.com/transparencyinternational/docs/global_corruption_barometer_2009_web?mode=window&backgroundC olor=%23222222, consulted on 01‐02‐2013. 28 Ibidem. 29 D. Velykis, ‘A Diagnosis of Corruption in Lithuania’, ERCAS working paper, nr. 32, (2010), p. 5. 30 Transparency International, ‘National Integrity System Assessment Lithuanian’, http://www.transparency.org/whatwedo/nisarticle/lithuania_2011, consulted on 01‐02‐2013. 31 Transparency International, ‘Global Integrity Report, Lithuania: Integrity Indicators Scorecard 2008’, http://report.globalintegrity.org/Lithuania/2008/scorecard, consulted on 02‐02‐2013. 32 Interview 46. 86

8.4 Concluding

Lithuania has over the past twenty years worked hard to turn corruption and to regain the trust of the general public and of business sector in the public sector and the government. EU regional approaches seem to effect the drive to fight corruption positively, and many measures are taken. Although these measures not always have had the desired effect, recent research seems to indicate that the situation is improving and that the general public seems to be willing to work towards fighting corruption as well. However, research shows that the measures taken do not always provide for the best results. According to an interviewee knowledge about Lithuanian society and corruption should thus be deepened to develop more effective ways to combat corruption.33 It can thus be said that Lithuanian society is positively developing towards realizing the roots of the problem of corruption, acting upon these and further developing its policies to be as effective in it as possible. However, the country still has a long way to go.

33 Interview 46. 87

9. Human rights in Lithuania

This chapter examines and discusses the current state of human rights in Lithuania. The discussion of human rights is subdivided in political and civil rights, economic and social rights, and the rights of minorities. The discussion of political and civil rights will include fundamental freedoms such as freedom of association and speech, but also protection from torture and degrading treatment, arbitrary arrest or detention, discrimination, and the right of access to the judicial system. The discussion of economic and social rights will mostly include workers’ rights. Minorities are few in Lithuania, due to the Law on Citizenship, so focus on this issue will concern specific ethnic groups, such as the Poles, the Romani community, and the Jewish Community.

9.1 Political and civil Rights

The political and civil rights of the Lithuanian people are ensured by Lithuanian law. These liberties are set out in the Constitution and include the fundamental political and civil rights such as electoral rights, freedom of association, freedom of speech and peaceful assembly. Also, fundamental rights like the protection from torture and degrading treatment, arbitrary arrest or detention, access to the judicial system, and discrimination and acts of violence, are set out in the Constitution. Practice, however, has proved that violations concerning these rights still exist. Below, examination of civil liberties, torture and degrading or inhumane treatment, arbitrary arrest or detention, access to the judicial system, and discrimination and acts of violence, will follow.

9.1.1 Civil liberties According to the statements made by the European Commission (EC) in Agenda 2000, rights on civil liberties have been implemented adequately in Lithuania. There is a genuine freedom of expression, peaceful assembly and association, and no violations have been documented.1 Like in many other countries, there are some limits to the freedom of expression. First of all, limits to this freedom are laid down in Lithuanian law. Criminal acts such as ‘incitement to national, racial, religious, or social hatred, violence and discrimination, and slander and disinformation’ are prohibited.2 Second, it is also strictly forbidden to deny or question international crimes like the Soviet and Nazi crimes against the citizens of Lithuania.3 However, in practice there is a reluctance amongst the Lithuanian citizens to exercise the right of freedom of expression since it makes them feel uncomfortable (see chapter 5 on democracy and civil society).4 Everybody has the freedom of peaceful assembly and association, except any organization or political party that is related to Communism, which is prohibited.5 Also, it has been stated by several interviewees that the LGBT‐group has been excluded from this right. No

1 European Commission, ‘Agenda 2000 – Commission Opinion on Lithuania’s Application for membership of the European Union’, http://ec.europa.eu/enlargement/archives/pdf/dwn/opinions/lithuania/li‐op_en.pdf, consulted on 05‐01‐2013. 2 U.S. Department of State, ‘Country Reports on Human Rights Practices 2012: Lithuania’ , http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper, consulted on 12‐01‐2013. 3 Ibidem. 4 Interview 41. 5 U.S. Department of State, ‘Country Reports on Human Rights Practices 2012: Lithuania’ , http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper, consulted on 12‐01‐2013. 88 data has been found whether other groups also are excluded.6 Concluding it can be said that overall the civil liberties are safeguarded adequately.

9.1.2 Torture and degrading or inhumane treatment Before the process of accession, Lithuania did not meet international standards for the prevention of torture and degrading or inhumane treatment, since they did not implement any of the international protocols concerning these issues. Nowadays, however, Lithuania has ratified the necessary conventions and protocols. For instance, the European Convention for the prevention of torture was ratified on the 16th of September 1998. The constitution prohibits inhuman or degrading treatment.7 Despite this, minor violations of these laws have been documented, such as torture of citizens, the conditions in prisons and detention centres, and disrespect of privacy.8 For instance, a report of the Council of Europe’s Committee for the Prevention of Torture (CPT) stated that some of the law enforcement officials had been mistreating citizens, mostly juveniles.9 At the time of accession, conditions in prison and detention centres were reported to be poor. Complaints were made about overcrowding, bad hygiene and limited access to medical care.10 To be more precise on the way living conditions are actually influenced by this overcrowding, it should be taken into account that prisoners who are sentenced to life imprisonment reside in a room of approximately 6m2. While these rooms are equipped to detain two prisoners, from 1991 to 1995 there have been periods that up until four people were placed there.11 Though the facility could only hold 827 inmates, there have been times in this period that more than 3 000 detainees were in the facility.12 The government has made several adjustments in the penitentiary system to address these problems. First of all, a Code regulating the penitentiary system was adopted.13 Second, the Penitentiary department was transferred from the Ministry of the Interior to the Ministry Justice.14 As a result, this department became a civil institution with demilitarized public servants. Third, new prisons and detention centres were built to combat overcrowding. Fourth, new standards for hygiene were introduced, which established the minimum required space for each convict and assures health and safety conditions.15 Also, facilities were built for mothers with children in prisons.16 However, in the Progress Report of 2000 the Commission found that despite several improvements, the conditions remained poor for detainees as prisons still were overcrowded. This was considered a serious issue, since:

6 Interview 15 and 29. 7 European Commission, ‘1998 Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/1998/lithuania_en.pdf, consulted on 05‐01‐2013. 8 European Commission, ‘Agenda 2000 – Commission Opinion on Lithuania’s Application for membership of the European Union’, http://ec.europa.eu/enlargement/archives/pdf/dwn/opinions/lithuania/li‐op_en.pdf, consulted on 05‐01‐2013. 9 Most of these allegations concerned the excessive use of force or truncheon blows during questioning. Also, complaints were made by detainees that officers in police detention centers used insulting language or behavior. 10 U.S. Department of State, ‘Country Reports on Human Rights Practices 2012: Lithuania’ , http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper, consulted on 12‐01‐2013. 11 Interview 8. 12 Ibidem. 13 European Commission, ‘Agenda 2000 – Commission Opinion on Lithuania’s Application for membership of the European Union’, http://ec.europa.eu/enlargement/archives/pdf/dwn/opinions/lithuania/li‐op_en.pdf, consulted on 05‐01‐2013. 14 European Commission, ‘1999 Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/1999/lithuania_en.pdf, consulted on 05‐01‐2013. 15European Commission, ‘2000 Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/2000/lt_en.pdf, consulted on 05‐01‐2013. 16 European Commission, ‘1999 Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/1999/lithuania_en.pdf, consulted on 05‐01‐2013. 89

Overcrowding is a major factor in the morbidity of the prison population, contributing as it does both to the injuries inflicted by prisoners on themselves and on others, and to an increase in infectious diseases.17

The Commission therefore recommended that Lithuania should combat prison overcrowding not only materially but also structurally, by, for example, changing legislation concerning pre‐ trial detention, which would contribute to the decrease in the number of prisoners.18 In spite of the measures taken by the government, the 2011 US Country Report on Lithuania concerning human rights states that some of these problems still remain unsolved. This has been confirmed by officials within the Seimas Ombudsman Office, which has been assigned to handle complaints of detainees. The officials added that the largest part of the complaints concerned the living conditions, such as overcrowding.19 In 2011 the country’s prisons held 9,920 inmates, which is approximately equal to the official capacity. However, the prison population was distributed unevenly, causing six institutions to be overcrowded.20 For instance, the Lukiškes Remand Prison currently holds at least 1,100 inmates, while the official capacity is only 827.21 The living conditions of the prisoners are also affected by the state of the buildings in which the prison and correctional facilities are housed.22 For example, Lukiškes was built during the Tsarist period. It held its first detainee in 1904, and is now in a state of decay.23 Therefore, renovation of the building or a new location is needed. However, during these times of crisis no money is allocated for such renewals or movements.24 It is expected, though, that in 2017, Lukiškes Remand Prison will be transferred to a new building.25 Whereas perceived poor living conditions within the detention facilities need to be pointed out, improvements have occurred during last years too. No complaints were made concerning the hygiene standards and access to medical care.26 The EC already stated in Agenda 2000 that the Constitution of Lithuania adequately safeguards respect for private life. Moreover, searches, monitoring of correspondence, and communications cannot be done without authorization in advance from the Procurator’s Office or a judge. However, in practice the EC found that some of these actions have been taken without authorization.27 Also, in 2011 there were reports that prohibitions in this area were not respected by the government. For example, data safety regulations had been violated several times by government agencies or companies, by collecting or using personal data without a legal basis.28 In sum, it can be said that legislation has been developed to protect people from torture

17 R. Walmsley, ‘Prisons in Central and Eastern Europe’, in: HEUNI Paper, nr. 22, (2005), p. 15. 18 European Commission, ‘2000 Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/2000/lt_en.pdf, consulted on 05‐01‐2013. 19 Interview 15. 20 For example, according to the 2012 Lithuanian Country Report drawn up by the U.S. Department of State , the Siauliai Remand Prison had the capacity of 452 inmates, but held 708. 21 Interview 8. 22 Interview 15. 23 Interview 8. 24 Interview 15. 25 Interview 8; 29 and 15. 26 Interview 8 and 15. 27 European Commission, ‘Agenda 2000 – Commission Opinion on Lithuania’s Application for membership of the European Union’, http://ec.europa.eu/enlargement/archives/pdf/dwn/opinions/lithuania/li‐op_en.pdf, consulted on 05‐01‐2013. 28 U.S. Department of State, ‘Country Reports on Human Rights Practices 2012: Lithuania’ , http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper, consulted on 12‐01‐2013. 90 and degrading or inhumane treatment but that according to the statements of several interviewees, this legislation is not properly implemented.

9.1.3. Arbitrary arrest or detention During the Soviet period, people were regularly arrested and detained without substantial evidence. Therefore, after regaining independence, Lithuania adopted legislation to prevent this from happening. However, the EC expressed its concerns about this, since the maximum period of detention was rather high. 29 Therefore, this legislation was changed. Though in theory legislation is now adequate, in practice still several issues occur. First of all, it seems there is a tradition amongst judges of the Court of First Instance to detain people awaiting trial, even though alternatives exist such as an ankle bracelet or turning in legal documents. Where this tradition comes from is not clear and several explanations can be given, for example that during the Soviet period it was custom for judges to imprison people awaiting trial. Since some of the judges in office during the Soviet period are still in office now, the tradition is carried on.30 Secondly, judges are also pressured by society to imprison people awaiting trial causing the imprisonment of people without substantiated evidence. This has to do with the perception of society of whether the suspect forms a serious threat to daily life. Thirdly, the maximum period of time in pre‐trial detention is still exceeded which is, amongst others, the result of lengthy procedures, but also of complicated cases.31 Another problem concerning pre‐trial detention is the pre‐trial investigation. According to the Criminal Procedural Code of Lithuania, the Police department under the Ministry of the Interior is the general investigating authority in criminal proceedings. However, other pre‐trial investigation authorities exist such as the State Border Guard Service under the Ministry of the Interior, the Special Investigation Service of the Republic of Lithuania, the military police, the Financial Crime Investigation Service under the Ministry of the Interior, Lithuanian Customs, and the Fire and Rescue Department under the Ministry of the Interior.32 However, not all officials from these departments have had the right education to investigate violations of human rights, which occasionally leads to below par levels of investigation reports.33 Also, an issue exists when the pre‐trial investigation ends. It could take a month to adopt the decision to designate a particular legal aid lawyer for the trial before the first instance court. During this period, it seems a suspect does not have any access to a legal aid lawyer. This is a particularly crucial problem when a suspect or accused is held in pre‐trial detention, since no information is given about the current status of the proceedings.34 It has also been stated by an

29 According the U.S. Country Report of Lithuania in 2012, this legislation is designed to guarantee that people cannot be arrested arbitrarily. At that time, the legislation included a maximum period of detention of 72 hours. After that time the detainee had to be charged based on sufficient evidence or released. This period may be extended to two months if the detainee is suspected of committing a serious crime and is considered to be dangerous to the environment. If that is the case, the individual must appear in court within 48 hours after his arrest so the judge can decide on the period of detention before trial. This period could go up to three years. The Lithuanian government recognized that such legislation is exceptional and agreed to cease its applicability after the 30th of June 1997. They then adopted legislation concerning pre‐ trial detention in which a person can be detained for only 48 hours instead of 72. Exceptions to this rule are the cases of serious offences and juveniles. The periods of detention regarding possible serious offences is now limited to a maximum of 18 months. In the case of juveniles, pre‐trial detention cannot exceed 12 months. The average length of pretrial detention is now seven months and thirteen days. 30 Interview 29. 31 Ibidem. 32 E. Cape, Z. Namoradze, Effective Criminal Defense in Eastern Europe: , Georgia, Lithuania, Moldova, Ukraine, Moldova: Soros Foundation, 2012, p. 201. 33 Interview 29. 34 E. Cape, Z. Namoradze, Effective Criminal Defense in Eastern Europe: Bulgaria, Georgia, Lithuania, Moldova, Ukraine, Moldova: Soros Foundation, 2012, pp. 240‐243. 91 interviewee that in some cases people are held in detention for months without actually knowing what this status is.35 Thus, while many improvements have been made within the penitentiary system since the independence of Lithuania, several issues remain, such as overcrowding in prisons and the tradition of judges to detain people awaiting trial. Nevertheless, this is not the result of inadequate legislation according to statements from interviewees, but of faulty implementation.

9.1.4 Access to the judicial system The Lithuanian Constitution provides any individual with the right to have recourse to the law.36 However, in 1997, the EC stated in Agenda 2000 that Lithuania did not meet the international standards in granting individuals access to the judicial system. The reasons for this were the delays in legal proceedings and the shortage of lawyers, which made it nearly impossible for citizens to obtain their services. Therefore during the accession, Lithuania tried to improve this situation in several ways. First of all, they tried to increase the number of lawyers. As a result of the Soviet period, most lawyers fled the country and people had avoided such professions ever since.37 Secondly, a new law was adopted in March 2000 in order to guarantee the provision of legal aid in civil, criminal and administrative cases by the government for those who cannot afford legal fees.38 At the moment, the access to the judicial system can still be problematic on occasions due to lengthy procedures and lack of training, trust and funds. Also, people cannot appeal to the constitutional court directly. There is no clear explanation for what has caused procedures to be lengthy. One explanation was that proceedings were taking so long due to the complexity of some of the cases; something that is present even in every well‐functioning judicial system. What is more, it has been reported that lawyers do not always give priority to some of their cases, since they are not compensated properly for their efforts. This is especially the case when it comes to legal aid provided by the government. Also, it has been mentioned that reforms are not enacted, causing the situation to worsen. Furthermore, decisions made by the courts of first instance cause many applications for appeal at higher courts, since the decisions made are unfair according to the convicted person. Interestingly enough, an interviewee stated that there was not a shortage of lawyers; it even has been stated that there too many were prepared at the universities at the moment.39 Insufficient training provided to the prosecutors, judges and policemen about human rights, caused a lack of understanding amongst the officials within the judicial system. However, such an understanding is a necessity according to some people since human rights were a completely new phenomenon to the judiciary. Furthermore, as mentioned earlier, the codes of law have been changed significantly in the year 2000, such as the Criminal Code and the Civil Code. Nevertheless, judges who served during the Soviet period are still in office today. While the judicial system has been renewed, some of these judges do not have the understanding of what is just.40

35 Interview 29. 36 Government of Lithuania, ‘Constitution of the Republic of Lithuania’, http://www3.lrs.lt/home/Konstitucija/Constitution.htm, consulted on 20‐01‐2013. 37 European Commission, ‘1999 Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/1999/lithuania_en.pdf, consulted on 05‐01‐2013. 38 European Commission, ‘2000 Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/2000/lt_en.pdf, consulted on 05‐01‐2013. 39 Interview 29. 40 Ibidem. 92

The provision of legal aid by the government is problematic due to poor implementation of legislation ensuring free legal aid. First of all, almost no funding has been allocated for implementation.41 However, data also show that the amount of funding has increased over the years, from 2,276,414 Euros annually in 2005 to 3,906,105 in 2010.42 Secondly, low quality service is provided by the lawyers within the free legal aid system due to shortage of time and a high case load.43 This can also be the result of the absence of specific rules or regulations for assessing the quality of the services provided by legal aid providers.44 Furthermore, it has been stated repeatedly that people tend not to go to court because they do not trust governmental institutions. This is the result of two factors. First of all, people believe the court and the officials to be corrupt. As mentioned before, many of the seated judges were also in office during the Soviet period.45 Secondly, this is a result of the Soviet period where no governmental institution could indeed be fully trusted. A mentality change therefore is needed amongst the citizens of Lithuania as well.46 Moreover, the right of application for citizens does not apply to the Constitutional Court itself (see chapter 3 on State Institutions,). The parliament (through more than 1/5 of the members), the President, the Prime Minister and regular courts can address the Constitutional Court with a petition requesting the determination of the conformity of a law with the Constitution.47 If a citizen believes that the national law is violating his or her rights, only the court of general competence of the administrative court could suspend the consideration and apply to the Constitutional Court.48 For the protection of the rights of citizens a direct appeal to the Constitutional Court would be an improvement. Firstly, because although the Constitution is in theory directly applicable, not all local courts have to courage to apply the Constitution directly and therefore are undermining its power.49 Secondly, in order to be able to apply to the European Court of Human Rights, an individual has to go through all the national legal procedures; meaning that a person first would need to have a ruling of the Constitutional Court. If an individual would have the right of application to the Constitutional Court, the length of proceedings before reaching the ECHR would be smaller and the rights of an individual would thus be better protected.50

9.1.4 Discrimination and acts of violence In order to prevent discrimination and acts of violence, measures have been taken by both the Lithuanian government and the EU. However, examples still exist that there have been cases of discrimination and acts of violence against certain groups of the population. The most important issues in Lithuanian society concerning discrimination and acts of violence are against women, gays, bisexuals and transgenders. Also, some of the minorities are discriminated against, as described further below.

41 Interview 29. 42 E. Cape, Z. Namoradze, Effective Criminal Defense in Eastern Europe: Bulgaria, Georgia, Lithuania, Moldova, Ukraine, Moldova: Soros Foundation, 2012, p. 213. 43 Interview 18. 44 E. Cape, Z. Namoradze, Effective Criminal Defense in Eastern Europe: Bulgaria, Georgia, Lithuania, Moldova, Ukraine, Moldova: Soros Foundation, 2012, p. 212. 45 Interview 29 and 18. 46 Interview 15. 47 A. Rauličkytė, ‘Lithuania’s courts and the rule of law’, Journal of Baltic Studies, nr. 2, (2001), p. 190. 48 A. Kargaudienė, ‘Individual Constitutional Complaint in Lithuania: Conception and the Legal Issues’, Baltic Journal of Law & Politics, nr. 1, (2011), p. 160. 49 Interview 55. 50 Interview 18. 93

9.1.4.1 Discrimination and acts of violence against women Regarding the discrimination and acts of violence against women, the legal system guarantees the equal treatment and forbids violence and sexual harassment. Nevertheless, due to failures in the legal system and lack of understanding, women continue to face these challenges every day. The government has taken several measures to prevent discrimination and acts of violence against women. First of all, the Constitution provides for several rights ensuring equality and prevention of abuse. Secondly, several institutions were created in order to promote equal opportunities, such as the ‘The Office of the Equal Opportunities Ombudsman’ and the ‘Inter‐ministerial Commission on Equal Opportunities for Women and Men’.51 Moreover, some of the companies and political parties within Lithuania have adopted a quota system. According to an interviewee, the EU has obliged the government to do so as well.52 To combat the abuse of women, the Lithuanian government adopted the first domestic violence law in 2011. It provides a legal basis for ‘rapid governmental reaction to instances of domestic violence as well as for preventive measures and assistance to victims’. In addition, NGO’s provide assistance to victims of domestic violence of which some even receive funds from municipal governments. When it comes to sexual harassment, this is also prohibited by the law.53 There is a lack of understanding regarding the status of equal opportunities between males and females. This is due to the fact that there is little awareness of such a thing as inequality between genders. Two explanations can be given for this lack of awareness. First of all, according to general opinion, men and women are equal since they both have the same civil liberties. No attention is given to the underrepresentation of women among the top of different companies or governmental institutions. Secondly, the word ‘gender’ does not exist within Lithuanian law. As a result, no awareness is apparent about the situation on gender discrimination since only the concept of ‘biological sexes’ is accounted for. This absence of the concept gender became evident during the European Council Convention of violence against women. During this meeting it was discussed that the European Council could provide the measures and means for prevention. However, such measures and means could not be implemented since the term gender did not exist in Lithuania.54 Thirdly, the quota system that the EU designed only affected nine companies since the rest did not meet the qualifications in order to be obliged to implement a quota system.55 When it comes to discrimination against women, several issues remain. The most important of these is discrimination against women concerning the possibilities of getting employment and their earnings compared to those of men fulfilling the same position. This phenomenon is called the ‘gender pay gap’. In the case of Lithuania, this gender pay gap seems to decrease, meaning the situation is improving.56 Moreover, problems relating to the gender pay gap must be seen in the context of the rest of the EU. As seen in the table below, all the member states have a gender pay gap.

51 U.S. Department of State, ‘Country Reports on Human Rights Practices 2012: Lithuania’ , http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper, consulted on 12‐01‐2013. 52 Interview 29. 53 U.S. Department of State, ‘Country Reports on Human Rights Practices 2012: Lithuania’ , http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper, consulted on 12‐01‐2013. 54 Interview 29. 55 Ibidem. 56 The EU gender pay gap is an indicator being used to survey inequalities in pay between the two genders. In 2010 this EU gender pay gap was 14.6%, but in 2009 this number was 15.3%, so it could be said that the situation is improving. 94

Figure 9.1: Average gross hourly earnings of women and men working full time and part time (in euro), countries arranged in increasing order of female earnings (2006)

Source: Structure of Earnings Survey

Though legislation prohibits the abuse of women, in practice they are still mistreated on a large scale due to inadequate implementation of legislation. This is the result of several factors. First of all, women tend to be reluctant to approach the police or other institutions due to lack of trust.57 This is especially the case when it comes to sexual harassment at work, as women are afraid of losing their employment during times of economic crisis.58 Secondly, the judges are said to be insufficiently educated in the law concerning the protection against the abuse of women. It has been stated that on numerous cases concerning the mistreatment of women by their male living companion, the judge gave the advice to mediate with their companion. Thirdly, no funds were allocated to implement the legislation making it hard to effectively execute it.59 In sum, the system is still struggling with the implementation and recognition of laws concerning equal opportunities and against the abuse of women.

9.1.4.2 Discrimination and acts of violence against persons with disabilities According to several EC progress reports during the accession process, the situation of people with a disability in Lithuania was favourable.60 Discrimination against this group is prohibited by the Law on Equal Treatment. Those with a mental illness are also placed under this category. The two governmental organisations that deal with the situation of disabled people are the Ministry of Social Security and Labour and the Council for the Affairs of the Disabled. Not only do they have the responsibility to ensure equal opportunities on the labour market, but they also have to improve the social security net on this issue. 61 The National Health Programme has set out several measures in order to improve conditions concerning people with a disability, but it seems no clear mechanisms have been established which assess the efficacy of the implementation.62 At the same time, however, it has stated by an interviewee that the situation concerning

57 U.S. Department of State, ‘Country Reports on Human Rights Practices 2012: Lithuania’, http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper, consulted on 12‐01‐2013. 58 No author, ‘Equal Rights Worsen in Labour Market’, http://www.lithuaniatribune.com/1995/equal‐rights‐worsen‐in‐ labour‐market‐20101995/, consulted on 20‐04‐2012. 59 Interview 29. 60 European Commission, ‘1999 Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/1999/lithuania_en.pdf, consulted on 05‐01‐2013. 61 U.S. Department of State, ‘Country Reports on Human Rights Practices 2012: Lithuania’ , http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper, consulted on 12‐01‐2013. 62 D. Puras, A. Germanavicius, R. Povilaitis, D. Jasilionis, ‘Lithuania Mental Health Country Profile’, International Review of Psychiatry, nr. 16, (2004), p. 122. 95 persons with disabilities is still rather poor. Almost no attention is given to this group by the government or the EU and therefore chances of improving this situation can be considered small.63 When it comes to people with a physical disability, complaints are mostly filed about the accessibility of buildings. With regard to people with a mental disability, there seems to be a lack of understanding their needs. Also, few measures are being implemented in order to integrate these people into society, since the hospitals in which they are residing are to a large extent closed off.64 Moreover, they do not always get the adequate treatment or social assistance required. People with a mental illness face discrimination when they try to participate in any form of decision making or community lives. Regarding both groups, complaints have also been filed about the limited amount of jobs available for people with either a physical or mental disability.65

9.1.4.3 Discrimination and acts of violence against LGBT people Concerning discrimination and acts of violence against lesbian, gay, bisexual and transgender people, it is unclear whether the rights of these persons are assured. One the one hand, according to the results of the European Value Study Surveys, Lithuania is one of the most homophobic societies in Europe.66 On the other, during the process of accession to the EU, there was no mention of any problems in this area.67 Also, in the country report of the U.S. drawn up in 2011 it was stated that

there was no official discrimination against lesbian, gay, bisexual or transgender (LGBT) persons, [but] society’s attitude towards homosexuality remained largely negative. NGOs focusing on LGBT problems faced no legal impediments, but the few that functioned kept low profile because of public hostility to their aims.68

Nevertheless, when looking at anti‐discrimination legislation to protect the rights of LGBT people, it becomes apparent that not many laws have been drawn up to ensure this protection. First of all, European anti‐discriminatory legislation has been incorporated into Lithuanian national law before they joined the EU in 2004, but this has not led to the mention of freedom of sexual orientation in the Lithuanian Constitution.69 Second, cases exist where civil liberties of

63 Interview 18. 64 Ibidem. 65 D. Puras, A. Germanavicius, R. Povilaitis, D. Jasilionis, ‘Lithuania Mental Health Country Profile’, International Review of Psychiatry, nr. 16, (2004), p. 120. 66 J. Reingardea, A. Zdanevicius, ‘Disrupting the (hetero)normative: coming‐out in the workplace in Lithuania’, www.atviri.lt/uploads/files/dir13/3_0.php , consulted on 21‐04‐2013. 67 European Commission, ‘Agenda 2000 – Commission Opinion on Lithuania’s Application for membership of the European Union’, http://ec.europa.eu/enlargement/archives/pdf/dwn/opinions/lithuania/li‐op_en.pdf, consulted on 05‐01‐2013; European Commission, ‘1998 Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/1998/lithuania_en.pdf, consulted on 05‐01‐2013; European Commission, ‘1999 Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/1999/lithuania_en.pdf, consulted on 05‐01‐2013; European Commission, ‘2000 Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/2000/lt_en.pdf, consulted on 05‐01‐2013; European Commission, ‘2001 Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/2001/lt_en.pdf, consulted on 05‐01‐2013; European Commission, ‘2002Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/2002/lt_en.pdf, consulted on 05‐01‐2013. 68 U.S. Department of State, ‘Country Reports on Human Rights Practices 2012: Lithuania’ , http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper, consulted on 12‐01‐2013. 69 J. Reingardea, A. Zdanevicius, ‘Disrupting the (hetero)normative: coming‐out in the workplace in Lithuania’, www.atviri.lt/uploads/files/dir13/3_0.php , consulted on 21‐04‐2013. 96 this group, such as the freedom of assembly, were violated; for example during the organisation of the Baltic Pride in Lithuania in 2010.70 This Baltic Pride was very important for the visibility of LGBT persons, since the concept of LGBT did not exist during the Soviet Period. In the end, the march was held away from the main street of Vilnius, where it was initially supposed to have taken place.71 Thirdly, legislation has been drawn up might even be seen as outright discriminatory. For example, in 2008, the Seimas approved the State Family Concept, in which a family was officially defined as an opposite‐sex marriage. Also, in 2009, Lithuania adopted the Law on the Protection of Minors from Detrimental Effect on Public Information prohibiting information on homosexuality, bisexuality and polygamy. The document was amended in December that year, which omitted the mentioning of homosexuality and eventually prohibited the promotion of non‐traditional forms of family. Fourth, in 2009 and 2010, conservative political leaders introduced projects to outlaw the ‘promotion of homosexuality’ under the Civil and Penal Codes of Lithuania.72

9.2 Economic and social rights

Economic and Social Rights include the rights of employees and employers, such as the freedom of association and the right to collective bargaining and acceptable conditions for work, which have all been ensured through legislation. Several provisions have been made in the law concerning acceptable conditions for work. First of all, the legal minimum wage is 1000 litas per month.73 Secondly, a maximum work time has been set for employees. In case of white collar work, the limit has been set on 40 hours during any seven day period. In case of blue‐collar work this maximum has been set on 48 hours.74 Several issues have been documented concerning economic and social rights. First of all, though in theory it is possible to strike, in practice such an undertaking is extremely difficult. The EC’s Agenda 2000 already stated that the right to strike was too complex, making it impossible to actually do so in practice. This is due to several issues; for example, according to the procedure, public officials providing essential public services are excluded from this right. Whether a service is essential or not has a broad definition, causing it to exclude almost every public servant, which results in a very low number of strikes to have taken place over the years. Also, in practice strikes have been deemed unlawful and forbidden by the courts on many occasions. According to the court, if an employer is negotiating with employees, holding a strike is illegal regardless of the outcome of the negotiation.75 Secondly, though people had the right to assemble since the independence in 1991, very few actually participated in any workers association. In 1998 approximately 6 to 10% of the working population belonged to a trade union. In the regular report of 1999, the EC claimed that the trade unions gained ground, despite the percentage of people participating still being rather

70 Interview 29. 71 D. Davydova, ‘Baltic Pride 2010: Articulating Sexual Difference and Heteronormative Nationalism in Contemporary Lithuania’, Sextures, nr. 2, (2012), pp. 32‐33. 72 P. J. Smith, ‘Lithuania Passes Law against Homosexual Propaganda in Schools’, www.lifesitenews.com, consulted on 23‐ 04‐2013. 73 Lietuvos Respublikos Socialinés Apsaugos ir Darbo Ministerija, ‘Site with information about the Lietuvos Respublikos Socialinés Apsaugos ir Darbo Ministerija’, http://www.socmin.lt/index.php?513830510, consulted on 01‐05‐2013. 74 U.S. Department of State, ‘Country Reports on Human Rights Practices 2012: Lithuania’ , http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper, consulted on 12‐01‐2013. 75 Interview 9. 97 low. In 2000 approximately 13% participated in a trade union.76 On the one hand, this percentage is low because people were simply unwilling to participate. On the other hand, there is a low membership due to the fact that you have to be employed in order to be able to join.77 Thirdly and finally, complaints have been made regarding the minimum income. Like already mentioned, this income should be 1000 litas per month. However, in practice it has been documented that people do not always get paid this amount.78 In addition, it is hard to increase the minimum wage since it is difficult for employees to protest, as explained above.79

9.3 Minorities in Lithuania

In Lithuania, minorities represent approximately 16.5% of the population.80 This number is small as a result of the Law on Citizenship, which made it possible for members of minorities to take on the Lithuanian nationality. As a result, about 90% of the persons who used to belong to a minority now have the Lithuanian nationality. The two largest minorities are Poles and Russians, other minority groups include Belarusians, Ukrainians, Tatars, Roma and Karaite Jews.81 Below, attention will be given to the Polish, the Romani and Jewish minorities since these are involved with the most issues concerning minority rights in Lithuania. In Agenda 2000, the EC researched whether the protection of minorities was adequate in Lithuania. They claimed that the situation of minorities in Lithuania was satisfactory but that two issues had to be addressed. First of all, the Constitution may recognize the individual rights of persons belonging to minorities, but no provisions were made to ensure collective rights. Such rights would for example ensure the recognition of minorities as politically organized communities. So people who belonged to a minority did have rights in terms of language, culture and traditions, but no specific rights concerning its representation in the Parliament. Therefore, the EC recommended lowering the 5% threshold of votes cast in order to guarantee representation of minorities in Lithuania in the Parliament. However, other EU member states do not have such legislation either. The second issue concerned the failure by Lithuania to ratify the Council of Europe’s framework convention on the Protection of Minorities.82 During the accession, Lithuania proceeded to work on ratifying international legislation, such as the United Nations Convention on the Elimination of All Forms of Racial Discrimination in 1998.83 In March 2000 Lithuania ratified the Council of Europe Framework Convention on the Protection of National Minorities, which it had already signed in 1995.84 Nowadays, minority rights are guaranteed by legislation and NGOs working in this field. Concerning legislation, the Preamble of the Constitution, and chapters II, III, IV, XIII contain laws to protect minorities. Also, further legislation has been developed such as the Law on National Minorities, the Law on the Official Language of the Republic of Lithuania, the Law on education,

76 U.S. Department of State, ‘Country Reports on Human Rights Practices 2012: Lithuania’ , http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper, consulted on 12‐01‐2013. 77 Interview 9. 78 Interview 60. 79 Interview 9. 80 U.S. Department of State, ‘Country Reports on Human Rights Practices 2012: Lithuania’ , http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper, consulted on 12‐01‐2013. 81 European Commission, ‘Agenda 2000 – Commission Opinion on Lithuania’s Application for membership of the European Union’, http://ec.europa.eu/enlargement/archives/pdf/dwn/opinions/lithuania/li‐op_en.pdf, consulted on 05‐01‐2013. 82 Ibidem. 83 European Commission, ‘1999 Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/1999/lithuania_en.pdf, consulted on 05‐01‐2013. 84 European Commission, ‘2000 Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/2000/lt_en.pdf, consulted on 05‐01‐2013. 98 the Law on Citizenship, the Law on Non‐governmental Organisations, the Law on Public Information, the Law on Religious Communities and the Law on Political Parties and Political Organisations. Regarding NGOs working in this field, they handle complaints made by the minorities and facilitate integration into the Lithuanian community. 85 However, in practice the minorities still face discrimination, especially the Polish, Romani and Jewish communities.

9.3.1 The Polish minority The Polish minority is the largest within Lithuania and is the only minority actually represented in Parliament, as the Polish Party is member of the Seimas, and currently even member of the governing coalition. The Lithuanian government has tried to solve any problem concerning the Polish minority through the bilateral Commission for Ethnic Minority Affairs, which remains under the auspices of the Lithuanian‐Polish Governmental Cooperation. This Commission negotiates on different issues concerning the Polish community. The thorniest ones concerned the official spelling of Polish names in Lithuania and the restitution of property in the Vilnius region.86 Regarding the official spelling of Polish (street)names, members of the Polish community feel discriminated since Polish names have to be spelled according to the Lithuanian alphabet. This means that some of the letters in the Polish alphabet cannot be used, which implies that Polish names have to be spelled differently.87 It eventually came to a legal case before European Court of Justice, which decided in favour of the Polish community.88 However, Lithuanian citizens did not agree with this decision and nowadays still organize protest against this ‘pollution’ of the Lithuanian language, which is regarded a national symbol.89 Concerning the restitution of property in the Vilnius region, the main problem here is that members from the Polish community were disowned illegally from their properties during World War II. However, when they came back to Vilnius and reclaimed their property, most of the ground had been built on, making it difficult to return. 90 To this day no solution has been found to this problem.

9.3.2 The Romani Community The Romani Community consisted of approximately 3000 persons in 2011 and is mainly situated on the outskirts of Vilnius, Kaunas and Panevėžys. 91 What is unusual in the case of the Romani minority is that no mention of complaints have been made in several reports on their situation. A possible explanation for this absence is that the Romani community does not believe something will change when they will complain to the authorities, since most of their complaints are about those same authorities.92 Notwithstanding this lack of official complaints, the Romani community does face challenges such as social exclusion, poverty and the exclusion to certain public services. However, this situation is similar to that of Romani communities in other EU member states, such as France.

85 J. Andrlík, ‘Ethnic and Language Policy of the Republic of Lithuania: Basis and Practice’, http://www.iccv.ro/oldiccv/romana/conf/conf.sibiu.2004/papers/11.%20Julija.pdf, consulted on 13‐01‐2013. 86 U.S. Department of State, ‘Country Reports on Human Rights Practices 2012: Lithuania’ , http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper, consulted on 12‐01‐2013. 87 Ibidem. 88 European Court of Justice, http://curia.europa.eu/juris/liste.jsf?language=en&jur=C,T,F&num=C‐391/09&td=ALL, consulted on 05‐05‐2013. 89 Short questionnaire with Lithuanian Citizens nearby the protest that took place on 28‐03‐2013 in Vilnius 90 U.S. Department of State, ‘Country Reports on Human Rights Practices 2012: Lithuania’ , http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper, consulted on 12‐01‐2013. 91 Ibidem. 92 Interview 29. 99

The Lithuanian government has adopted policies in order to improve the situation of community, such as the National Programme for the Integration of the Roma Minority to combat the social exclusion in June 2000. 93 About € 244,000 has been invested in this programme, distributing approximately € 152,000 for the construction of a Roma Public Centre and € 91,000 for education, health care, and cultural needs.94 However, several problems existed with this programme. First of all, the EU and many minority advocates criticised the approach that was taken within these policies. They claimed that it was focusing too much on law enforcement in the Romani Community, instead of integrating Roma into the Lithuanian community. 95 Also, according to the EC, there had been no dialogue with the Roma during the development of the policies.96 Secondly, these policies were cut off in 2010 after which it took nearly two years before a new strategy was developed. Eventually, this new policy did not even meet the requirements that were laid down in a communication about this matter with the European Council. What is more, the integration programme was drawn up again without actually consulting the Roma Community itself. Lastly, insufficient funding was allocated to actually implement the new policies. 97

9.3.3 The Jewish minority The Jewish community consisted of approximately 4000 persons in 2011. They are being discriminated against, which is mostly manifested through acts of vandalism and violence.98 Though in Agenda 2000 the EC spoke of ‘sporadic acts of vandalism’, the US Country Report of 2012 mentions several violations concerning vandalism.99 For example, a banner with Anti‐ Semitic slogans, such as ‘Hitler was right’ and ‘Juden Raus’, was found near a synagogue in Kaunas on 20th April 2012, which is Hitler’s Birthday. On the same day, three Nazi flags were found in Vilnius near the centre of the city. Though an investigation was started and such acts of vandalism were condemned by the government, no further action was taken.100 However, similar forms of Anti‐Semitism are apparent in other EU‐countries as well. Also, like already mentioned, such happenings were only sporadic.101

9.4 Lithuania and the European Court for Human Rights

On 27 April 1995 Lithuania ratified the Convention for the Protection of Human Rights and Fundamental Freedoms. In December 1998, the Code of Civil Procedure was extended with a new chapter safeguarding any rights provided by the European Convention for the Protection of Human Rights and Fundamental Freedoms. It therefore has a direct effect on legislation. In case of a contradictory decision of the Lithuanian court, the lawsuit can be renewed. The European

93 European Commission, ‘2000 Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/2000/lt_en.pdf, consulted on 05‐01‐2013. 94 European Commission, ‘2001 Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/2001/lt_en.pdf, consulted on 05‐01‐2013. 95 U.S. Department of State, ‘Country Reports on Human Rights Practices 2012: Lithuania’ , http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper, consulted on 12‐01‐2013. 96 European Commission, ‘2002 Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/2002/lt_en.pdf, consulted on 05‐01‐2013. 97 Interview 29. 98 U.S. Department of State, ‘Country Reports on Human Rights Practices 2012: Lithuania’ , http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper, consulted on 12‐01‐2013. 99 European Commission, ‘1998 Regular Report From the Commission on Lithuania’s Progress Towards Accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/1998/lithuania_en.pdf, consulted on 05‐01‐2013. 100 U.S. Department of State, ‘Country Reports on Human Rights Practices 2012: Lithuania’ , http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper, consulted on 12‐01‐2013. 101 Interview 43. 100

Court of Human Rights (ECHR) decides whether the decision of the Lithuanian court is contradictory.102 A total of 83 cases was delivered to the Lithuanian government between 2000 and 2013, of which some have been dismissed. There have, however, been numerous applications concerning Lithuania.103 For example, in 2011, the court has dealt with 162 applications, of which 10 judgements were delivered.104 The number of applications has grown significantly within one year, since in 2012 717 applications were reported by the European Court on Human Rights. Of this amount, 705 were declared inadmissible. It delivered 12 judgements, of which 7 found at least one violation of the European Convention on Human Rights. 105 Most cases and applications against Lithuania concerned the violation of article 6 and 8 of the European Convention on Human Rights. Article 6 ensures the right to a fair trial and article 8 concerns the right to a private life. 106 However, the majority of these cases concerned the length of a trial, which in some cases took 10 years.107 When it comes to actually executing the decisions made by the European Court of Human Rights it can be said that, on the one hand, several cases have proven that Lithuania does execute the demands made by a decision, such as in the case of Juozaitienė and Bikulčius vs. Lithuania. It concerned the deaths of the applicants’ sons, which was the result of the use of unnecessary force by the police in a car chase and an improper investigation Because of this, Lithuania has introduced specific training on the use of violence which is mandatory for the police to attend. What’s more, abuse of office is now seen as an offense. In addition, new special devices to prevent the use of fire‐arms or limit their effects have been acquired. Finally, the domestic courts’ case law has developed in order to ensure effective investigations.108 On the other hand, one interviewee claimed that Lithuania rather paid a fine than actually executing the decision made.109 However, no statistical data can be found proving this statement.

9.5 Conclusion

Several interviewees have stated that though adequate legislative frameworks have been adopted to safeguard the protection of Human Rights within Lithuania, allocation of funding in order to implement this legislation is lagging behind. 110 According to some of the representatives we spoke, this is the result of a lack of political will, which probably has to do with the insufficient understanding of why human rights are needed, as Lithuania has adopted

102 European Commission, ‘Agenda 2000 – Commission Opinion on Lithuania’s Application for membership of the European Union’, http://ec.europa.eu/enlargement/archives/pdf/dwn/opinions/lithuania/li‐op_en.pdf, consulted on 05‐01‐2013. 103 European Court of Human Rights, site with information on the most important cases within the European Court of Human Rights in which Lithuania was involved, http://www.echr.coe.int/NR/rdonlyres/F91A9EBB‐2272‐479C‐BBB3‐ D1BE98709C0C/0/PCP_Lithuania_en.pdf, consulted on 04‐05‐2013. 104 J. Žilinskas, D. Gailiūtė, ‘Review of judgments of the European Court of Human Rights in cases against the Republic of Lithuania in 2011’, Jurisprudence, nr. 1, (2012), p. 369. 105 European Court of Human Rights, site with information on the most important cases within the European Court of Human Rights in which Lithuania was involved, http://www.echr.coe.int/NR/rdonlyres/F91A9EBB‐2272‐479C‐BBB3‐ D1BE98709C0C/0/PCP_Lithuania_en.pdf, consulted on 04‐05‐2013. 106 European Court of Human Rights, site with information on the most important cases within the European Court of Human Rights in which Lithuania was involved, http://www.echr.coe.int/NR/rdonlyres/F91A9EBB‐2272‐479C‐BBB3‐ D1BE98709C0C/0/PCP_Lithuania_en.pdf, consulted on 04‐05‐2013. 107 Interview 18. 108 Council of Europe, ‘Supervision of the execution of judgments and decisions of the European Court of Human Rights’, http://www.coe.int/t/dghl/monitoring/execution/Source/Publications/CM_annreport2011_en.pdf, consulted on 29‐04‐ 2013. 109 Interview 18. 110 Interview 15; 18 and 29. 101 these mostly because it was mandatory in order to join the EU.111 Nevertheless, it was also noted that this does not account for all the politicians. Even so, some violations seem to have been caused by issues concerning implementation of the legislation. For example, several violations concerning torture and degrading and inhumane treatment with regard to groups of people and rights concerning minorities such as the Polish, Jewish and Romani have been mentioned by multiple interviewees.112 Nevertheless, it must be added that few human rights existed at all before Lithuania regained independence in 1991, as during the Soviet repression mostly economic and social rights were emphasized.113 Therefore, the very fact that such rights are now elaborated on is an improvement in itself. Moreover, the focus in this chapter has been on the specific issues and concerns still at hand relating to human rights. It would therefore be inappropriate to solely conclude from this chapter that the overall protection of human rights within Lithuania is inadequate. Improvement is still needed, however, which can be achieved through better education on the importance of human rights.

111 Interview 29. 112 Interview 15; 18 and 29. 113 D. Shiman, ‘A human rights perspective’, http://www1.umn.edu/humanrts/edumat/hreduseries/tb1b/Section1/tb1‐ 2.htm, consulted on 04‐03‐2013. 102

10. Media

This chapter first describes the media landscape of Lithuania, divided into the print media, the radio, the television and the Internet. Second, it discusses the Lithuanian national media policy, by describing the main legislation, the broadcasting regulation, the regulatory bodies and their status and the ownership as well as the accountability, transparency and independence of the Lithuanian media. As will become clear, there are some ambiguities and causes for concern, with regard to the current media policy.

10.1 Media landscape

10.1.1 Print media Before the Lithuanian independence in 1991 and the consequential changing political situation, newspapers were often used to disseminate party propaganda on a large scale. After the independence the print media sector, like many other sectors, underwent privatisation. That is, the government stopped intervening in this sector. As a result of privatisation, the value of the related companies increased and a few years later the shares were sold to larger companies and to foreign investors. Between 1989 and 1998 a reform of the print media took place: the print media transformed from a state dependent model to a free mass media model.1 Until 2008, the number of readers of print media was growing. After the start of the economic crisis, however, the number started decreasing, partly because the prices of the newspapers remained at the same level as before the crisis. The decline is also caused by the increasing use of Internet.2 The print media, as well as other media, face problems concerning publication transparency. Despite an amendment to the Lithuanian Law on the Provision of Information to the Public in 2006, which legalised the control of printed reports, these problems still exist, as after the law was revised, no control mechanism was developed.3 This law and these problems will be discussed in more detail later on.

10.1.2 Radio In Lithuania there are a great number of radio stations. The first radio broadcast took place on the 12th of June 1926. From 1940 until 1990 the Lithuanian radio belonged to the broadcasting system of the Soviet Union. Until the early 1990s, the Lithuanian National Radio (LR1) possessed monopoly power. During that period LR1 was the state broadcaster while nowadays it is the public broadcaster. Since the Lithuanian independence the radio market can be distinguished into one major public broadcaster and a number of small private ones. The majority of the radio channels broadcast in Lithuanian language and radio is financed by national and foreign investors and the advertising market. An important national investor is the Achema Group (see chapter 17 on economic sectors).4 Due to a decline in advertising revenues, as a consequence of

1 European Journalism Centre, ‘Media landscape: Lithuania’, http://www.ejc.net/media_landscape/article/lithuania/, consulted on 07‐01‐2013. 2 A. Racas, L. Ulevicius and D. Parsonis, ‘Mapping Digital Media: Lithuania: A Report by the Open Society Foundations’, http://www.opensocietyfoundations.org/sites/default/files/mapping‐digital‐media‐lithuania‐20110923.pdf, consulted on 06‐01‐2013. 3 European Journalism Centre, ‘Media landscape: Lithuania’, http://www.ejc.net/media_landscape/article/lithuania/, consulted on 07‐01‐2013. 4 European Journalism Centre, ‘Media landscape: Lithuania’, http://www.ejc.net/media_landscape/article/lithuania/, consulted on 07‐01‐2013. 103 the economic crisis, many radio stations had and still have to stop.5 Thus, it can be concluded that radio in Lithuania is losing its importance.

10.1.3 Television Television plays an important role in Lithuania. However, as a result of the switch‐off of the analogue signal in October 2012, a topic that will be returned to later in this chapter, the major TV channels are losing a large number of viewers that now increasingly watch digital channels (DTV).6 During the Soviet Period, there was one national state television, which became a national public broadcaster financed through state budget as well as license and advertising fees. Nowadays, the television market can be divided into the state financed public channels LTV1 and LTV2, the channels financed by local stakeholders and the channels that receive foreign capital. The Swedish Modern Times group is an example of a successful foreign company within the Lithuanian television field. From independence until now, the Lithuanian television market has not undergone radical changes.7 Within the television field several languages can be distinguished. The minorities in Lithuania have several kinds of media to their dispose in their languages. Moreover, the national channels broadcast programs for the different nationalities in Lithuania.8 In conclusion, the share of the major television channels is decreasing, while at the same time digital television is rapidly gaining ground in Lithuania.

10.1.4 Internet During the last few years the use of Internet has increased rapidly. It is available to at least one third of the Lithuanian population. In 2012, approximately 2.1 million people were using Internet. The upcoming use of Internet is largely caused by the high‐speed broadband access. As of 2012, 99.7% of the households with home Internet access used a broadband connection.9 The social media, too, are growing rapidly. Everyone can write blogs and the number of readers of blogs is increasing. Social networks are also used for private initiatives regarding, for example, media‐related issues such as transparency. 10 Even though the increase of the number of internet‐users is enormous, in comparison to other European countries it remains low.11 However, it can be concluded that Internet is the fastest growing medium in Lithuania.

10.2 National media policy

10.2.1 Main legislation The main legislation regarding media has developed over the past decades. Media was censored during the Soviet Period, but after Lithuania became independent, the country adopted a liberal system, the aim of which was to monitor the media. As a consequence, since 1991, the Lithuanian media are not monitored by the state power anymore but are regulated through the Law on the Provision of Information to the Public, the first version of which was adopted in 1996. This law prohibits censorship as well as monopolies and state interventions and is based

5 B. Vaidas, ‘Lithuania country report: Footprint of Financial Crisis in the Media’, http://www.opensocietyfoundations.org/sites/default/files/lithuania‐20091201_0.pdf, consulted on 05‐01‐2013. 6 Interview 34. 7 European Journalism Centre, ‘Media landscape: Lithuania’, http://www.ejc.net/media_landscape/article/lithuania/, consulted on 07‐01‐2013. 8 European Commission, ‘Advies van de Commissie inzake het verzoek van Litouwen om toetreding tot de Europese Unie’, 2003. 9 New Media Trend Watch Europe, ‘Lithuania’, http://www.newmediatrendwatch.com/markets‐by‐country/10‐europe/72‐ lithuania, consulted on 25‐04‐2013. 10 Interview 3. 11 European Journalism Centre, ‘Media landscape: Lithuania’, http://www.ejc.net/media_landscape/article/lithuania/, consulted on 07‐01‐2013. 104 on a system of self‐regulation.12 The interviewees reported that the surveillance is a posteriori, that is, the responsible regulatory bodies do not interfere, even when the content is published beforehand in an announcement.13 Within the television field, however, an exception can be made when the national court determines that something that is announced beforehand is not allowed to be broadcasted. This occurs for example when children’s rights are involved, but it does not happen very often.14 If something turns out to be harmful and forbidden by law, like for example pornography, the Radio and Television Commission can give broadcasters a warning.15 The police can also give warnings or fines. The punishments can reach three years sentence.16 Moreover, the abovementioned law guarantees the independence of the media and the journalists with regard to the government and it allows the distribution of information concerning the private life of public persons, if this information is of high importance to the public.17 Furthermore, one of the interviewees stated that there is a self‐regulating body for advertising complaints. That is, everyone can file a complaint about advertisements, after which the commission decides whether those advertisements are in line with the advertising code or not. If not, the commission orders the producer of the advertisements to withdraw it. All of this is openly published in the media. To compare, a system like this does not exist in Latvia and Estonia.18 With regards to the accession to the EU in 2004, Lithuania was obliged to implement a new electronic communications regulatory framework as from the first day of accession. At the same time, the legal framework of the Lithuanian postal services sector had to be harmonised with the EU postal services framework. Both laws were applied as of May 2004.19 The most important changes were the convention of human rights from the European Council and the Court of Human Rights and the resolution of the European Parliament concerning pluralism in media. A mechanism concerning money for publicity of the EU also had a big impact, since regional newspapers did not receive money from the Lithuanian ministries. However, Lithuanian politicians and officials of ministries often consider the EU regulations as recommendations that are not directly related to their national legislation.20 Furthermore, there is a Code of Ethics of Lithuanian Journalists and Publishers, of which a revised version was adopted in 2005. This Code contains several ethical provisions.21 In 2006, a new version of the Law on Public Information was adopted. Policymakers wanted the revised law to include several restrictions, such as the reduction of the expression of subjective opinion. In the adopted law these proposals, however, were toned down, due to criticism from journalists and publishers.22 This fact may indicate that the media are rather independent, to which will be returned later.

12 European Journalism Centre, ‘Media landscape: Lithuania’, http://www.ejc.net/media_landscape/article/lithuania/, consulted on 07‐01‐2013. 13 Interview 34. 14 Interview 3 and 34. 15 Interview 34. 16 Interview 3. 17 European Commission, ‘Advies van de Commissie inzake het verzoek van Litouwen om toetreding tot de Europese Unie’, http://ec.europa.eu/enlargement/archives/pdf/dwn/opinions/lithuania/li‐op_nl.pdf, consulted on 06‐01‐2013. 18 Interview 34. 19 Communications Regulatory Authority, ‘About RRT’, http://www.rrt.lt/en/about_rrt.html, consulted on 20‐01‐2013. 20 Interview 3. 21 For the English version of the Code of Ethics of Lithuanian Journalists and Publishers, see http://ethicnet.uta.fi/lithuania/code_of_ethics_of_lithuanian_journalists_and_publishers. 22 A. Piasecka, ‘Nations in Transit 2007: Lithuania’, http://www.refworld.org/cgi‐bin/texis/vtx/rwmain?page=topic& tocid=45a5199f2&toid=45a519f52&publisher=&type=&coi=LTU&docid=4756ad5912&skip=0, consulted on 07‐01‐2013 105

The question is whether the rules concerning market regulation such as the anti‐ monopoly legislation are strictly followed, since great parts of the media sector belong to only one owner, MG Baltic. This issue will be elaborated on later in this chapter.

10.2.2 Broadcasting regulation As stated by the Law on the Provision of Information to the Public, all radio‐, television‐ and cable‐TV‐stations are obliged to have a broadcasting license, apart from the Lithuanian national radio and television services. The licenses are issued by the Radio and Television Commission, which follows a fixed procedure.23 For the public broadcasters the commission issues permits to use frequencies and for the commercial broadcasters it issues licenses, on tender basis. That is, there are usually two or three contestants who write an application to the commission, after which the commission decides by secret ballot whether to give a license or not.24 In October 2012, the analogue signal was switched off. As a result, more radio frequencies became available. That is, there is a capacity for every big television station to have three or four radio stations, instead of one, as was the case before the switch‐off.25 The criteria that the radio and television broadcasters have to fulfil can be found in the Licensing Rules for Broadcast and Transmission Activities. According to paragraph 25 of these rules, the Lithuanian Radio and Television Commission considers the requirements in box 10.1 as desirable for the broadcasters to fulfill.26

Box 10.1: Requirements for broadcasters according to paragraph 25 of the Licensing Rules for Broadcast and Transmission Activities - the provision of original cultural, informational, and educational programs; - the guarantee of dissemination of true and unbiased information, the respect of personal dignity and private life; - the protection minors from potential dangerous influence of public information for their physical, intellectual, and ethical development; - the distribution of programs, alternatives to which are not available from other broadcasters in the same area. Source: A. Racas, L. Ulevicius and D. Parsonis, ‘Mapping Digital Media: Lithuania: A Report by the Open Society Foundations’

According to article 26 of the same Licensing Rules, the Commission also takes into consideration the fulfillment of the criteria in box 10.2.27

Box 10.2: Requirements for broadcasters according to paragraph 26 of the Licensing Rules for Broadcast and Transmission Activities - the potential to create more locally produced cultural, educational, and informational programs to develop citizenship and love for the Motherland; - the potential to broadcast more cultural and informational programs produced in Europe for the development of general principles of diversity and to permit self-expression by diverse groups - the composition of multichannel packages offered to subscribers (ensuring linguistic diversity); - the importance of a project for the development of program broadcasting and (or) transmission;

23 A. Nugaraite, Media ownership and its impact on media independence and pluralism: Lithuania, Ljubljana: Peace Institute, 2004, pp. 269‐270. 24 Interview 34. 25 Ibidem. 26 A. Racas, L. Ulevicius and D. Parsonis, ‘Mapping Digital Media: Lithuania: A Report by the Open Society Foundations’, http://www.opensocietyfoundations.org/sites/default/files/mapping‐digital‐media‐lithuania‐20110923.pdf, consulted on 06‐01‐2013. 27 Ibidem. 106

- whether a proposed technical solution is optimal and has future potential; - the financial situation and funding sources of the subject; - the prior experience in similar projects; - the deadlines of project implementation; - the tariffs for services; - the references from supervising State institutions on subject’s past activities in the field of broadcasting and (or) transmission. Source: A. Racas, L. Ulevicius and D. Parsonis, ‘Mapping Digital Media: Lithuania: A Report by the Open Society Foundations’

10.2.3 The regulatory bodies The media are monitored by four bodies, of which two bodies address the commercial broadcasting service and two bodies address the public broadcasting service. The commercial broadcasting service is monitored by both the Lithuanian Radio and Television Commission, which is the biggest regulatory body, and the Communications Regulatory Authority. The public broadcasting service, on the other hand, is monitored by the Commission of Journalists’ and Publishers’ Ethics and the Inspector of Ethics of Journalists. All of the abovementioned bodies are focused on the audiovisual media, while the Inspector of Ethics of Journalists monitors all media fields. Apart from these bodies, there is an organisation that deals with the rights of customers. Furthermore, there are occasional projects from NGOs and other organisations, like Transparency International (in Lithuania), the Journalists’ Union or other associations or universities.28 Below, the monitoring bodies and their tasks will be described more specifically. The Lithuanian Radio and Television Commission (Lietuvos radijo ir televizijos komisiją, LRTK), which was established in 1996, is the first institution to supervise and regulate the activities of the commercial radio and television broadcasters. It cooperates closely with the Communications Regulatory Authority.29 The task of the commission is to put into practice the strategy for the allocation of radio frequencies for broadcasting and transmitting radio and television programs. According to this strategy, the commission has to prepare and adopt the plan for the allocation of the frequencies for broadcasting and transmitting radio and television programs. Apart from this, it arranges the tender conditions and license terms, while determining the registration fee rates. It also makes decisions concerning the tenders and licenses.30 The commission relies on the Constitution, the Law on the Provision of Information to the Public, other laws and regulatory enactments, including its own regulations, and the Rules for Licensing Broadcasting and Re‐broadcasting Activities.31 The commission is accountable to the Seimas and is said to be an independent institution.32 However, on the 14th of June 2012, a new law was adopted, the consequences of which could be considered as subversive to the independence of the commission, since from the beginning of 2013, two of its members are delegated from the president’s office and three of them from the parliament. Moreover, its deputy chairman is appointed by the parliament, while previously the commission itself selected the chairman.33

28 Interview 3. 29 Interview 34. 30 Interview 34. 31 The Radio and Television Commission of Lithuania, ‘About the Commission’, http://www.rtk.lt/en, consulted on 20‐01‐ 2013. 32 Ibidem. 33 Interview 34. 107

As mentioned before, the Communications Regulatory Authority (Lietuvos Respublikos Ryšių reguliavimo tarnyba, RRT) cooperates with the Radio and Television Commission. Particularly, the RRT is established in order to promote competition in electronic communications and postal sectors. The mission of the RRT is to ensure a variety of technologically progressive, top quality, safe and affordable information and communications technologies (ICT) and postal services/products to every citizen of Lithuania as well as to create favourable conditions for ICT and postal business development, in this way promoting information and knowledge society progress.34 The RRT’s main tasks in order to achieve this mission are the promotion of competition in and the regulation of electronic communications and postal markets. In addition, the RRT has managing and supervising tasks within the field of radio and telecommunication. It also has the task to protect consumers’ rights.35 Lastly, the Commission of Journalists’ and Publishers’ Ethics and the Inspector of Ethics of Journalists operate together. The tasks of the Commission of Journalists’ and Publishers’ Ethics are to investigate violations of ethics and to monitor the compliance of the public broadcasters with the requirements as mentioned by the related laws. Once the Commission notices any violation, the concerning violator is obliged to publish that violation.36 The commission, however, does not do much monitoring due to a lack of staff.37 The Inspector of Ethics of Journalists, having a body of experts, also closely cooperates with the Radio and Television Commission. It has both supervisory and punitive powers. It is regulated by law that in case the Radio and Television Commission has problems determining whether something is harmful to minors or not, the inspector can reach a verdict.38

10.3 Media ownership

In Lithuania, the much‐discussed topic of media ownership is a cause for concern. A study concerning media accountability in Latvia, Lithuania and Sweden, reports that only two of five examined newspapers provided information concerning ownership.39 In addition, a country report concerning digital media in Lithuania states that the national media and Lithuanian politics are not directly involved with each other. Nonetheless, some media companies are said to be indirectly owned by politicians.40 Indeed, interviewees confirmed that some media appear to be owned by politicians, both directly and indirectly. However, this is mainly the case on the municipality level, which means that in some cases mayors or family of local politicians own media.41 This involves, however, only the (local) newspaper market, since the prices within the television market are too high.42 An interviewee said that this is also why it is not probable that it will occur on the national level.43 In some cases, companies of members of the Parliament also

34 Communications Regulatory Authority, ‘About RRT’, http://www.rrt.lt/en/about_rrt.html, consulted on 20‐01‐2013 35 Ibidem. 36 No author, ‘Commission of Ethics of Lithuanian Journalists and Publishers’, http://www.rjionline.org/MAS‐Press‐Councils‐ Lithuania%20, consulted on 27‐01‐2013. 37 Interview 3. 38 Interview 34. 39 R. Juozapavičius et al., Media accountability in Latvia, Lithuania and Sweden (Exploratory study), Transparency International Lietuvos skyrius, (2009), pp. 14‐15. 40 A. Racas, L. Ulevicius and D. Parsonis, ‘Mapping Digital Media: Lithuania: A Report by the Open Society Foundations’, http://www.opensocietyfoundations.org/sites/default/files/mapping‐digital‐media‐lithuania‐20110923.pdf, consulted on 06‐01‐2013. 41 Interview 3 and 34. 42 Interview 34. 43 Interview 3 and 34. 108 own media, but that occurs especially on the level of the local newspapers. In addition, an interviewee stated that some of the media are owned by people who have ties with Russia.44

10.4 Accountability, transparency and independence of the media

According to the aforementioned study concerning media accountability in Latvia, Lithuania and Sweden, media accountability and transparency are issues that are not much discussed in Lithuania. This is partly due to a lack of information from local news organisations. In this study the transparency of the Lithuanian media was researched through examining five national daily newspapers on the following criteria: corrections, ownership, personnel policy, information policy and feedback. The main conclusion was that, compared to other European countries, the media accountability in Lithuania is not much developed. All five newspapers did not publish specific information concerning ownership, nor did they publish their own rules, policy guidelines and ethical codes. Only one newspaper published critical letters about the content of the newspaper. The other newspapers did not publish any critical reactions. In addition, none of the newspapers engaged in interaction with the public, in the shape of, for example, questionnaires and meetings.45 These facts notwithstanding, a few events highlight the accountability of the Lithuanian media. For example, one of the interviewees reported that complaints concerning advertisements and the reactions to them are openly published in the media. Furthermore, the regulatory bodies make much of their data available to the public.46 A country report concerning digital media in Lithuania also confirms the weak transparency of media ownership, since there are too few legal requirements related to this. Furthermore, it states that the lack of specific anti‐monopoly legislation could be a problem, since companies can easily use the media to promote their own interests.47 Within the radio field, the biggest companies cover less than 50% of the market. Within the television field, however, MG Baltic owns 80% of the market, while other companies own 20%.48 Consequently, the ownership within the television field is cause for concern. There are, however, a number of institutions that are meant to safeguard against monopolies. One of the interviewees reported that the ownership of every company is registered and that it is controlled by the Competition Council, which, together with the Radio and Television Commission, has to be informed when a company wants to sell the stocks or the ownership when these exceed 50% of the ownership. Then the Council and the Commission start an investigation. If the transaction is limited to a maximum of 10% of their stocks, the companies only have to inform the Council and the Commission.49 In addition, there is an anti‐ monopoly institution to which people can send complaints. However, according to an interviewee, the problem is that the participants in the media market do not complain often and that the politicians and the governmental institutions will not start investigations on their own initiative.50

44 Interview 3. 45 Rytis Juozapavičius et al., Media accountability in Latvia, Lithuania and Sweden (Exploratory study), Transparency International Lietuvos skyrius, (2009), pp. 14‐15. 46 Interview 34. 47 A. Racas, L. Ulevicius and D. Parsonis, ‘Mapping Digital Media: Lithuania: A Report by the Open Society Foundations’, http://www.opensocietyfoundations.org/sites/default/files/mapping‐digital‐media‐lithuania‐20110923.pdf, consulted on 06‐01‐2013. 48 Interview 34. 49 Interview 34. 50 Interview 3. 109

Another interviewee stated that there is a problem concerning transparency of media ownership. It is not clear who the owners of the biggest television and newspaper companies are. The registration of ownership is documented by the Ministry of Culture. However, the interviewee states that the documents with these data are not up‐to‐date, due to a shortage of officials and a lack of cooperation between the institutions. On top of this, politicians and ministers pay too little attention to these issues.51 Overall, however, the level of transparency is increasing, as nowadays media companies only receive financial support from the media support foundation if they send data about their ownership to the Ministry of Culture. As a result, more and more media companies are being registered.52 Lastly, according to a country report by the UNHCR of 2012, the independence of the Lithuanian media was rated 2,00, which means a decline in comparison with the previous years.53 Indeed, interviewees reported that as a consequence of the new law for the Radio and Television Commission, the independence of that regulatory body has decreased.54 Apart from that, one of the interviewees reported that the office of the Inspector of Journalists is the only regulatory body that is financed directly from the state budget. The Commission of Ethics of Journalists and Publishers is indirectly financed from the state budget, since it receives money from the media support foundation, which is financed by the state. The Radio and Television Commission is, however, financed from advertisements. These supports notwithstanding, an interviewee stated that the government and the Seimas do not influence the bodies.55 Because of the financial supports, however, at least indirect influence could be determined. Yet an interviewee stated that there are a growing number of initiatives and examples of media and journalists protecting their right to be independent. Although some politicians sometimes have a great impact, the independence on the personal level is increasing.56

10.5 Conclusion

When observing the media landscape of Lithuania, one notices a decline in the use of radio and television. At the same time, the Internet is gaining ground, mainly due to the fast broadband connection. However, as far as the number of internet‐users is concerned, Lithuania continues to lag behind other European countries. The most important conclusion to draw from the second part of this chapter is that the Lithuanian media system has a predominantly liberal status. Since the Lithuanian independence, there has been no censorship. Indeed, by many it is said that the Lithuanian media system allows freedom of speech to a large extent, which, however, can also be seen as a problem.57 Furthermore, four regulatory bodies exist, which are said to be independent from the government. However, on this independence, the opinions differ whether this is really the case. As a result of the new law for the organisation of the Radio and Television Commission, it can even be concluded that independence has decreased. In addition, notwithstanding the improbability of the political ownership to emerge on the national level, it could remain a cause

51 Interview 3. 52 Ibidem. 53 K. Leontjeva, ‘Nations in Transit 2012: Lithuania’, http://www.refworld.org/docid/4fd5dd2bc.html, consulted on 07‐01‐ 2013. 54 Interview 3 and 34. 55 Interview 3. 56 Ibidem. 57 The liberal media system can be considered as a problem, since is it not positive that people are allowed to publish anything they want, but, on the other hand, a strictly controlled system would neither be positive, as was stated by a number of interviewees. 110 for concern. In order to cope with this problem, more attention should be paid to keeping the registration system for ownership up‐to‐date, as well as to the political arena as a whole. It will always remain difficult to find the right balance between a liberal system and a strictly controlled one.

111

11. Migration in Post‐Soviet Lithuania 11.1 Introduction

The phenomenon of international migration has contributed strongly to the shaping of Lithuanian society and culture. Recurring foreign occupations throughout its history turned this phenomenon into a source of opportunities as much as it induced perils. As Lithuania was incorporated and transformed into one of the republics of the Soviet Union after World War II (WOII), the country underwent rapid, large scaled industrialisation and urbanisation.1 During that time, migration to and from Lithuania was to be considered both stable and constant. Until the end of the 1980s, emigration flows were largely limited to the Soviet Union. However, the disintegration of the Soviet‐Union, starting in 1989, has resulted in political, social and economic changes in all of Central‐ and Eastern Europe. Lithuania’s independence in 1991 can as such be seen as a turning point in the migration dynamics of the country. Migration flows started to take a different path, in many cases even a reverse direction compared to the previous decades. Ever since the independence, the migration balance has been negative (see figure 1 below2). In other words, the emigration rate has for the past two decades consistently exceeded the immigration rate.3 The social, economic and political upheavals since Lithuanian independence have enormously influenced the situation of ethnical groups, both the majority as well as minorities. They have had to meet new conditions such as new norms, civil loyalty, knowledge of the state language and participation in new forms of private as well as public bodies. Lithuania has since developed an institutional and judicial framework that applies the principle of equal treatment in order to combat discrimination on grounds of nationality. Social benefits, healthcare insurance, pension, loans and subsidies are equally accessible to citizens and permanent residents. Therefore, this chapter answers the question as to what extent the migration dynamics have changed since Lithuania’s independence. In the next paragraphs the migration situation in Lithuania will be reviewed, taking the post‐Soviet era as a starting point. The focus will be on the phenomenon of emigration and immigration, illustrating the causes of the changes in the migration balance. Firstly, the chapter examines the increasing emigration resulting in a negative migration balance, followed by Lithuania’s migration policy towards immigrants. Secondly, it briefly discusses illegal immigration and the related issue of human trafficking. Thirdly, it gives a conclusion, answering the main questions of the chapter.

1 A. Triandafyllidou and R. Gropas, European Immigration, Hampshire: Ashgate Pubishing Limited 2007, p. 213. 2 Figure 1 demonstrates the difference between immigration and emigration. 3 Migration balance refers to the balance between emigration and immigration. Negative migration balance occurs when the number of emigrants exceeds the number of immigrants. 112

Table 11.1: Negative migration balance as emigration exceeds immigration

Source: European Migration Network. Organisation of asylum and migration policy in Lithuania 2012. 11.2 Emigration

Since Lithuania’s independence in 1991, the country went through crucial social, political and economic changes. As a consequence, migration dynamics started to change as well. In some cases there was a reverse migration to the country of origin. The process of independence in the Baltic States somehow stimulated the (re)emigration of non‐native nationals who immigrated to Lithuania during the Soviet era, mainly from another Soviet republics. The independence of Lithuania has resulted in new patterns in the migration flows as the rate of emigration kept increasing, mainly to Western Europe, and has induced immense population decline as well as changes in the Lithuanian labour market. According to Eurostat statistics, Lithuania was the EU country with the second highest emigration rate, with 18 emigrants per 1000 persons, while Ireland had 19 emigrants per 1000 persons. 4 Since its independence up to now Lithuania has continued to have a negative net migration, that is, the number of emigrants exceeds the number of immigrants. To compare this situation with the pre‐independence statistics, net migration for 1960‐1964 was 1%, for 1965‐ 1969 1.3%, for 1980‐1984 1.9% and for 1985‐1989 3.5%, while the net migration for 1990‐ 1994 was ‐5% and for 1995‐1999 ‐6.3%. In 2000 it was ‐5.8%, in 2003 ‐1.8% and in 2004 ‐2.8%. The first time emigration exceeded immigration since independence was in 1992, when 27,000 people emigrated to the CIS countries5. At the accession of Lithuania to the EU in 2004, fifteen years of independence did not only symbolise the progress the Lithuanian state had made, but also included the transition from a totalitarian system to democratic exercise of power, from a central planned economy to a free market based economy, as Lithuania joined the European internal market. This implied a tremendous change on political, socio‐economic and cultural levels, which was reflected in the

4 Eurostat, ‘Migration and migrant population statistics’, http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Migration_and_migrant_population_statistics#Migration _flows, consulted on 20‐05‐2013. 5 Members of Commonwealth of Independent States (CIS) include Russia, Belarus, Ukraine, Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Georgia, Uzbekistan and Moldova. 113 migration trends. Due to these changes the social mobility of individuals increased, resulting in rising emigration levels.6 According to official statistics7, the number of emigrants increased immediately after Lithuania accessed the EU in 2004. In 2004 and 2005, respectively, 40,331 and 62,847 people emigrated, compared with 28,051 in 2003 and 17,849 in 2002. The reforms Lithuania made in order to access the EU initially helped to develop a stable and growing economy with positive economic numbers: increase in foreign investments, stable inflation, economic growth and low unemployment. Since 2003, Lithuania was categorised as one of the fastest growing economies in the EU. The transition thus seemed to be paying off. The international financial crisis affecting the European economy in 2008 suddenly instigated a reverse trend, causing a severe recession. As a result of mounting unemployment levels, it caused a significant increase in emigration too. From 2009 to 2010 Lithuania experienced a large decrease of total immigration, and a clear increase in emigration in parallel with the worsening economic conditions and high unemployment. After a decrease of 30% in terms of immigration in 2009, a further decrease of 20% followed in 2010, when only 5213 immigrants – of whom 80% were ethnically Lithuanians – entered the country. On the other hand, the number of emigrants increased from 21,970 persons in 2009 to 83,157 in 2010. This increasing number is five times as large as the emigration rate between 2004 and 2005. Immigration from Russia, Belarus, and Ukraine fell in 2010 by 36% compared to the previous years. The main reasons for this decrease were related to decreasing job offers in the transportation and construction sectors. Gradually, emigration flows are decreasing as the Lithuanian economy is recovering slightly. In 2011, only 53,863 people left the country, compared with 83,157 a year before. In 2010 the net migration average was ‐23.7 per 1000 inhabitants, which was the highest emigration rate in the EU (see figure 2 below). Although in 2011 emigration decreased to 11.8 per 1000 residents8, Lithuania continues to have a high emigration rate. Statistics show that the large majority of emigrants go to EU countries. In 2011 the two most popular destinations were Ireland and Denmark. Emigration to non‐EU countries, such as Russia, Belarus, and Ukraine decreased from 19% in 2009 to 4% in 2010. The main factor in the increase of emigration since the economic crisis is unemployment among young people, which accounted for 35% in 2010. Emigrants of the age 20‐34 represented 50% of the total emigration in 2010. As a result of the economic crisis, Lithuanian authorities delayed plans to facilitate foreign immigration. Instead, they focused on the Lithuanian nationals living abroad in order to consolidate the ties and encourage them to come back.

6 Interview 3. 7 Department of Statistics to the Government of the Republic of Lithuania, ‘Social Statistics 2013, http://www.osp.stat.gov.lt/documents/10180/601214/Lietuvos_ekonomikos_raida_Socialine_stat_2013%283%29.pdf/824 9d45a‐1d6f‐4b1c‐b849‐d20eaf5f5c99, consulted on 20‐04‐2013. 8 Organisation for Economic Co‐operation and Development, ‘International Migration Outlook 2012’, http://www.npdata.be/BuG/165‐NV‐A‐migratie/0ECD‐Migration‐Outlook‐2012.pdf, consulted on 19‐04‐2013. 114

Table 11.2: Migration per thousand residents in the EU in 2012

Luxembourg 15,1 5,4 Sweden 5,3 5,2 5,1 4 Austria 3,3 2,6 Finland 2,6 1,9 Germnay 1,6 1,5 1,4 1,3 Hungary 1,2 1,2 Slovakia 0,6 0,4 Slovenia 0 0 Estonia 0 ‐0,1 Bulgaria ‐3,2 ‐3,5 Cyprus ‐4,1 ‐7,5 Lithuania ‐23,7 ‐30 ‐25 ‐20 ‐15 ‐10 ‐50 5101520

Source: Department of Statistics to the Government of the Republic of Lithuania (Statistics Lithuania), 2012.

Emigration in Lithuania continues to be a source of concern as it deeply involves all aspects of society. Since Lithuania’s independence, approximately 600,000 people have left the country (see figure 3). In accordance with estimates of the population numbers for the years 2011‐2012, based on the final results of the 2011 Population and Housing Census of Lithuania, 2,988,000 persons were living in Lithuania in 20129, while according to data collected in 2001, there were 3,484,000 residents, indicating a decrease of 496,000 residents of the population since 2001. It has to be noticed that this decrease in population has also been caused by low birth rates.

Table 11.3: Total population 1959 ‐ 2011

Source: Department of Statistics to the Government of the Republic of Lithuania (Statistics Lithuania), 2012.

9 Statistics Lithuania, ‘Lithuanian Population Census in Brief’, http://web.stat.gov.lt/uploads/Lietuvos_gyventojai_2011.pdf?PHPSESSID=twmjcujxideyz, consulted on 25‐05‐2013. 115

11.3 Immigration Policy

Immigration to Lithuania currently can be separated into three main categories: a) returning Lithuanian citizens, b) family reunion and c) labour migration.10 The number of illegal transit migrants and asylum seekers is considered to be relatively small. Although the majority of the transit migrants11 had shown little interest to stay in the country, some of them chose to seek asylum and stay in the country permanently. The national legislation provides for the right to seek asylum conform the UN conventions. The Lithuanian immigration policy should be analysed on the basis of government strategies and regulations concerning immigration. The approval of the Strategy of Regulation of Economic Migration by the government of Lithuania in 2007 marked the start of a long‐term strategy to regulate migration. However, the new strategy did not solve a number of issues. For example, no integration measures towards third country nationals were included, except for those addressing refugees and ethnic minorities. The annual programme of the European Fund for the Integration of Third Country Nationals that was started in 2008 provided for the integration of this specific group and new immigrants.12 The so‐called “Zero Option” (after passing the 1989 Law on Citizenship) made it possible for the entire population registered on Lithuanian territory by 3 February 1989 to gain Lithuanian citizenship. However, former members of the Russian secret services and armed forces were excluded from this regulation. The Law on Citizenship, which came into force in 2003, expanded the category of persons who have the inherent right to gain citizenship up to the fourth generation. According to this, persons can become Lithuanian citizens if they have been living in Lithuania for at least 10 years, possessing unlimited residence permit, they must be capable of speaking the language and they must have taken the oath of allegiance to the Republic of Lithuania.13

Table 11.4: Aliens granted Lithuanian citizenship during 2006‐2010 Former 2006 2007 2008 2009 2010 citizenship

Total 467 370 240 214 162

Russia 151 113 54 49 43

Stateless 238 184 128 106 78

Ukraine 30 20 31 27 19

Source: EMN. Organisation of asylum and migration policy. Vilnius 2012

From independence until accession to the EU in 2004, foreign nationals mainly came from Russia, Belarus and Ukraine. After accession to the EU, migration flows changed in numbers and in terms of countries of origin. Since the accession, there has not only been an increase in the

10 A. Triandafyllidou and R. Gropas, European Immigration, Hampshire: Ashgate 2007, pp. 211. 11 Transit migrants are migrants who stay temporally in the country until they move to their final destination. 12 European Commission, ‘third country nationals in Lithuania’, http://ec.europa.eu/ewsi/en/resources/detail.cfm?ID_ITEMS=13018, consulted on 25‐02‐2013. 13 A. Triandafyllidou and R. Gropas, European Immigration, Hampshire: Ashgate 2007, pp. 211. 116 number of immigrants from , China and Moldova, but also a constant increase of returning Lithuanian citizens, which are included in the total immigration figures.14 Since the economic crisis in 2008, the share of returning Lithuanians in the total immigration is growing even more. In 2008, 68% of immigrants were Lithuanians returning from abroad, mainly from the and Ireland. Worsening economic conditions after 2008 resulted in the decrease of the numbers of labour immigration by foreign citizens. However, besides returning Lithuanians, Russian, Belarusian and Ukrainian nationals are still among the main groups of immigrants.15

Table 11.5: Immigration by countries of origin 1990‐2011 Total Lithuanians Russians Belarusians Ukrainians other immigration 1990 14 744 3 407 6 294 1 102 2 034 1 907 1991 11 828 2 998 5 121 761 1 190 1 758 1992 6 640 2 266 2 667 437 525 745 1993 2 850 1 184 992 152 146 376 1994 1 664 551 593 128 101 291 1995 2 020 543 829 150 127 371 1996 3 025 1 009 1 079 154 238 545 1997 2 536 885 876 153 165 457 1998 2 706 862 910 186 186 562 1999 2 679 805 885 136 185 668 2000 1 510 666 326 30 74 414 2001 4 694 714 1 219 482 516 1 763 2002 5 110 809 1 356 508 614 1 823 2003 4 728 1 313 1 089 429 397 1 500 2004 5 553 3 397 441 203 246 1 266 2005 6 789 4 705 294 329 251 1 210 2006 7 745 5 508 396 647 294 900 2007 8 609 6 141 416 746 422 884 2008 9 297 6 337 368 987 508 1 097 2009 6 487 4 821 312 438 209 707 2010 5 213 4 153 248 255 145 412 2011 15 685 14 012 373 254 181 865 Source: Department of Statistics to the Government of the Republic of Lithuania (Statistics Lithuania), 2012.

14 A. Klementjeviene, ‘Lithuania as a new country of immigration’, http://www.migrationonline.cz/e‐library/?x=2251368, consulted on 19‐04‐2013. 15 Organisation for Economic Co‐operation and Development, ‘International Migration Outlook 2012’, http://www.npdata.be/BuG/165‐NV‐A‐migratie/0ECD‐Migration‐Outlook‐2012.pdf, consulted on 19‐04‐2013. 117

11.4 Illegal migration

Since 1991, Lithuania has been a country of destination and transit as well as a destination for irregular immigrants. Beside irregular labour migrants and asylum seekers who enter the country illegally, the question of human trafficking is narrowly connected to the question of illegal migration and border controls. Of the three Baltic States, Lithuania suffers most from human trafficking. The situation has even worsened since Lithuanian’s accession to the EU in 2004. However, the number of cases of illegal immigration remains relatively low. According to Europol, 1200 Lithuanian women were victims of human trafficking in 2010. These victims were often sexually exploited.16 The majority of the victims landed in Germany for a long period of time. The International Organization for Migration (IOM) mentions the UK as the second destination for the majority of Lithuanian victims. In 2003, Lithuania ratified a protocol to capture and punish human traffickers.17 However, the overall situation shows that the number of cases with respect to this type of human trafficking is relatively small.18 Lithuania has faced difficulties controlling its borders effectively, resulting in a gradual increase of illegal immigration. There are two main causes for this. First, there is a shortage in the technological means to trace registered individuals. Second, only a small number of people are prosecuted for illegal activities.19 Accessing the EU in 2004 and becoming part of Schengen in 2008 surprisingly did not result in massive inflow of illegal transit migrants and refugees. In 2008, they made up only 1.1% of the total immigration. The greatest number of asylum seekers in that year came from Russia (243). Statistics show that in 2010, the numbers of asylum seekers doubled to 362 persons, compared with 185 persons in 2009. However, the number of asylum seekers granted protection is decreasing. Asylum seekers who were granted protection in 2011 formed 18% of the applicants, while in 2010 this was 22%. The decrease is due to a growing number of unfounded applications.20

Table 11.6: Applications for asylum and decisions on granting of asylum during 2007‐2011 Year (all First Repeated Total Refugee Subsidiarity Status Total citizenships) time status protection refused 2007 116 364 480 9 393 88 490 2008 210 330 540 12 349 101 462 2009 185 264 449 11 217 267 495 2010 362 141 503 1 109 394 504 2011 362 152 514 7 86 435 528 Source: European Migration Network,Organisation of asylum and migration policy, Vilnius 2012

16 Focus Migration, ‘Lithuania Country Profile’, http://focus‐ migration.hwwi.de/typo3_upload/groups/3/focus_Migration_Publikationen/Laenderprofile/CP_07_Lithuania.pdf,consulted on 20‐04‐2013. 17 Organisation for Economic Co‐operation and Development, ‘International Migration Outlook 2012’, http://www.npdata.be/BuG/165‐NV‐A‐migratie/0ECD‐Migration‐Outlook‐2012.pdf, consulted on 19‐04‐2013. 18 European Migration Network, ‘Annual Policy Report: migration and asylum in Lithuania 2011’, Vilnius 2012, http://www.emn.lt/uploads/documents/lt_policy_2011_eng.pdf, consulted on 14‐05‐2013. 19 Focus Migration, ‘Lithuania’. http://www.focus‐migration.de/, consulted on 15‐04‐2013. 20 European Migration Network, ‘Emigration in Lithuania’, http://123.emn.lt/en/emigration/top‐10‐destinations, consulted on 20‐05‐2013. 118

11.5 Conclusion

The period that was characterised by a constant increase of immigration during Soviet times, as a consequence of the demographic and economic policies of the Soviet Union, was followed by a negative migration balance after Lithuania’s independence in 1991. The high rate of emigration creates concerns among Lithuanians, as the population keeps decreasing. In accordance to estimates made in 2011 by the Population and Housing Census, Lithuania’s population was estimated 2,988,000, compared with 3,484,000 in 2001.21 Immigration by foreign nationals is still very tiny in numbers. It has increased during good economic times and decreased when the country went through instable economic conditions, as was the case since the economic crisis of 2008. Furthermore, recent developments show that the crisis of 2008 has resulted in a further increase in emigration towards other EU countries. However, since 2011 there are signs of a modest increase in immigration and a decrease in emigration, perhaps partly due the gradually recovering economy. Regarding illegal migration, joining the EU in 2004 and becoming part of Schengen in 2008 did not cause large inflows of illegal transit migrants and refugees. The share of illegal immigrants among the total immigration in 2008 was still only 1.1 %.

21European Migration Network, ‘Annual Policy Report: migration and asylum in Lithuania 2011’, Vilnius 2012, http://www.emn.lt/uploads/documents/lt_policy_2011_eng.pdf, consulted on 14‐05‐2013. 119

120

Section 3: Economy

121

Introduction

Under centrally planned Soviet rule Lithuania became one of the wealthiest republics of the Soviet Union. When it achieved its renewed independence in 1991, however, the economy did not compare favourably to those of Western European market economies. Like many others, Lithuania soon set sails for the troubled waters of capitalism despite the heavy inheritance of its Soviet past. This section investigates how Lithuania has managed to meet the new economic challenges of developing into a young free market democracy and full EU Member State. The first chapter of this section will focus on Lithuania’s transition from a centralized Soviet economy to a market economy. The steps that have taken the country towards its current liberal market economy within the EU will be traced since its independence. In a gradual but decisive turn to the West, Lithuania underwent price liberalisation, currency change, privatisation, deindustrialisation, trade diversion and preparations for single market membership, culminating in one of the most open economies of Europe today. The second chapter will delve deeper into monetary developments of the past two decades. The decision to peg the litas currency first to the dollar and later to the euro will be discussed, along with the country’s desire to leave this currency board arrangement and seek entry to the EMU in 2015. The chapter weighs the potential benefits of taking this step against the possible downsides, and concludes that while leaving the currency peg for full adoption of the euro could be beneficial, the benefits of leaving the peg altogether instead, to create a free floating litas currency, should not simply be dismissed. The third chapter will illustrate how the global financial crisis of 2008 quickly triggered a severe economic recession in Lithuania. This chapter intends to identify the different roots of this economic blow by exploring whether the crisis was mainly caused by external factors or rather generated by internal developments that could have been prevented with adequate measures by the government. The main conclusion is that while the economic crisis was primarily triggered by the global financial crisis, it also appears that several economic imbalances made the Lithuanian economy especially vulnerable to external shocks. In the fourth chapter the taxation and business climate of Lithuania is evaluated in light of its status as a newly established market economy. Even though the investment climate of Lithuania has improved strongly in recent years, FDI flows to Lithuania have for a long time been no better than moderate. This chapter mainly investigates why the investment conditions in Lithuania have only had modest success. Among the main findings are that this can be attributed mainly to low efficiency of bureaucracy, unstable business conditions, insufficient entrepreneurial dynamism and a lack of economic vision. The fifth and last chapter looks into Lithuania’s current labour market predicaments. The chapter shall outline the main developments on the labour market since joining the EU, focusing on unemployment, demographics, wage developments and policy measures, within the framework of European employment strategies. In this chapter high unemployment and net emigration are regarded as the main symptoms of a labour market that has difficulty to function in the context of the economic crisis of the last years. Focusing on resolving these issues by liberalising the labour market, as is often recommended, may be too one‐sided and insufficient for a full recovery.

122

12. Transition

During the years that Lithuania was ruled by the Soviet Union, the Lithuanian economy was planned centrally and strictly controlled according to communist principles. Not long after Lithuania gained its independence, the country started taking measures to move away from this type of state‐cantered economy and develop a more western type of market economy. This chapter provides insight into how this transition towards market economy was realised and will give an overview of Lithuania’s current performance within the European single market.

12.1 The Lithuanian economy in transition

During Soviet rule (from 1940‐1991), the Lithuanian economy was strictly controlled by the communist government. The economy was planned centrally and organised according to a system of state ownership of means of production, collective farming and industrial manufacturing.1 All production decisions were made by Moscow, and such decisions were mainly made to benefit Soviet Russia. Whereas Lithuania had essentially been an agricultural country prior to Soviet rule, it soon became highly industrialised after 1940.2 Moscow shifted the emphasis away from textiles, food and light industries towards heavy industry, so that Lithuania could supply the Soviet Union’s specialised military and industrial technology.3 After Lithuania proclaimed independence, the national economy started to develop into a liberal market economy. As pointed out by our interviewees, this transition period is characterised by a number of significant reforms. These reforms are price liberalisation, the introduction of the litas, privatisation, deindustrialisation, trade diversion and preparing for single market membership.

12.1.1 Price liberalisation During Soviet rule all consumer goods were sold at a fixed price in Lithuania. This system prohibited people from earning any profit on the goods that they sold. On the one hand these fixed prices made basic necessities affordable for everyone. On the other hand this system, which created little incentive to produce and sell goods, caused structural shortages of food and other basic goods as well as very little diversity in available goods.4 After Lithuania became an independent state, one of the first economic reforms introduced by the Lithuanian government was the abolishment of price controls. Because prices had been controlled quite rigidly up until 1991, this abrupt and (virtually) total lifting of price controls had far‐reaching effects on the Lithuanian economy and society.5 As the abolishment of price constraints caused prices to rapidly rise to world market prices, the most notable effect was hyperinflation.6 Inflation ran up to 225% in 1991 and skyrocketed to 1020.5% in 1992.7 Although the lifting of price controls was not the only cause (see paragraph on the introduction

1 Interview 11 and 31. 2 A. Idzelis, ‘Industrialisation and population change in the Baltic Republics´, http://www.lituanus.org/1984_2/84_2_02.htm, consulted on 08‐05‐2013. 3 U.S. library of Congress, ‘Structure of the Economy´, http://countrystudies.us/lithuania/16.htm, consulted on 08‐05‐2013. 4 Interview 11. 5 IMF, ‘Price Liberalisation, Money Growth and Inflation during the Transition to a Market Economy’ http://www.imf.org/external/pubs/ft/wp/1999/wp9976.pdf, p. 11. 6 N. Kazlauskiene and W. Meyers, ‘An Analysis of Transition Price Policies in the Lithuanian Food and Agriculture Sector’, http://www.card.iastate.edu/publications/dbs/pdffiles/93br12.pdf, consulted on 08‐05‐2013, p. 2. 7 Baltics Worldwide, ‘Baltic Economic Indicators’, http://www.balticsworldwide.com/baltic‐economic‐indicators/, consulted on 08‐05‐2013. 123 of the talonas and the lita), it was one of the main factors inciting hyperinflation. Hyperinflation came as a big shock to many Lithuanians. Especially people receiving a fixed income from the state, such as pensioners, were seriously harmed, as the government did not align their incomes with inflation rates. Besides this negative effect of price liberalisation, a more positive effect was that the lifting of price controls brought about a broad diversity of new consumer goods into circulation.8

12.1.2 The introduction of the talonas and the lita Despite the fact that Lithuania became independent in 1991, the Soviet ruble remained in place as the national currency until 1993. This situation, which came about due to lack of alternative, was problematic for two reasons. First, the Lithuanians badly wanted to break free from Soviet influence and the fact that the ruble remained in place as national currency was considered to be repressive as well as humiliating. Second, ruble inflation rates were extremely high during these years, creating financial problems for many Lithuanians.9 In an attempt to curb inflation and reduce public dissatisfaction, the Lithuanian Prime Minister introduced a temporary currency in 1991, which was called the talonas. The talonas, which was issued until 1993, was very similar to ration coupons. Under the scheme every citizen was given coupons equal to 20% of their ruble salary up to a maximum of 200 rubles in coupons. People receiving less than 80 rubles a month were given more than 20% of their income in talonas. In order to buy consumer goods other than food, people had to pay one ruble in coupons for each real ruble spent. So if a jumper cost 100 rubles, people had to pay 100 rubles as well as 100 rubles worth of talonas coupons.10 The idea behind this scheme was that it would be a way of rationing goods without drastically raising the prices. In the following years the talonas was criticised for being introduced too suddenly and without the consultation of specialists. The main problem was that the talonas did not do anything to tackle the real causes of shortages of goods at realistic prices, as it did not promote supply, and even seemed to limit demand. After all, people who wanted to buy larger consumer goods, such as refrigerators, now also needed to collect a sufficient amount of coupons besides saving up in rubles. Also, the scheme was not able to prevent hyperinflation as the talonas was aligned to the ruble. Meanwhile, in November 1991 the ‘Currency Issue Law’ was passed and the litas Committee was created. Among other things, this Committee decided the terms of the withdrawal of the ruble, the date the lita would come into circulation and the exchange rate of the lita. Initially the lita was to be introduced in 1992, but at the last moment the banknotes were withdrawn because the quality was considered to be too low and banknotes could easily be counterfeited. Remarkably, after the lita was redesigned and reprinted in 1993, it was found that the money could still be counterfeited too easily, which lead to a second round of redesigning and reprinting. On June 25 1993 the lita was finally introduced.11

12.1.3 Privatisation On the 28th of February 1991, the Law on Initial Privatisation of State Property of the Republic of Lithuania was passed.12 In accordance with this law, the Lithuanian people were given

8 Interview 11 9 G. Selgin, J. Sinkey Jr. and K. Schuler, ‘Replacing the Ruble in Lithuania: Real change versus pseudoreform’ http://www.cato.org/sites/cato.org/files/pubs/pdf/pa163.pdf, consulted on 08‐05‐2013. 10 Ibidem. 11 Vilnews, ‘First and Second Round of Lithuanian Lita’s´, http://vilnews.com/?p=9066, consulted on 08‐05‐2013 12 Republic of Lithuania, ‘Law on the Initial Privatisation of State Property´, http://www.litlex.lt/Litlex/eng/Frames/Laws/Documents/94.HTM, consulted on 08‐05‐2013. 124 investment vouchers with which they could buy state property that had previously been nationalised by the Soviet Union. Most people used these vouchers to buy the flat or house in which they lived.13 Besides buying their own house, however, many people did not know what to do with the vouchers given to them. This created an opportunity for some Lithuanians to buy large quantities of vouchers from their fellow citizens at a very low price, with which they bought enterprises and factories. As pointed out by an interviewee, these new factory owners were most often the same people that had run the factories during Soviet rule.14 At times the privatisation process was hindered by corruption, violence, and organised crime. Besides factories, housing, and enterprises, agriculture was also privatised. Land that had been expropriated by the Soviet Union was returned to the former owners, and unclaimed land was sold.15 The process of agricultural privatisation created a number of difficulties, on top of the problems affecting privatisation generally: to begin with, land was returned to the families of people who had owned the land before the Second World War. However, sometimes these families did not know how to farm or were no longer engaged in farming. 16 Second, many former collective farms were divided up and replaced by several small private farms which did not operate as effectively. Third, new land owners who knew how to farm often lacked the entrepreneurial skills to properly sell their products.17 Despite such difficulties, halfway through 1993 around 80% of the agricultural privatisation program had been completed.18 By the end of 1993 almost all housing in Lithuania had been privatised and in November 1994 80% of the enterprises that were to be privatised had been sold.19 The first round of privatisation ended in 1995. In this year, the second stage of privatisation was launched through the ‘Law on Privatisation of State owned and Municipal property’. During this stage, which lasted until 1997, state‐owned property that had not yet been privatised was sold for cash.20

12.1.4 Deindustrialisation Before the Second World War, Lithuania was an agricultural country with a rural society. However, this soon changed after the country was annexed by the Soviet Union in 1940. In order to comply with Soviet Russia’s goals and needs, Lithuania became highly industrialised, and as a result of this, Lithuanian society urbanised.21 One of the main purposes of the newly built industries was to supply Soviet Russia’s military force and technology. By 1985, although Lithuania accounted for just 0.3% of the Soviet Union’s territory and 1.3% of its population, it had 22% of Soviet Russia’s electric welding apparatus, and 11.1% of metal‐cutting lathes.22 A f t e r Lithuania became independent, it no longer had to provide for Soviet Russia, which meant it was highly over industrialised and had much greater production capacities than necessary. Production dropped over 50% in industrialised sectors and many factories were forced to close

13 Interview 31. 14 Ibidem. 15 Interview 11. 16 Mongabay, ´Lithuania: Economic Reforms´, http://www.mongabay.com/history/lithuania/lithuania‐ economic_reforms.html, consulted on 08‐05‐2013. 17 Interview 11. 18 Mongabay, ´Lithuania: Economic Reforms´, http://www.mongabay.com/history/lithuania/lithuania‐ economic_reforms.html, consulted on 08‐05‐2013. 19 Ibidem. 20G. Sabaliauskaite, ‘Privatisation in Lithuania: General Environment and Case Studies’, http://digitalcommons.iwu.edu/cgi/viewcontent.cgi?article=1003&context=busadmin_honproj, consulted on 08‐05‐2013, 21 Mongabay, ´Lithuania: Economic Reforms´, http://www.mongabay.com/history/lithuania/lithuania‐ economic_reforms.html, consulted on 08‐05‐2013. 22 U.S. library of Congress, ‘Structure of the Economy, http://countrystudies.us/lithuania/16.htm consulted on 08‐05‐2013 125 down. Equipment of these factories was either sold to other businesses or as scrap metal.23 Due to the large‐scale closing down of factories, many people became unemployed. Because of the large growth in the private sector, however, many of these people were able to find jobs elsewhere relatively easily.24 Overall, after Lithuania became independent the country de‐ industrialised and the private sector started to develop.

12.1.5 Trade diversion Whilst Lithuania was a member of the Soviet Union, trade possibilities were rather limited for two reasons. To begin with, Soviet Russia’s high demands put a serious strain on Lithuanian production sectors. For most sectors it would have been impossible to also produce goods for export to other countries besides providing Soviet Russia. Secondly, during the Cold War period, many western countries did not trade with communist Lithuania for political reasons, nor did Soviet Russia allow Lithuania to engage in trade with western countries. After the collapse of the Soviet Union, Lithuania gained more access to world markets than ever before. Although Russia remained an important trading partner, Lithuania also started trading with western countries, thereby reducing its dependence on Russia.25 Trade with the West increased from 15% to 60% of total trade between 1990 and 1995 whilst trade with Russia fell from 78% in 1990 to 40% in 1995.26 In 1994 a Free Trade Agreement was signed between Lithuania and the European Union, which came into force in 1995.27 This agreement made it easier for Lithuania to access the European market and it increased the willingness of European countries to trade with Lithuania. In the following years, Lithuanian companies paid attention to upgrading the quality of goods and services and there was a shift in production from tradable goods (which the Soviet Union had required) to non‐tradable goods and to service production.28 The Russian financial crisis of 1998 was an important event that contributed to further Lithuanian trade diversion. Because of this crisis, Russian demand declined, which meant that fewer products could be exported to Russia. Because of this, many Lithuanian businesses reoriented themselves to European markets (See chapter 17 on economic sectors.).29

12.2 Preparing for Single Market membership

The European Single market is a European economic zone that is based on the four freedoms: the free movement of persons, goods, services and capital. As stated in the Copenhagen Criteria, there are two main economic requirements a country with the prospects of membership needs to adhere to in order to be allowed entrance into the European Union and the European Single Market. The first requirement is the ability to cope with competitive pressure and market forces within the European Single Market; the second requirement is to nationally ensure the existence of competition and a functional market economy.30 Shortly after Lithuania became independent, the country started taking measures in order to fulfil the economic Copenhagen Criteria and become a member of the European Union and the European Single market.

23 Interview 11. 24 Ibidem. 25 Ibidem. 26 Encyclopedia of the Nations, ‘Lithuania‐ Foreign Trade’ http://www.nationsencyclopedia.com/Europe/Lithuania‐ FOREIGN‐TRADE.html, consulted on 08‐05‐2013. 27 Mongabay, ´Lithuania: Economic Reforms´, http://www.mongabay.com/history/lithuania/lithuania‐ economic_reforms.html, consulted on 08‐05‐2013. 28 Ibidem. 29 Interview 11. 30 European Commission, ‘Regular report from the Commission on Lithuania’s progress towards accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/1999/lithuania_en.pdf, consulted on 08‐05‐2013, p. 16. 126

In order to comply with the criteria of ensuring a competitive market economy, Lithuania adopted its first ‘Law on Competition’ in 1992. Since then, the law has been adjusted several times to match the EU model. In 1999 a new Law on Competition was adopted, which was designed to facilitate the enforcement of EU competition rules, and came into force in 2004.31 With regards to the four freedoms, Lithuania also took many measures in preparation of becoming an EU‐member state. The most important of these measures are described in the 1999 ‘Regular Report from the Commission on Lithuania’s progress towards accession’. In this report, the Commission states that Lithuania’s overall performance concerning the free movement of goods and harmonising national legislation with EU‐legislation was good. In order to facilitate such free movement of goods, Lithuania adopted the ‘Law on Conformity assessment’ in 1998, which created the legal basis for harmonising national assessment procedures with European Union assessment procedures. 32 In order to ensure that companies complied with European quality and safety standards, the ‘Law on product safety’ was adopted in 1999.33 According to the report, the free movement of capital was also well organised in Lithuania. Only a small number of restrictions remained of problem in this area and these restrictions mainly concerned a few specialised sectors, such as national security and defence. Also, the Commission noted that Lithuania had made good progress in aligning legislation concerning the free movement of services. With regards to the free movement of persons, however, Lithuania still needed to undergo some important measures. For one, the Lithuanian border and visa policy with Russia and Belarus had to be altered. This was most clearly the case with regards to the Russian Kaliningrad region. Since 1995 the transit of Russians through Lithuania had been organised through the ‘Provisional Agreement on Travel of Citizens between Lithuania and Russia’. Russians travelling to and from Kaliningrad were allowed to travel through Lithuania without having a visa. However, according to EU‐procedure, the Russians would need a visa to travel through Lithuania as there would be no sufficient border control between Lithuania and its EU Member State neighbours. As from 2002, Russians are obligated to have a visa to travel through Lithuania.34 Lithuania became a member of the Schengen‐zone in 2007.

12.3 European Union membership

In 2004 Lithuania became a member of the EU and the European Single Market. As Lithuania had already taken most economic measures in preparation of being a member state during the previous years, this event did not have any far‐reaching effects on the contents of national economic legislation.35 Nevertheless, the functioning of the Lithuanian economy was affected in several ways: First of all, European Union membership provided Lithuania with judicial continuity. As pointed out by one of our interviewees, before Lithuania entered the European Union, the Lithuanian government adjusted national economic laws on a very regular basis. Even though these laws were often similar in content and aligned with EU requirements, frequent changes

31 J. Gumbis, M. Juonys, and Š. Keserauskas, ‘Lithuania’, http://ec.europa.eu/competition/antitrust/actionsdamages/national_reports/lithuania_en.pdf, consulted on 08‐05‐2013. 32 European Commission, ‘Regular report from the Commission on Lithuania’s progress towards accession’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/1999/lithuania_en.pdf, consulted on 08‐05‐2013. 33 Ibidem. 34Euro.lt, ‘Transit from/to Kaliningrad region’, http://www.euro.lt/en/lithuanias‐membership‐in‐the‐eu/transit‐from‐to‐ kaliningrad‐region/, consulted on 08‐05‐2013. 35 Interview 11. 127 created a lot of uncertainty for Lithuanian businesses. Since Lithuania became a member of the European Union, almost all national economic legislation is determined by the European Commission. In exchange for handing over this part of national economic autonomy, Lithuania received economic judicial stability and continuity. This made long term planning significantly easier for Lithuanian businesses and made it more attractive for national as well as international parties to invest in these businesses.36 A second important effect of becoming a member of the European Union and the European Single market, which was mentioned by one of our interviewees, is the free travel of persons. Lithuania became member of the Schengen‐Area in 2007, which enabled Lithuanian citizens to travel freely to other member states (see chapter 16 on the labour market.) Thirdly, as pointed out by our interviewees, international trading possibilities grew after Lithuania became a member of the European Single Market.37 However, many Lithuanian companies seem to not make much use of these possibilities as export has remained relatively low.38 There are several possible reasons for low levels of export, such as a lack of knowledge amongst Lithuanian companies on how to export products, or a lack of communication with companies located in other member states.39 In short, Lithuania’s entrance into the European Single Market in 2004 did not have far‐ reaching effects on national economic policy. At that time, most of Lithuania’s economic policy had already been aligned with that of the European Union in order to comply with the economic Copenhagen Criteria. However, becoming a member did, amongst other things, provide Lithuania with judicial continuity, the possibility for its people to travel to and work in other Member States, and more trading possibilities with other Member States.

12.4 The Internal Market Scoreboard

The Internal Market Scoreboard was established in 1997. Ever since, this scoreboard is published annually by the European Commission, thereby providing an overview of how well member states have performed in transposing internal market legislation. Fundamentally, the scoreboard is meant to encourage member state governments to transpose internal market legislation as quickly and efficiently as possible.40 In the internal market scoreboard issued in 2012 the Commission stated that Lithuania, together with Estonia, Latvia and Luxemburg showed the best overall performance in transposing internal market legislation. Despite this high score, our interviewees have differing opinions on the importance and accuracy of the scoreboard. One of our interviewees stated that the Single Market Scoreboard is the most important instrument through which law compliance is measured and presented,41 whilst others stated that the scoreboard does not give an accurate representation and is generally not taken seriously by Lithuanian economists or politicians.42 The Commission determines member state performance by focusing on the following criteria: The transposition deficit, the transposition delay, the zero tolerance target, the compliance deficit and the number of infringement procedures.

36 Interview 31. 37 Ibidem. 38 Ibidem. 39 Ibidem. 40 European Commission, ‘Internal market scoreboard 2012’, http://ec.europa.eu/internal_market/score/docs/score25_en.pdf, consulted on 09‐05‐2013. 41 Interview 21. 42 Interview 11 and Interview 31. 128

12.4.1 The transposition deficit and meeting the 1% challenge The transposition deficit represents the percentage of internal market legislation that has not yet been transposed into national legislation. Within the European Union, the transposition deficit is supposed to remain under 1%. In the year 2012, 16 member states succeeded in keeping their transposition deficit under 1%. Lithuania also managed to meet this challenge with a 0.9% deficit.43

12.4.2 The transposition delay In many Member States, attempts at decreasing the overall transposition deficit had a negative effect on the speed at which internal market legislation was transposed. In 2011 it took member states five and a half months on average to transpose internal market legislation. By the year 2012 this had increased to nine months on average. The Lithuanian average transposition delay in 2012 was 9.3 months.44

12.4.3 The Zero tolerance target This criterion also concerns the speed at which member states transpose Single Market legislation into their national legislation. When member states are slow to implement Single Market legislation, this can have negative consequences for the operating of the Single Market. For this reason, the European Commission formed a zero tolerance target for member state governments that fail to transpose Single Market legislation within a period of two years time. If member states take longer than two years, the Commission may fine them. In 2012 Lithuania managed to remain within the two year limit.45

12.4.4 The compliance deficit It is not only important to insure the timely transposition of internal market legislation, the correct and complete transposition is also important. The percentage of internal market legislation that has not been transposed correctly is called the compliance deficit. The allowed maximum compliance deficit is 0.5%. Lithuania’s compliance deficit in 2012 was 0.4%, which made Lithuania the fourth best performer.46

12.4.5 Infringement procedures When a Member State fails to correctly transpose Single Market legislation, the European Commission can choose to start an infringement procedure to correct this transposition and provide advice to the Member State involved. In 2012 Lithuania was the Member State with the fewest infringement procedures (see chapter 6 on law compliance.)

12.5 Conclusion

As soon as Lithuania proclaimed independence from the Soviet Union, the government started to transform the national economy away from a centralised Soviet economy towards a more western type of liberal market economy. In order to accomplish this transformation, Lithuania underwent price liberalisation, currency change, privatisation, deindustrialisation, trade diversion and preparations for Single Market membership. The fact that Lithuania focused on

43 European Commission, ‘Internal market scoreboard 2012’, http://ec.europa.eu/internal_market/score/docs/score25_en.pdf, consulted on 09‐05‐2013. 44 Ibidem. 45 Ibidem. 46 Ibidem. 129 developing a liberal market economy from an early stage on, later on gave the country an advantage in complying with the European economic Copenhagen Criteria of having a functioning market economy as well as the capacity to cope with competitive pressures and market forces within the European Union. Nowadays, Lithuania seems to be performing very well within the European Single Market. As stated in the Single Market scoreboard of 2012, Lithuania (together Latvia, Estonia and Luxembourg) performed best that year in transposing internal market legislation.

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13. The Currency Board

Box 13.1: Lithuania Aims to adopt Euro in 2015 Lithuania aims to adopt euro in 2015 AP – Vilnius. Lithuania says it will try to adopt the euro, the shared European currency whose future investors were betting against just months ago, in 2015. Prime Minister Algirdas Butkevicius says that his newly installed center-left government would set up a panel to ensure that Lithuania meets all the financial criteria necessary to join the currency zone, including on inflation and budget deficit. The announcement Friday came as a surprise, given that during last year's parliamentary election campaign Butkevicius had expressed skepticism about rushing to join the euro bloc, which has endured a severe financial crisis for three years. Lithuania, meanwhile, needs to spur economic development. Lithuania's neighbor Latvia has said it will try to phase in the euro in January 2014 and become the 18th member in the currency union.

Source: The Associated Press, as appeared on 25‐01‐2013 in the Business Section.

The Treaty of the Functioning of the European Union requires all new Members States of the EU to engage in convergence to the Economic and Monetary Union; in other words, to move towards adopting the euro as their currency. Some accession countries have proved to be more willing to work towards meeting the criteria than others. The Baltic states are particular examples of new Member States that eagerly seek accession to the EMU; Estonia has already joined in 2011. As can be read in Box 1 above, Lithuania does not wish to stay behind and has set its current aim to join the Eurozone in 2015. In order to be allowed entry, however, the country needs to comply with several strict criteria, which, as we shall see, are not all under the direct control of the Lithuanian government. A first large step was already taken in 2004, when Lithuania decided to enter the Exchange Rate Mechanism II (ERM II). This consists of a Currency Board Arrangement (CBA) with the euro; in other words, a hard peg of Lithuania’s litas (LTL) currency to the euro. This decision was effectively already taken in 2002 when the country exchanged its peg to the dollar, which it had maintained since the early 1990s, for a peg with the newly established euro currency. As early as 2007 Lithuania officially applied to the join the EMU, but its application was declined as it did not meet the inflation criteria. This was a controversial decision because the difference between the criterion threshold and Lithuanian inflation was only marginal, while inflation in the Eurozone countries had been exceptionally low in that year. This temporarily pulled down the criterion.1 The ERM II currency board arrangement maintains a peg of 3.45280 litas per euro.2 This fixed currency peg signifies a de‐facto adoption of the euro, as floating exchange rate

1 Wolf, Holger C., Ghosh, Atish. R., Berger, Hlelge., & Anne‐Marie Gulde, Currency boards in retrospect and prospect, Cambridge, Massachusetts: MIT Press, 2008, p. 163. 2 European Central Bank, ECB Convergence Report May 2012, p. 77. 131 fluctuations have been given up. The monetary theory of the impossible trinity3 explains that by giving up the floating of its currency, Lithuania has forfeited sovereign control of monetary policy (that is, utilising interest‐rate setting through its central bank to target price stability and encourage or discourage economic growth has become impossible). On the other hand, a consistent peg to the euro may enhance credibility in the eyes of investors, and keep currency speculation at bay. However, this is only sustainable if the general trajectory of the Lithuanian economy does not differ too much from that of the Eurozone countries, which remains difficult to verify as the Eurozone itself is far from a homogenous economic unit. Nevertheless, the experience of more than ten years with this currency peg may allow us to draw some conclusions, which this chapter shall attempt to do. Overall, this chapter on Lithuania’s desire to enter the EMU will shed some light on the prospects for the country on doing so. First the so‐called convergence criteria will be outlined, after which the Lithuanian situation concerning each of these criteria shall be analyzed. A short discussion will follow on the potential effects of EMU accession. Finally, the conclusion recaps the general outlook.

13.1 EMU convergence criteria

There are four main EMU convergence criteria4:  Price stability. The inflation rate in the country seeking accession in the year before criteria examination takes place may not exceed the average inflation of the three Member States with the lowest inflation in that year by more than 1.5 percentage points.  Public Finances. Budgetary discipline is examined by looking at the following two criteria: o The annual government deficit to GDP ratio. The budgetary deficit ratio may not exceed the 3% of GDP threshold at the end of the year preceding the year final examination takes place, or in exceptional circumstances be either close to the threshold after swift reduction in preceding years or must remain close to the threshold while experiencing only a very temporary trespass of said deficit limit. o The gross government debt to GDP ratio. This may not exceed 60% in the year preceding the examination. In exceptional circumstances this threshold can be circumvented, but only if the debt to GDP ratio is steadily decreasing at an appropriate pace and approaching the 60% threshold.  Exchange rates. The applicant must have been participating in the ERM II for at least two years preceding the year of examination, without experiencing tensions within the mechanism (i.e. without devaluation taking place or any such prospective tension straining the exchange rate mechanism)

3 The impossible trinity model is also known as the Trilemma, and explains that government can only ever control two of the following three macroeconomic elements: the exchange rate, the interest rate, and capital mobility. As there is free capital mobility in the European Union, the fixed exchange rate makes it impossible for the Lithuanian central bank to effectively set the interest rate. The latter is in Lithuania’s case completely determined by the market, but usually sits quite close to the ECB’s interest rate. 4 European Central Bank, ECB Convergence Report May 2012, pp. 9‐19. 132

 Long‐term interest rates. The nominal long‐term interest rate, just as with the price stability criterion, may not exceed that of the three best performing Member States by more than 2 percentage points in the year preceding the criteria examination.

13.2 Price stability

Table 13.1: Inflation Rates in Lithuania 2002‐2012 Inflation rates 12

10

8 Annual inflation rate 6 Lithuania %

4 Average Eurozone inflation rate 2

0

‐2

Source: Eurostat database consulted on 09‐05‐2013.

Table 13.1 above illustrates Lithuania’s inflation rate in the past decade. Table 1 below provides further detailed numbers. The inflation peak of 2008 shows the clearest contrast with the average Eurozone inflation rate. We can see that the economic boom was accompanied by steadily rising inflation until 2009, which is not at all concurrent with the figures for the Eurozone. In other words, Lithuania’s inflation developed quite autonomously from the rest of Europe. The past two years, however, the figures have been converging. The estimate for the inflation rate in 2012 is only 3.2%, not far above the estimate of Eurozone average. It is important to remember, however, that the criteria stipulate inflation may not exceed the average rate of the three best performing EMU countries by more than 1.5 percentage points. For 2012 these countries are estimated to be , Germany and France, with an average inflation of 1.8%. The threshold for meeting the price stability criterion in 2012 is therefore set at around 3.3%. If these projections are correct, then Lithuania seems to have returned to meeting the first convergence criterion for the first time in years.5

Table 13.2: Annual inflation rates in Lithuania in %: 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0.3 ‐1.1 1.2 2.7 3.8 5.8 11.1 4.2 1.2 4.1 3.2 Source: Eurostat database consulted on 09‐05‐2013.

Looking at the volatility of inflation in Lithuania, it should be noted that monetary policy (the preferred tool for maintaining price stability in the Eurozone) is no longer available to the

5 Eurostat, ‘database on inflation rate’, http://epp.eurostat.ec.europa.eu, consulted on 09‐05‐2013. 133 country since its adoption of the currency board arrangement with the euro in 2002. This means that inflation targeting becomes more difficult and practically limited to reforms in the labour market, in order to attempt to curb wage growth that could boost the inflation rate. As we have seen in the past decade, the Lithuanian government has not managed to create an environment in which the economy was protected from overheating, which has resulted in increased inflation that reached a new high in 2008. Thereafter, the economic downturn was also reflected in wages and prices, hence the drop in inflation in 2009 and especially 2010.6 Lithuania’s limited capabilities of targeting a certain inflation rate are further aggravated by highly volatile food and energy prices, especially considering their relatively large share of total consumption in Lithuania, compared to the EU average.7 Future projections of expected inflation rates are therefore difficult to make. Food and energy prices may not rise steeply in the next years, but both have proven to be unpredictable in the recent past. At the same time, a potential economic recovery could lay bare the increasing shortage in the labour supply, which is fuelled by high net emigration levels. This may prompt another sharp increase in wages and therefore also in inflation.8 So while an economic recovery would of course be welcome in Lithuania, in the short run it may hamper the attempt to continue to meet the EMU accession criterion of price stability.

13.3 Public finances

Table 13.3: Government Deficit as % of GDP of Lithuania 2003‐2012 Government deficit as % of GDP 0 ‐1 ‐2 ‐3 ‐4 Government deficit as % of ‐5 GDP ‐6 ‐7 ‐8 ‐9 ‐10

Source: Eurostat database consulted on 09‐05‐2013.

The second criterion of convergence to the EMU involves government finances. Figure 2 above illustrates the government’s budgetary deficit in the past decade. Until 2007 Lithuania remained well within the ‐3% threshold, helped by the substantial economic growth of those years. Unsurprisingly, the deep economic downturn of 2009 also severely affected the primary balance of the Lithuanian government; the deficit widened to ‐9.4% of GDP. As unemployment soared and social security payments increased accordingly, government expenditure far exceeded

6 Purfield, Catriona, & Christoph B. Rosenberg, ‘Adjustment under a currency peg: Estonia, Latvia and Lithuania during the global financial crisis 2008‐09’, IMF Working Papers, nr. 10/213, (2010), p. 1‐34. 7 Government of Lithuania, Resolution nr. 491 of 27 April 2011 of the Government of the Republic of Lithuania: The Convergence Program of Lithuania of 2011, 2011 p. 9. 8 European Central Bank, ECB Convergence Report May 2012, pp. 159‐161. 134 revenue. The hugely increased deficit measured as percentage of GDP was also heavily influenced by the enormous shrinking of GDP itself in 2009. Suddenly, the deficit was measured against a much smaller total economy. As was to be expected, total government debt measured as a share of GDP experienced a similar huge increase, having more than doubled since 2008 (see table 13.4). However, the share of debt so far remains well below the 60% threshold.9

Table 13.4: Government Debt as % of GDP of Lithuania 2003‐2012 Government debt as % of GDP 45 40 35 30 25 Government debt as % of 20 GDP 15 10 5 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: Eurostat database consulted on 09‐05‐2013.

Because of the enormous increase in total government debt level, and the rapid increase of the deficit to well over the agreed 3% limit, the ECOFIN Council in 2009 decided that a so‐called Excessive Deficit Procedure (EDP) was to be launched. An EDP requires EMU Member States to create plans to reduce government finances to within the agreed parameters, in accordance with recommendations of the European Commission. Non‐EMU Member States are not required to follow these demands, but are still subject to reports from the Commission under any such EDP. Of course, since Lithuania wishes to enter the EMU, the EDP meant it had to push back its deficit in short order, one way or the other. The initial deadline for reducing the deficit was 2011, but this was extended to 2012. As proof of commitment, the Lithuanian government signed the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, also known as the Fiscal Compact, in March 2012. This treaty forces the country to stay within the agreed fiscal parameters that are also part of the EMU convergence criteria, and to enshrine this commitment into national law.10 As such, Lithuania actively seeks to demonstrate its willingness to adhere to EU criteria of sound public finances. As we can see from tables 13.3 and 13.4 above, Lithuania’s government has succeeded in substantially bringing down the financing gap since 2009, despite the absence of a full economic recovery and continued high unemployment. In 2011, its deficit measured 5.5% of GDP. The government further reduced the deficit in 2012, to only 3.2% of GDP. Economic growth of 3.6% in the past year has proven very useful to establish this reduction. Similarly, the debt level has rather stabilised over the past few years, after the huge increase from 2008 to 2010. GDP level

9 Eurostat, ‘database on government deficit and debt’, http://epp.eurostat.ec.europa.eu , consulted on 09‐05‐2013. 10 European Central Bank, ECB Convergence Report May 2012, pp. 162‐165. 135 has rebounded somewhat after 2009, which has helped to avoid the debt figure from spiralling out of control. According to the ECB Convergence Report of 2012, the Lithuanian deficit is mainly caused by a steady growth in expenditure as a share of GDP since 2002. At the same time, average revenue as a share of GDP has fallen; a trend that was masked somewhat by the economic boom of much of the past decade. Most of the increase in expenditures is related to social security and benefits spending. Taxes have not increased accordingly, reflecting the general unwillingness to stabilize the budget through increased taxation. The Lithuanian government has therefore achieved most of its deficit reduction through cuts on social benefit spending. For the long run, low tax compliance and an ageing population are seen as potential threats to the sustainability of public spending.11 It remains to be seen, however, whether the new centre‐left government will continue this policy of austerity through expenditure cuts, but the news that it aims to access EMU in 2015 seems to indicate that it will.

13.4 Exchange rates

The exchange rate criterion is the one criterion Lithuania has fulfilled ever since it entered the ERM II. Its unilateral commitment to the currency board arrangement is now entering its ninth consecutive year, and it is precisely this commitment by the Lithuanian central bank that has entailed a forfeit of sovereign monetary policy. Nevertheless, confidence in the sustainability of the currency board has remained high and the mechanism has not experienced any serious tensions in the two year reference period preceding 2012. While confidence remains high, the peg of 3.45280 litas per euro has also made Lithuania vulnerable to loss of competitiveness, as this is no longer reflected in the exchange rate. In fact, this is precisely what occurred; wages in the 2002‐2008 period grew much faster than productivity (see chapter 16 on the labour market), and the current account deteriorated to unsustainable levels by 2007 (see chapter 14 on the economic crisis). Since 2009, competitiveness has improved due to a large internal devaluation that has come at severe social costs. Correspondingly, the current account has also (temporarily at least) improved. The challenge for the Lithuanian government, therefore, is to stay competitive without suppressing growth, while remaining within the ERM II. The government has reiterated its commitment to the peg repeatedly, probably because stepping out of the ERM would risk a sharp depreciation of the litas as well as increased currency speculation. This is not surprising, as more than 80% of the public debt is denominated in euros, which means public debt would experience a huge increase in the case of a devaluation of the litas. Lithuania has shown not to be prepared to take this risk. Therefore, in the absence of serious tensions within its participation in the ERM II in the past two years, the exchange rate criterion is wholly fulfilled by Lithuania.

11 European Central Bank, ECB Convergence Report May 2012, p. 165. 136

13.5 Long‐term interest rates

Table 13.5: Long‐Term Interest Rate in Lithuania 2003‐2012 Long‐term interest rate Lithuania 16,00 14,00 12,00 10,00 8,00 Long‐term interest 6,00 rate 4,00 2,00 0,00

Source: Eurostat database consulted on 09‐05‐2013.

Table 13.5 above displays the long‐term interest rates on Lithuanian government bonds. The threshold for this criterion is dependent on the performance of other EMU countries; i.e. the three countries with the lowest long‐term interest rate. In 2012 these countries were Germany, Finland and Luxembourg, with an average of 1.74%. This means the threshold stands at a particularly low level, at 3.74%. With a relatively stable long‐term interest rate, in 2012 at approximately 4.83%, Lithuania did not comply with the convergence criteria, but was not far off either. It is unfortunate that the average long‐term interest rate of the three best performers in the EMU is at a historic low due to the specific circumstances of the euro debt crisis, which lowers the threshold substantially. As such, whether the criterion will be met in the future seems to depend most on the interest rates of those best performers rising somewhat.12 The most interesting aspect of table 13.5 is the enormous spike in the interest rate in 2009, when it tripled compared to the preceding year. The economic crisis that unfolded was reflected in fears from investors, who turned increasingly risk‐averse, a phenomenon occurring globally. Lithuania, with its large built‐up trade deficit during the economic boom until 2008 and subsequent huge economic downfall, was deemed unstable and questions arose whether the participation within ERM II could collapse, as discussions on currency devaluation started to appear. The Lithuanian government’s strong commitment to maintaining the peg, however, and its decision to aim at an internal devaluation instead (through the lowering of wages) enabled the markets to calm down, as a result of which the long‐term interest rate is now near the relatively low level of 2004‐2007 again.13

13.6 Prospects upon EMU accession

Even if Lithuania meets the EMU criteria by 2015, it is not necessarily a given that this will be beneficial to the country. It is quite remarkable, therefore, that there is so little political discussion on this subject, even though public opinion towards the plan seems to be generally

12Eurostat, ‘database on long‐term interest rates’, http://epp.eurostat.ec.europa.eu, consulted on 09‐05‐2013. 13 Interview 37. 137 negative.14 Several reasons can be attributed to this. It is useful, therefore, to outline the potential benefits and downsides joining the Eurozone would entail for Lithuania. The most important negative point upon joining the EMU would be the lack of sovereign monetary policy, which precludes the country from devaluating in times of economic crisis, such as Lithuania experienced in 2009. This impossibility forces the country to undergo a so‐called internal devaluation, in which wages and prices need to drop so that competitiveness is restored. The overall effect of an internal and external devaluation is similar, by lowering real wages and prices compared with other currencies, but social costs can be much harsher in the former case. The deflation that takes place in the case of an internal devaluation usually comes at the price of a very steep economic downfall, and consequently also with large unemployment increases. Of course, this is not an unfamiliar story to the reader, as this is exactly what has happened to Lithuania since the crisis of 2009, for it had already forfeited monetary policy when it adopted the currency board arrangement in the early 1990s. For Lithuania, the question then is to either keep the CBA, move towards adopting the euro, or leave the peg and return to a floating exchange rate. The latter seems to be out of the question for both policy makers and the general public.15 Many loans have been denominated in euros, so that a sudden fluctuating exchange rate could hugely increase debts of households, business, and the government itself. The CBA is also seen as the anchor of stability of the litas currency, taking away fears of speculation on the currency as well as reducing uncertainty for investors and business alike. That does not mean speculation and uncertainty can no longer take place. As has been reflected in the long‐term interest rate, fears over the sustainability of the currency peg temporarily arose in the face of the crisis and made it difficult for the government to continue to borrow on the financial markets. There are, therefore, both upsides and downsides to maintaining the currency peg. For Lithuania, the only exit strategy out of the CBA is considered to be EMU accession. Whereas the former, despite being regarded as the anchor of stability, upholds the risk of devaluation at some point, Eurozone accession would make the fixed exchange rate more permanent, as there simply would no longer be a separate litas currency. This would then take away any uncertainty that the CBA still poses, and make the country more attractive for investors and business. Also, exchange costs would no longer exist, potentially saving investors more than 100 million litas per year. This is an especially important issue if northern neighbour Latvia will introduce the euro in 2014, as they have planned, making them more attractive than Lithuania as an investment prospect.16 In the end, adoption of the euro is regarded as an obligation by officials in the country, as stipulated in the Treaty of the Functioning of the European Union. Leaving the CBA for a floating exchange rate regime therefore seems inappropriate, so that to reduce the risks associated with the currency peg, entry to EMU seems the only feasible exit strategy. What remains to be questioned, however, is if accession to EMU actually does reduce the risks and uncertainty sufficiently and indefinitely; crisis developments in the periphery of the Eurozone seem to indicate otherwise.

14 Interview 54. 15 Interview 37. 16 International Monetary Fund, IMF Country Report nr. 13/081:Republic of Lithuania 2013 Article IV Consultation, 2013, p. 19; and Interview 54. 138

13.7 Conclusion

Lithuania currently meets two of the four convergence criteria for accession to the EMU: the price stability criterion and the exchange rate criterion. Its public debt is within the limits of the government finance criteria, but its budgetary deficit is not, while long‐term interest rates are too high mainly because the criterion threshold is disproportionately low at the moment. One thing that becomes clear when analysing these criteria is the limited control the Lithuanian government, or any government for that matter, has on meeting these standards. By giving up its monetary policy through participation in ERM II, Lithuania is faced with the uncertainty of economic growth and especially commodity and energy prices influencing the inflation rate. These are factors over which it has virtually no control. Furthermore, as discussed above, long‐term interest rates are not always a reflection of actual risks, but rather of financial market sentiments that are difficult to control, as the euro crisis of the past years has demonstrated. A question that should be raised is whether converging to the EMU criteria and adopting the euro as a currency would actually be beneficial to Lithuania. This question is important, because attempts to stay within ERM II, keep the inflation down, and reduce the budgetary deficit after the huge economic downfall of 2009, have in effect constituted pro‐cyclical measures with a negative effect on the real . This is reflected in the double‐ digit unemployment rate that it has been experiencing for four consecutive years. While Lithuania has managed to approach the EMU convergence criteria despite enormously difficult times, this has come at harsh social costs. It remains to be seen whether the avoidance of currency speculation and possible accession to the EMU is worth that cost.

139

14. Economic Crisis

From 2000 to 2008 the Lithuanian economy experienced a tremendous economic boom, only to enter a severe downturn in 2009. This chapter describes the economic development of the country during this period and examines the driving forces behind it. First of all, we outline the overall development of the Lithuanian economy, followed by an illustration of the large‐scale credit expansion that Lithuania experienced which led to the creation and eventual burst of the real estate bubble. In this context, the chapter continues by depicting the emergence of external deficits and the loss of competitiveness, before outlining the role of internal imbalances in Lithuania, and the effects of fiscal policy on the Lithuanian boom and recession. Lastly, the chapter presents an overview of the different developments leading to the 2009 recession and tries to answer to what extent the Lithuanian government could have prevented the crisis.

14.1 General economic development of Lithuania since 2000

After a mild economic slowdown in 1999, the Lithuanian economy experienced a significant economic boom in the period from 2000 to 2008, with an average annual GDP growth of 8%.1 In the wake of this economic boost, the unemployment rate dropped from 15.9% in 2000 to 3,8% in 20072. During this period international trade was growing continuously, with a trend of imports exceeding exports. This trend has continued until the present day and has generated large current accounts deficits.3 The current account deficit reflected a loss of competitiveness of the country, as it became harder for domestic companies to export. Even though imports have surpassed exports for the last decade in Lithuania, the exporting industry has, nonetheless, grown and contributed to economic growth (see chapter 17 on economic sectors). During the boom years most macroeconomic indicators pointed to an extraordinary positive development of the Lithuanian economy, and economists did not worry much about the sustainability of the economic growth. The main basis for the remarkable economic performance of Lithuania was the integration of the country into Western and global financial structures. In 2002 Lithuania pegged its national currency, the litas, to the euro, which subsequently led to low nominal interest rates, a decrease in borrowing costs, and an increase in capital inflows from European and in particular Nordic markets. Due to the integration of Lithuania into European political and economic structures, its on‐going financial liberalisation and the positive economic forecasts, the country underwent a process of financial deepening, which enabled Lithuania to access Western and global capital markets. In the period between 2000 and 2008 the opening of Lithuania to the international credit markets lead to an extensive growth of credit. While private debt increased heavily, public debt in relation to GDP was in fact slowly decreasing. The intense credit expansion provided the private sector with strong purchasing power, resulting in accelerated domestic demand, which can be considered to be the main driver of the economic boom.4 The foreign credit to the private

1 Eurostat, ‘Real GDP Growth', http://epp.eurostat.ec.europa.eu, consulted on 18‐01‐2013. 2 Eurostat, ‘Unemployment Rate EU Member States: 2000‐2011', http://epp.eurostat.ec.europa.eu, consulted on 15‐01‐ 2013. 3 See figure 14.12. 4 C. Purfield and C. Rosenberg, ‘Adjustment under a Currency Peg: Estonia, Latvia and Lithuania during the Global Financial Crisis 2008‐09', IMF Working Paper, nr. 10/213 (2010), p. 7. 140 sector was used predominantly to invest in real estate, and consequently led to strongly increased property prices. Between 2002 and 2006, average house prices rose by 162%.5 Lithuania was not able to introduce the euro as planned in 2007 because of a steadily rising inflation rate, which reached its peak in 2008 when inflation was 11.1%.6 The Lithuanian government has therefore taken strict anti‐inflationary measures since, and managed to reduce the inflation rate to 3.2% in 2012.7 Recently, the Lithuanian government declared that it is planning on introducing the euro in 2015 (see chapter 13 on currency board). In sum, Lithuania's accession to the EU in 2004 and the integration of the country into the global commodity and capital markets made eight years of exceptional economic growth possible. However, during this period a number of internal and external imbalances emerged, which would put the economic miracle to an end. In this light, it becomes clear that exceptional growth rates of Lithuania could only be generated because of those economic imbalances, and this would prove costly. Apart from integration into global financial markets and emerging imbalances, economic growth in Lithuania was also driven by external support factors, such as remittances from Lithuanians living abroad, and cohesion and structural funds financed by the EU. Since 2011 approximately, 180,000 Lithuanians have left their country to work abroad.8 Many of these Lithuanian emigrants send large portions of their salaries home to their families in Lithuania, which has a positive effect on the economic development of the country, as it raises internal demand (see chapter 16 on the labour market). Moreover, Lithuania receives plenty of financial resources from the EU cohesion and structural funds. These funds were used to improve the economic infrastructure of the country and boost general economic development (see chapter 20 on structural funds). These support mechanisms helped the country in the short run, but failed to contribute to the development of a competitive and successful domestic economy in the longer run. All in all, economic growth was driven by a number of factors, while some of them caused economic imbalances on the long term. It was only in 2008 when it was realized that the emerging economic imbalances would bring the economic boom to an end. The Lithuanian economy experienced a slowdown, but GDP still grew by 3% in that year.9 At the start of 2008, however, banks tightened lending conditions to avoid payment defaults by the private sector, as housing prices had started to fall and the dominant opinion was that the banking sector´s assessment of risk had not been strict enough. The global financial crisis affected Lithuania in a major way in the second half of 2008. Global financial crisis capital markets dried up and credits could no longer be obtained, caused by a massive loss of confidence and high anxiety about the sustainability of the entire financial system. The economy of Lithuania was hit especially hard by these developments. Since economic growth was mainly generated by foreign credits, the country fell into a deep recession with GDP decreasing by 14.8% in 2009.10 The credit crunch demonstrated how dependent the Lithuanian economy was on foreign credit. The global financial crisis led to a sharp decline in domestic demand, which, as mentioned above, was mostly financed by foreign capital. Moreover, exports also began to shrink to a large

5 Globalproperty, ‘Lithuania´s Property Market Stagnating', http://www.globalpropertyguide.com, consulted on 21‐01‐ 2013. 6 Ibidem. 7 See figure 14.17. 8 Europos Migracijos Tinklą, ‘Lithuanian Migration: 10 Years Overview', http://123.emn.lt/en/general‐trends/migration‐10‐ years‐overview, consulted on 10‐04‐2013. 9 See figure 14.2. 10 See figure 14.2. 141 extent because of the global economic downturn, signifying massive decrease in foreign demand. Unemployment started to rise strongly and reached its highest level since Lithuanian independence, with a rate of 17.8% in 2010.11 The volume of foreign trade fell sharply in 2009 and did not return to pre‐crisis levels until 2011. The public deficit increased to 3.3% in 2008, reached 9.4% in 2009 and 7.2% of GDP in 2010, leading to a rise of total public debt from 16.8% in 2007 to 38.5% in 2011.12 All things considered, Lithuania experienced a deep economic crisis in 2009, which led the government to undertake major reforms in the economic structure of the country, such as the introduction of a property tax in 2011 to prevent future real estate bubbles, and the lowering of the income tax to boost local entrepreneurship and attract foreign businesses (see chapter 15 on taxation and business climate). The recession also made Lithuania hold on to some economic features of the past, such as the currency peg of the litas to the Euro. On the whole, Lithuania experienced an extreme example of a boom and bust cycle from 2000 until 2009, which this chapter will elaborate on further below.

14.2 Macroeconomic Overview of Lithuania Table 14.1 : Total GDP Table 14.2: Real GDP Growth Rate

Source: Eurostat13 Source: Eurostat14

Table 14.3: Unemployment Rate Table 14.4: Annual Inflation Rate

Source: World Bank15 Source: Eurostat16

11 See figure 14.3. 12 See figure 14.5. 13 Eurostat, ‘Total GDP Growth (Millions of Euro)', http://epp.eurostat.ec.europa.eu/tgm/refreshTableAction.do; jsessionid=9ea7d07e30dac0b1e47f120a4dc79280b953a3355dbf.e34MbxeSahmMa40LbNiMbxaMbNaPe0?tab=table&plugi n=0&pcode=teina225&language=en, consulted on 18‐01‐2013. 14 Eurostat, ‘Real GDP Growth', http://epp.eurostat.ec.europa.eu, consulted 18‐01‐2013. 15 Worldbank, ‘Unemployment (% of Total Labour Force)', http://data.worldbank.org /indicator/SL.UEM.TOTL.ZS, consulted on 17‐01‐2013. 16 Eurostat, ‘Annual Average Inflation Rates: 2001‐2011',Http://epp.eurostat.ec.europa.eu, consulted on 19‐01‐2013. 142

Table 14.5: Debt Table 14.6: Foreign Trade

Source: World Bank Source: Bank of Lithuania17 14.3 Credit expansion and real estate bubble

This section explains how the credit expansion in Lithuania generated strong economic growth in the first place but subsequently laid the foundations for the burst of the real estate bubble and the costly effects of the scarce availability of credit during the financial crisis. Like all of the Central and Eastern European states, Lithuania experienced a period of financial deepening between 2000 and 2004. This process led to a high availability of credit through the liberalisation of the financial markets by measures such as the privatisation of the banking system, the removal of barriers for international capital flows, and the elimination of other restrictions such as the lowering of risk assessment standards. As a result, financial deepening improved conditions for the circulation of capital and the expansion of credit. Moreover, the credible peg of the litas to the euro led, next to the overall process of financial deepening, to low nominal interest rates, which further boosted credit growth. While loans granted to the private sector were only 13,2% of GDP in 2000, they rose gradually to 60% of GDP in 2007.18 In the course of the credit expansion most loans were granted by foreign banks, which could offer an even lower interest rate than local financial institutions. Foreign banks could borrow at lower interest rates then Lithuanian banks and started granting loans on a big scale in order to strengthen their position in the Lithuanian market, which led to an increase of foreign debt in the country. The banking sector of Lithuania has increasingly been penetrated by Scandinavian banks, such as Swedbank, Nordea Bank and Danska‐Bank19. Foreign banks held 85.4% of the capital of the banking system in 2012.20 At first glace it does not seem Lithuania has been an excessive spender. Even though the Lithuanian government increased public spending continuously during the economic boom, public debt remained relatively low compared to the average EU government debt. In fact, national finances of Lithuania belonged to the most balanced Member State budgets within the EU. Nevertheless, government spending and public debt were increasing in absolute numbers and in relation to national GDP. The fiscal policy of the Lithuanian government will be elucidated in more detail below.

17 , ‘Foreign Trade Statistics', http://db1.stat.gov.lt/statbank/Select Table/omrade0.asp?SubjectCode=S6&PLanguage=1&ShowNews=OFF, consulted on 19‐01‐2013. 18 Worldbank, ‘Domestic Credit to Private Sector (% of GDP)', http://data.worldbank.org, consulted on 17‐01‐2013. 19 Interview 59. 20 20 International Monetary Fund, IMF Country Report nr. 13/081:Republic of Lithuania 2013 Article IV Consultation, 2013, p.9 143

At the same time, however, the private sector started to borrow in increasingly great measures.21 Lithuanians, who were up to this point not able to take out a loan because of their low income, suddenly became qualified for receiving credit.22 This development became known as the democratization of credit. The large income from capital flows led to a boost in domestic demand, which contributed to the economic boom to a large extent. Apart from this new access to cheap credit Lithuanian, households also began to borrow in great quantities because of rising wages, declining unemployment and beneficial prospective growth rates. Buying a house in the early years of the decade was extremely attractive because Lithuania did not have a property tax, the interest rate for mortgages was low due to little regulation of the banking sector, and real estate prices were believed to increase indefinitely. House prices were indeed rising strongly because of the growing credit fuelled domestic demand.23 Due to the seemingly positive economic development of the country, Lithuanian households were very confident in taking out loans in great quantities. In the light of these developments it can be concluded that the public and the private sector in Lithuania have borrowed excessively because of favourable lending conditions. During the economic boom the enormous amount of capital inflows were often interpreted as a process of economic and financial convergence.24 Capital inflows could be explained by a quickly growing economy, on‐going industrialization, and the previous absence of easily accessible loans. The credit expansion was considered to be a normal catching up process of a former Soviet republic, which was lacking behind Western Europe in every economic aspect. Indeed, a lot of investments were related to the privatization of former public property, such as industrial facilities and transportation networks. In reality, however, most of the utilized loans could not be explained by the convergence narrative. For instance, although capital inflows were continuously increasing, foreign direct investments (FDI) remained moderate compared to the other Baltic States, Estonia and Latvia.25 In particular, the percentage of Greenfield investments and finances resulting in new economic activity was extraordinarily low in Lithuania (see chapter 15 on the taxation and business environment). This can be ascribed to an excessive and inefficient bureaucracy, frequently changing business legislation, and insufficient consultation between government and entrepreneurs.26 In addition, the unstable political situation also discouraged foreign investors to set up new businesses in Lithuania. Since its independence in 1991 Lithuania has had 15 different governments. This unpredictable and incoherent business climate has led to limited investments in new economic activity. Instead, most of the credits granted to Lithuania were invested in private consumption and non‐tradable activities, such as the real estate sector. A great extent of the foreign loans taken out by Lithuanian households was invested in real estate and was not used to start businesses or commercial activities, but simply spent on consumption. So, while the convergence narrative seems to be able to explain the massive credit growth in Lithuania only to a small degree, it can be characterized more accurately by non‐productive investment, excessive over‐borrowing and ineffective spending; in other words, an overheating economy.

21 See figure 14.5. 22 L.F. Sebastian, ‘Is Credit Expansion in Lithuania a Matter of Concern?', Economic Analysis from the European Commission’s Directorate‐General for Economic and Financial Affairs, nr. 2.11 (2005), p. 134. 23 See figure 14.10. 24 T. Ramanauskas, ‘What caused the recent Boom‐and‐Bust Cycle in Lithuania? Evidence from a Macromodel with the Financial Sector', Lietuvos Bankas Working Papers Series, nr. 10 (2011), p. 13. 25 See figure 14.11. 26 Interview 59. 144

As the economic boom in Lithuania was about to reach its highest point, the US subprime mortgage crisis began to escalate in August 2007, marking the beginning of a global financial crisis. Both events had a strong impact on the Lithuanian economy and are nowadays regarded as having triggered the deep economic slump in 2009. Already at the start of 2007 the Scandinavian banks in Lithuania, who provided the major share of loans to the private sector, became aware of the unsustainability of the credit growth and tightened lending conditions. As the US mortgage crisis unfolded in the second half of 2007 concerns were raised that also in Lithuania quite a few homeowners had received mortgages they could not actually afford. Eventually, the mind‐set prevailed that the risk assessment of banks had not been sufficiently diligent. As a result, real estate prices began to decelerate in 2007 and dropped in 2008 by 15,2% and in 2009 by 26,8%.27 At the same time interest rates, in particular mortgage interest rates, increased heavily.28 In 2008 the unfolding financial crisis led, especially after the bankruptcy of Lehman Brothers, to a significant decrease of interbank credit transfers, since banks did not trust each other anymore with their liabilities. The global uncertainty, distrust and cautiousness in the financial system made dried up liquidity markets and reduced capital movement.29 Meanwhile, this credit crunch had a devastating effect on the Lithuanian economy since domestic growth was very dependent on foreign loans. In conclusion, decreasing housing prices coupled with increasing interest rates drastically reduced domestic demand, which was foremost based on debt financing and real estate purchases. Since domestic demand was the main driver of GDP growth in the early years of the decade, its decline contributed the most to the economic slowdown in 2008 and the devastating economic downturn in 2009. The credit crunch and the burst of the real estate bubble thus ended a period of strong economic growth, which was mainly based on excessive borrowing and failed to reflect the growth of real economic activity. Eventually, this growth model turned out to be unsustainable in the long run, as the economic downturn of 2009 and protracted economic struggles in Lithuania demonstrate.

14.4 Financial overview of Lithuania

Table 14.7: Long Term Interest Rate Table 14.8: Credit to Private Sector

Source: International Monetary Fund30 Source: World Bank31

27 Globalproperty, ‘Lithuania´s Property Market Stagnating', http://www.globalpropertyguide.com/Europe/Lithuania/Price‐ History, consulted on 21 ‐01‐2013. 28 See figure 14.7. 29 E. Terazi and S. Senel, ‘The Effects of the Global Financial Crisis on the Central and Eastern European Union Countries', International Journal of Business and Social Science, nr. 2.17 (2011), p. 189. 30 30 International Monetary Fund, IMF Country Report nr. 13/081:Republic of Lithuania 2013 Article IV Consultation, 2013, p. 9 31 Worldbank, ‘Domestic Credit to Private Sector (% of GDP)', http://data.worldbank.org, consulted on 17‐01‐2013. 145

Table 14.9: Gross External Debt Table 14.10: Annual House Price Change

Source: European Central Bank32 Source: Eurostat33

Table 14.1: FDI Inflows Table 14.12: Lendind Condition

Source: World Bank34 Source: Bank of Lithuania35 14.5 External imbalances and loss of competitiveness

Lithuania’s economic boom between 2000 and 2008 was marked by imports exceeding exports, creating a permanent current account deficit.36 The current account deficit was extraordinarily large and caused considerable economic mismatches, which we will elaborate on below. First, we outline how the disequilibrium of the current account emerged and what problems it generated. The current account deficit can be explained by two different developments. First, the high availability of credit and the integration of Lithuania into the European internal market led to an increase of foreign credit and imported goods. Beneficial foreign financing conditions facilitated a boost of domestic demand. The strong increase of domestic demand was also supported by the Lithuanian currency board, which contributed to low interest rates for domestic borrowers. As mentioned above, foreign credit was mostly used for private

32 European Central Bank, ‘Lithuania, Gross external debt, Percentage of GDP ‐ ECB, Neither seasonally or working day adjusted', http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=118.DD.Q.LT.BP_EXTD. PGDP.4F_N, consulted on 24‐01‐2013. 33 Eurostat, ‘Housing price statistics', http://epp.eurostat.ec.europa.eu/statistics_explained /index.php/Housing_price_statistics_‐_house_price_index, consulted on 15‐01‐2013. 34 Worldbank, ‘Foreign direct investment, net inflows (BoP, current US$)' http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD, consulted on 17‐01‐2013. 35 Bank of Lithuania, ‘VILIBID and VILIBOR', http://www.lb.lt/statistics/statbrowser.aspx?group=7222&lang=en&orient=horz, consulted on 23‐01‐2013. 36 Worldbank, ‘Current Account Balance (% of GDP)', http://data.worldbank.org/indicator/BN.CAB.XOKA.CD, consulted on 11‐01‐2013. 146 consumption and therefore also boosted the growth of imports. Hence, one of the reasons for the current account deficit was the large credit fuelled domestic demand for import products.37 Secondly, the lasting current account deficit can be explained by the loss of competitiveness of labour in Lithuania compared to trading partners. Along with the economic boom wages and labour costs increased strongly, undermining the competitive position of the country. In the meantime, rising wages did contribute to economic growth because it stimulated domestic demand. However, they also resulted in the weakening of the international competitiveness of the country and led to poor export performance, as wages and labour costs were growing faster than productivity gains. Lithuania was not able to improve its competitiveness by devaluating its national currency because of the peg to the euro. Dissolving the currency board was not a real option during the crisis either, because it would have tremendously increased Lithuania’s foreign debt. Lithuania therefore had to improve its international competitiveness through an internal adjustment, which involved cutting wages and public spending. In a nutshell, the disproportional increase of wages helped fuel economic growth by driving up domestic demand. At the same time, however, it worsened the competitive position of the Lithuanian export industry and led to poor export performance by Lithuanian companies. For this reason, the current account deficit of Lithuania can also be ascribed to poor export performance as a result of the loss of competitiveness. In sum, the emergence of a large current account deficit in Lithuania during the period of economic boom can be explained by import increases thanks to cheap external financing conditions, and the loss of competitiveness due to strong rising wages that did not correspond with productivity gains. The loss of competitiveness, apart from excessive credit expansion, is another important cause for the deep economic downturn in 2009, because the disproportionate rise of wages interfered with the development of real economic activity and created artificially inflated domestic demand. The GDP growth of Lithuania was unsustainable since it did not only reflect the growth of the real economy, but was mainly generated by credit fuelled domestic demand. For this reason, the external imbalances of Lithuania, as described above, were an important contributor to the severity of the 2009 crisis.

Table 14.13: Current Account Balance Table 14.14: Current Efficiency‐Wage Increase

Source: Eurostat38 Source: Central Bank of Lithuania39

37 Bas Bakker and Gulde, Anne Marie, ‘The Credit Boom in the EU New Member States: Bad Luck or Bad Policies?' , IMF Working Paper, nr.10/130 (2010), p. 12. 38 Eurostat, ‘Balance of the current account (% of GDP)' http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&language=en&pcode=tec00043, consulted on 24‐01‐ 2013. 39 Lietuvos Bankas, ‘Financial Stability Review 2008', http://www.lb.lt/financial_stability_review, consulted on 14‐04‐2013. 147

14.6 Fiscal policy

Along with increased economic growth since 2000, the Lithuanian government received increasing tax revenues. During this period the Lithuanian government consisted mostly of a social democratic coalition, which used these new revenues to increase public spending on social benefits and services. Instead of pursuing an anti‐cyclical fiscal policy and building up reserves for times of economic recession, the government further accelerated the boom by carrying out pro‐cyclical fiscal policy. In fact, the government increased its liabilities to finance growing public spending, despite the higher revenues. At the time this was not considered a problem because the annual public debt level as percentage of GDP was much lower than the European average.40 At the height of the boom, in 2007, the social democratic government furthermore decided to raise the salaries of civil servants, increase pensions and extend expenditures.41 These measure are now seen by a lot of Lithuanians as redundant public giveaways, which only served a populist social democratic government.42 In this way, the Lithuanian government played an active part in the overheating of the economy before the economic crisis hit in 2009.43 When the economic recession began in 2008, and domestic demand declined heavily, the public deficit increased to 3.3% of GDP.44 This was in violation with the convergence criteria of the Stability and Growth Pact, leading the European Council to start an Excessive Deficit Procedure for Lithuania. The then newly elected centre right coalition, therefore, was required to cut public spending significantly in 2009, when the crisis really unfolded. In response, the government adopted a fiscal consolidation package, which among other measures included an increase of the VAT‐tax to 21%, a raise of the corporate tax to 20%, a reduction of the personal income tax to 15%, and a gradual increase of the pension age to 65 until the year 2026.45 In addition, the Lithuanian government developed an economic stimulus plan worth 5% of GDP to help the economic performance of the country.46 To conclude, the fiscal policy of the Lithuanian government was pro‐cyclical because public spending as a share of GDP was raised during the economic upswing and decreased during the economic downturn. For this reason, fiscal policy contributed to the overheating of the economy and ultimately to the devastating economic recession of 2009, which could have been eased had an anti‐cyclical fiscal policy been pursued. It was only in 2009 that the government decided to adopt anti‐cyclical fiscal policy, which stabilized the economy at the expense of higher public debt.

40 See figure 14.5. 41 Interview 12. 42 Interview 5. 43 T. Ramanauskas, “What caused the recent Boom‐and‐Bust Cycle in Lithuania? Evidence from a Macromodel with the Financial Sector.“ Lietuvos Bankas Working Papers Series, nr. 10 (2011). 44 Eurostat. "Real GDP Growth." Http://epp.eurostat.ec.europa.eu, consulted on 18‐01‐2013. 45 Government of the Republic of Lithuania. (Power Point Presentation). “Lithuania´s Macroeconomic and Financial Situation: Overview and Perspectives.” Meetings of the Heads of Baltic Government Offices: September 10‐11 Tallinn, 2009. p. 13. 46 Ibidem, p. 14. 148

Table 14.15 : General Public Debt Table 14.16 : Public Expenditures & Revenues

Source: Eurostat47 Source: Eurostat48 14.7 Internal imbalances: the role of inflation

As outlined above, over the course of the boom years Lithuania obtained a negative current account balance due to strong import growth and a negative capital account balance because of large inflows of foreign credit. These developments resulted in inflationary pressures, which became clearly visible as the inflation rate started to rise notably in 2005. By 2007 inflation was as high as 5.8% and in 2008 the inflation rate peaked at 11.1%49, before the economic downturn started to exert deflationary pressures from 2009 onwards.50 Rising inflation boosted overall borrowing as it created a negative real interest rate, which made credit more cheaply available, contributing to excessive credit expansion and the emergence of a real estate bubble.51 In this light, the high inflation rate produced overheating pressures, contributing to the deep economic downfall of 2009. High inflation in Lithuania was mainly caused by excessive credit expansion, the booming real estate sector, the overheating of the economy, and to a lesser extent also by external factors, such as increased commodity and energy prices.52

Table 14.17: Annual Average Inflation Rate Table 14.18: External Factors of Inflation

Source: Eurostat53 Source: Bank of Lithuania54

47 Eurostat, ‘General government gross debt ‐ annual data (% of GDP), http://epp.eurostat.ec.europa.eu/tgm/table.do? tab=table&plugin=0&language=en&pcode=teina225, consulted on on 23‐01‐2013. 48 Eurostat, ‘Government finance statistics', http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Government_finance_statistics, consulted on 24‐01‐2013. 49 See figure 14.17. 50 Eurostat. ‘Annual Average Inflation Rates: 2001‐2011', Http://epp.eurostat.ec.europa.eu, consulted on 19‐01‐2013. 51 C. Purfield and C. Rosenberg, ‘Adjustment under a Currency Peg: Estonia, Latvia and Lithuania during the Global Financial Crisis 2008‐09', IMF Working Paper, nr. 10/213 (2010). 52 See figure 14.18. 53 Eurostat, ‘Annual Average Inflation Rates: 2001‐2011',Http://epp.eurostat.ec. europa.eu, consulted on 19‐01‐2013. 54 Lietuvos Bankas, ‘Financial Stability Review 2008', http://www.lb.lt/ financial_stability_review, consulted on 14‐04‐2013. 149

14.8 Conclusion

The Lithuanian boom between 2000 and 2008 was a period marked by economic overheating and excessive private borrowing. The massive credit expansion, which was enabled by the process of financial deepening, generated strong credit driven domestic demand. Aside from domestic demand, GDP growth was driven by a growing export industry, remittances from Lithuanians abroad, and structural and cohesion funds from the EU. However, GDP growth was artificially inflated by foreign credit, in particular from Scandinavian banks, and was, therefore, unsustainable in the long term because it was not invested in real economic activity. Most of the foreign credit raised by Lithuanian households was used to invest in real estate, causing the emergence of a housing bubble, which busted in 2008. The overheating economy also led to disproportional increases in wages and labour costs, which produced a loss of competitiveness vis‐a‐vis trading partners. This was visible in the form of negative current account balances. Moreover, Lithuania´s pro‐cyclical fiscal policy contributed to the overheating of the economy and the devastating slump in 2009. Internal imbalances in the form of high inflation also accelerated credit expansion and economic overstimulation as it created a negative real interest rate. In short, the severe economic crisis in 2009 was most of all triggered by external factors, particularly the credit crunch of the 2009 financial crisis. This hits Lithuania especially hard because it was heavily dependent on foreign credit. Economic imbalances, however, aggravated the effects of this economic shock. In Lithuania the current mind‐set is that the deep economic recession was mainly caused by external factors, above all by the financial crisis.55 Although the financial crisis can considered the immediate cause for the Lithuanian downturn following the period of the economic boom, Lithuania became particularly vulnerable and was hit especially hard by the international credit crunch for several reasons. In a number of instances, the Lithuanian government did not take the best possible measures to make the country more crisis resistant. First of all, the Lithuanian authorities failed to control the banking sector adequately. Banks highly underestimated credit risks, established excessively loose lending conditions and granted too many unsecured loans. To put this in perspective, this shortcoming occurred on a global scale, but existed to a particular large extent in Lithuania. Secondly, the housing bubble was mostly a product of financial deepening, but was also encouraged by the absence of a property tax. The Lithuanian government could have introduced a property tax and tightened the lending standards of banks in order to curb the exceptional increase of real estate prices. Thirdly, the Lithuanian government failed to maintain the competitiveness of the economy. For example, the authorities could have restricted the disproportional rise of salaries or adopted a more flexible currency arrangement to restore the country’s competitiveness. Fourthly, the Lithuanian government practiced a pro‐cyclical fiscal policy before the crisis. With a more austere and anti‐cyclical approach the government may have had more room to manoeuvre fiscally when the crisis hit, which would have been particularly useful since the currency peg entails the absence of any monetary instruments to do so. On the whole, not only external factors were responsible for the 2009 recession, but internal developments also contributed substantially to the depth of the crisis. The economic downturn was the result of a number of internal and external developments, of which some, but certainly not all, were under the influence of the Lithuanian government.

55 Interviews 5; 12 and 59. 150

15. Business environment and taxation

According to the World Banks’ Doing Business rank1 of 2013, Lithuania is number 27 of the 185 economies worldwide regarding the ease for local entrepreneurs to open and run a small to medium‐size business.2 Lithuania’s relatively high position in the ranking could possibly give the impression that Lithuania is performing well with respect to the business environment. However, the reality is less rosy. Investments, and in particular foreign direct investments (FDI3), are relatively low, at least lower than Lithuania could potentially receive, with adverse consequences for the economy as a result. Furthermore, it seems difficult to start up a company, both in SMEs (small and medium enterprises) and larger companies. This is detrimental to the number of jobs and perhaps prevents the creation of high quality jobs that would have been created in a better business environment. To get a better understanding of the problems facing Lithuania as regards the business environment, first, the investment environment will be discussed, both the domestic investments and the FDIs (also green field investments). Subsequently, the start‐up of a business and matters related to the start‐up and the operation of SME will be discussed. Finally, the taxation system in Lithuania will be described.

15.1 Investment in Lithuania

In the regular reports of the European Commission about the progress made by Lithuania during the accession process , the Commission regularly warns for a possible problem in the future with respect to FDIs.4 Although FDI increased significantly every year at the end of the nineties and the beginning of the 21st century, its amounts were largely driven by the privatisation process in Lithuania. With the auction of many state‐owned enterprises, like telecommunication companies or banks, a lot of foreign money and companies flowed in to fully or partly buy former state‐owned enterprises. However, the share of green field investments remained particular low.5 Green field investments are investments in an area where no previous facilities exist.6 So, it can refer to the delivery of new physical capital into an already existing company, but also to for example a completely new building or enterprise built from ‘scratch’. That is why it is called ‘green field investment’: the investment is on a figuratively or literally green field, where no building or other business facilities exist. At the moment that green field investments are quite low, and the inflow of foreign direct investment is mainly due to privatisation, it does not only mean that FDIs will decrease significantly after the completion of the privatisation process, but also that it is not considered to be very attractive to invest in new or existing private companies. The fact that green field investments were low in Lithuania is, in itself, remarkable. Lithuania is underdeveloped in comparison with Western economies, and can therefore still improve its economic performance and GDP significantly, for example by

1 WorldBank, ‘Doing Business 2013: Economy profile: Lithuania’, http://www.doingbusiness.org/~/media/giawb/ doing%20business/documents/profiles/country/LTU.pdf, consulted on 07‐01‐2013 2 Ibidem, p. 4. 3 Foreign direct investments are investments from people or legal entities from abroad. However, it is not just a portfolio investment; FDIs are direct investments into the capital (stock or physical assets, like buildings), which accounts for at least 10 per cent of the business assets or stock. So, for example, by getting at least 10 per cent of the shares of a company. 4 European Commission, ‘Regular report from the Commission on Lithuania’s progress to accession 2000’, http://ec.europa.eu/enlargement/archives/pdf/key_documents/2000/lt_en.pdf, consulted on 05‐01‐2013 5 Ibidem. 6 The definition in the Financial Glossary of Reuters: http://glossary.reuters.com/index.php?title= Greenfield_Investment. 151 improving or investing in physical capital and technology, which will improve productivity. Moreover, because wages have been considerably low in comparison with Western countries, it would theoretically be attractive to outsource labour‐intensive work to Lithuania. These two circumstances should be reasons for a lot of FDIs, but in the year 2000, FDI only occurred as a result of privatisation processes. This clearly suggests that the investment environment around 2000 was not that good. There are indications that the situation has not improved very much since then. First of all, in 2007 the Lithuanian government launched the Investment promotion programme 2008‐ 20137 with the aim to improve the investment environment. This programme indicates that investments were still very moderate in 2007. Compared to Estonia, Lithuania lagged far behind. While FDI per capita in Lithuania was 9688 litas (2806 euros) in 2007, the FDI in Estonia totaled 9214 euros per capita.8 This huge difference of almost 7500 euro per capita was not due to Estonia’s accession to the Eurozone; they did not have the euro yet. Moreover, the small size of the country couldn’t be the reason either, because Estonia is much smaller than Lithuania, both in area and population. Also a more strategic location of the country seems an unlikely reason for better performance with regard to foreign investment, because both countries are located on the borders of Europe. Indeed, Estonia is located even more at the corner of Europe. So, although the government stated in the Investments promotion programme 2008‐2013 that the moderate FDI was partly due to the location of Lithuania in Europe and the small size of the country, both reasons are not sufficiently explain the moderate FDI performance.9 Despite the fact that the FDI per capita in 2007was very low in Lithuania compared to Estonia, there was a huge increase in total FDI. The increase of 35.2 per cent compared to 2006 led to a total FDI of 32,658.8 million litas in 2007.10 The increase of FDI per capita was also obvious: while the FDI per capita was 7169 litas (2076 euros) in 2006 it was 9688 litas (2806 euros) in 2007.

15.2 Deeper examination of the investments

Above, the more general FDI‐performance of Lithuania is outlined. Now, a more in‐depth analysis of investments will be made, discussing the sectors which receive the most FDIs; the countries from which the major investors came; the FDI‐stock in Lithuania; and the importance of investments in tangible assets. First of all, the biggest shares of FDI in 2007 went to manufacturing (39.1%), financial intermediation, like banking, financial and insurance activities (17.4%) and transport, warehousing and communication companies (12%). The major investors came from Poland (21.3% of all FDI), Denmark (12.5%), Sweden (10.9%) and Germany (8.9%).11 Data from the Statistics Lithuania show that the trends have remained the same: in 2012 the largest investments were still made in manufacturing (27%) and financial intermediation (19.9%).12

7 Republic of Lithuania,Resolution nr. 1447 of 19 December 2007 on the Approval of the Investment Promotion Programme 2008‐2013, 2007, p. 1 8 Ibidem, p. 1. 9 Ibidem, p. 6. 10 Ibidem, p. 1. 11 Ibidem, p. 2. 12 Statistics Lithuania, ‘Wite with information about statistics’, http://www.stat.gov.lt/en/news/view?id=12131&PHPSESSID=09b3ee9cbe8265bc650fa066f957b65f, consulted 09‐05‐2013; Investors’ Forum, Lietuvos verslo tarptautinès plètros galimybių studija, 2012, p. 21; Lithuania Tribune, ‘Direct foreign investment in Lithuania decreased in 2012’, http://www.lithuaniatribune.com/32930/direct‐foreign‐investment‐in‐ lithuania‐decreased‐in‐2012‐201332930/, consulted on 09‐05‐13. 152

Furthermore, the largest increase in FDI was observed from Poland (1 billion litas) and Sweden (205 million litas) and, according to data, the largest investments were still made by Sweden (21.7%), Poland (12.1%) and Germany (9.9%).13 Overall, most investments in the past few years came from Sweden, Poland and Germany, while most shares of FDI went to manufacturing and financial intermediation. Secondly, the ratio of the FDI stock to GPD is concerned. The FDI‐stock is the cumulative amount of the foreign direct investment for a given period. Somewhat simplified, it is the amount of machinery, buildings, shares and physical capital in businesses that is possessed by a foreign person or legal entity. In 2005, this amount was 33% of Lithuania’s GDP, which was very low compared to other EU countries.14 Although Poland and Latvia had even lower rates (31 and 32%), in Estonia it was 96%.15 A low rate in FDI stock indicates a weak FDI performance. Looking at the flow of investments, this was indeed happening: the average flow of domestic and foreign investment compared to GDP was 1.3% in total in 2005, which was one of the lowest levels in the EU.16 Data show that since then this amount increased only very little as it was just 2% of GDP in 2012.17 On the other hand, the percentage of investments in tangible assets, such as equipment, machinery and means of transport, has gradually increased for some time in Lithuania: from 1.2% in 2002 to 22.8% in 2006.18 However, as from 2006 investments in tangible assets decreased a little.19 Because these investments have the biggest impact on the country’s productivity, competiveness and technology updates, they are essential for so‐called export‐ driven growth. Consequently, a decrease or stagnation in investments in this group will lead to a weak economic performance, especially because exports are very important for Lithuania and were equal to 78% of the GDP in 2011.20 The importance of investments in tangible assets for the economic performance of Lithuania should not be underestimated. The larger the amount of tangible assets, the more likely it is that the productivity of Lithuanian workers will increase, because more developed equipment and machinery would be available and, therefore, workers could produce more in a shorter period of time. Certainly, since Lithuania’s productivity in 2007 was considerably lower than that in Western European and even Central and Eastern Europe countries and other Baltic States, there is still much room for improvement in this area, which will positively affect the economy and the GDP.21 Concluding, Lithuania has a low FDI stock, a moderate average flow of investments and a decreasing amount of investments in tangible assets. Indeed, the amount of investments in Lithuania is very low and should be more. Especially, increasing the amount of investments in tangible assets is very important for the

13 Investors’ Forum, ‘Lietuvos verslo tarptautinès plètros galimybių studija’, http://www.investorsforum.lt/lt/publikacijos/investors‐forum‐publikacijos , consulted on 04‐01‐2013; Lithuania Tribune, ‘Direct foreign investment in Lithuania decreased in 2012’, http://www.lithuaniatribune.com/32930/direct‐foreign‐ investment‐in‐lithuania‐decreased‐in‐2012‐201332930/, consulted on 09‐05‐13. 14 Republic of Lithuania,Resolution nr. 1447 of 19 December 2007 on the Approval of the Investment Promotion Programme 2008‐2013, 2007, p. 2. 15 Ibidem, p. 2. 16 Ibidem, p. 2. 17 Lithuania Tribune, ‘Direct foreign investment in Lithuania decreased in 2012’, http://www.lithuaniatribune.com/32930/direct‐foreign‐investment‐in‐lithuania‐decreased‐in‐2012‐201332930/, consulted on 09‐05‐13; Interview 7. 18 Republic of Lithuania,Resolution nr. 1447 of 19 December 2007 on the Approval of the Investment Promotion Programme 2008‐2013, 2007, p. 2. 19 V. Šečkutė, N. Mačiulis ‘The Lithuanian Economy’, Swedbank, nr. 4, (2011), p. 2. 20 Ibidem, p. 2; Interview 7; WorldBank, ‘Exports of goods and services (% GDP)’, http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS, consulted on 09‐05‐13. 21 Republic of Lithuania,Resolution nr. 1447 of 19 December 2007 on the Approval of the Investment Promotion Programme 2008‐2013, 2007, p. 2. 153

Lithuanian economy, because it will improve the country’s productivity, technology and, consequently, competiveness.

15.3 Factors limiting the investments and measures to improve it

As mentioned before, according to the Lithuanian government in 2007, there are some factors that have a limiting effect on investments made in the economy. First of all, the lack of investments is attributed to the small domestic product market and labour market, smaller purchasing power of the population and the fact that Lithuania is situated on the periphery of the great EU market.22 Although these factors certainly contribute to creating a less favourable investment climate, they are no adequate explanation for the moderate FDIs and investments.23 As mentioned before, the domestic product market and labour market of Estonia is even smaller, but the country is performing better with regard to FDI and investments. Moreover, the large distance to the EU market may partially be a reason for the moderate investments. But also in this respect, Estonia is in the same situation. Besides that, Lithuania is a favourable location for companies interested in both the Russian and European market.24 Consequently, the small domestic market and labour markets, as well as the fact that Lithuania is located at the periphery of the EU, could not be an adequate explanation for the moderate FDI performance in Lithuania. It’s more likely that Lithuania’s already moderate performance is further worsened by these conditions. Furthermore, although there are few obstacles to investing in Lithuania, there is a lack of motivational factors, such as tax exempts or subsidies.25 It is, however, doubtful whether tax exemptions and subsidies are really important for the investment and business environment. As the then Minister of Finance stated in 2000: “We believe that there are at least two basic approaches to take with respect to establishing a good foundation for foreign investment: (1) adopting special tax incentives that apply exclusively to foreign investments; and (2) creating a tax system that is solid, stable, and that is conducive overall for business, whether the enterprise be financed by domestic or foreign capital”.26 Whereas in the 1990s one of the measures was the provision of tax holidays for foreign investors, the emphasis shifted in the course of the 1990s. But, indeed, even then, tax exemptions and benefits for foreign investors still remained available.27 So, in 2000 there were already tax benefits for foreign companies and investors. Nevertheless, as mentioned above, this did not lead to a significant increase in FDIs and green field investments. Consequently, it seems that the existence of tax exemptions and subsidies for investors did not lead to more FDI. Nowadays, these special tax benefits for foreign companies and investors are not available anymore and all investors, both Lithuanian and foreign, are treated the same.28 This stems from the idea that an attractive tax system for all would be more profitable than a system in which only a few have attractive taxes.29 This has resulted in stressing the creation of a stable

22 Republic of Lithuania, Resolution nr. 1447 of 19 December 2007 on the Approval of the Investment Promotion Programme 2008‐2013, 2007, p. 5. 23 Interview 7. 24 Interview 7; 32; and 51. 25 Republic of Lithuania, Resolution nr. 1447 of 19 December 2007 on the Approval of the Investment Promotion Programme 2008‐2013, 2007, p. 5. 26 OECD, ‘Lithuania: Foreign Direct Investment Impact and Policy Analysis’, http://www.oecd.org/countries/lithuania/1922640.pdf, consulted on 15‐01‐2013 27 Ibidem, p. 2. 28 Interview 7; 32; and 51. 29 Interview 7 and 32. 154 tax system in the course of the 21st century, allowing more confidence in the Lithuanian economy and more certainty for foreign investors. Therefore, in the current tax system of Lithuania the exemptions and deductions are applicable to all businesses regardless of whether they are a foreign or a domestic company. One of these tax incentives is the possibility for entities to reduce the taxable profit up to 50 % if they are carrying out an investment project into qualifying assets.30 So, if a FDI or domestic investment is invested in machinery, power plants, buildings etc. The investor can deduct the costs of this investment from the profit tax. This is expected to stimulate green field investments and other investments where it generally takes some more time to earn profit. Furthermore, companies can deduct three times their expenses on research and development.31 Another reason for the disappointing investment climate is, according to the Republic of Lithuania in 2007, the income tax on the labour force.32 Therefore, this tax has greatly been reduced in recent years. First, the tax was 33 per cent, subsequently 27%, then 24% and now it is only 15%. However, businesses still complain about the high taxation on the social contributions (see chapter 21 on social policy).33 Finally, the Lithuanian government set a direct measure to attract FDIs and in particular green field investments in its 2007‐2013 program. There will be individual packages of supporting measures for (potential) investors which make a green field investment valued at least 20 million litas, or at least 5 million in case the investment is made in the establishment and development of a R&D centre.34 Concluding, the government has taken several measures to attract investments, for example by reducing the income tax on labour and by supporting investors who invest a certain amount of money in Lithuania. However, notwithstanding these measures in recent years, the (foreign) investment rate is still not very high (see table 15.1). Of course, the decrease in 2009 and the lower levels of 2010 and 2011 (in comparison with 2006‐2008) are partly due to the economic and financial crisis (see chapter 17 on economic crisis). Most probably, however, it is also influenced by the moderate investment climate.

30 Invest Lithuania, ‘Taxes’, http://www.investlithuania.com/en/doing‐business/taxes, consulted on 15‐01‐13. 31 Interview 32. 32 Republic of Lithuania, Resolution nr. 1447 of 19 December 2007 on the Approval of the Investment Promotion Programme 2008‐2013, 2007, p. 5. 33 Interview 7; 32; 51; and 57. 34 Republic of Lithuania, Resolution nr. 1447 of 19 December 2007 on the Approval of the Investment Promotion Programme 2008‐2013, 2007, p. 8. 155

Table 15.1: Foreign investment in Lithuania35

Note: Trading Economics. The y‐axis represents the amount of net FDI, which is the amount of FDI from the rest of the world to Lithuania minus the amount of FDI from Lithuania to the rest of the world. Source: www.tradingeconomics.com. 15.4 Free economic zone

Another measure the Lithuanian government took to improve the investment climate in Lithuania was the establishment of two Free Economic Zones (FEZ) with several advantages in Kaunas and Klaipeda. These advantages are applied to both foreign and domestic companies and investors, which organise and operate their businesses within these allocated geographic areas. First of all, there are tax benefits: the first six years companies pay 0% corporate income tax.36 The subsequent ten years, the tax is reduced with 50% vis‐à‐vis the regular corporate income tax.37 Moreover, there is no real estate tax applied.38 Furthermore, there is 0% withholding tax on dividends distributed to a domestic or foreign entity where the recipient has held at least 10 per cent of the voting shares for a continuous period of at least 12 months.39 This all means that making FDIs (which are investments in at least 10 per cent of companies) become more attractive. Additional to the tax advantages, the FEZ also offers some other advantages. First of all, companies in the FEZ receive a well‐developed piece of land,40 which means that all the necessary infrastructure is available (roads, optic fibre, pipes) and therefore companies can start operating immediately.41 Second, there are less bureaucratic problems like territorial planning and on top of that the management of the FEZ can help to solve issues that might arise.42 Last but not least, there are good transport and infrastructural possibilities. In Kaunas the zone is situated close to the airport and in Klaipeda the zone is adjacent to the ice‐free port. So, overall, the FEZ offers a lot of advantages to investors.

35 Trading Economics, ‘Foreign direct investment’, http://www.tradingeconomics.com/lithuania/foreign‐direct‐investment‐ net‐bop‐us‐dollar‐wb‐data.html, consulted on 14‐01‐13. 36 Invest Lithuania, ‘Taxes’, http://www.investlithuania.com/en/doing‐business/taxes, consulted on 15‐01‐13 and interview 51. 37 Invest Lithuania, ‘Special economic zones’, http://www.investlithuania.com/en/doing‐business/investment/special‐ economic‐zones, consulted on 15‐01‐13 and interview 51. 38 Free Economic Zone Kaunas, ‘Kaunas Free Economic Zone’, http://www.ftz.lt/index.php/html‐meniu/kaunas‐fez/60, consulted on 09‐05‐13. 39 Invest Lithuania, ‘Taxes’, http://www.investlithuania.com/en/doing‐business/taxes>, consulted on 15‐01‐13. 40 Free Economic Zone Kaunas, ‘Kaunas Free Economic Zone’, http://www.ftz.lt/index.php/html‐meniu/kaunas‐fez/60, consulted on 09‐05‐13. Interview 7; 32; and 51. 41 Interview 7; 32; and 51 42 Interview 7 and 51. 156

15.5 Circumstances for businesses

15.5.1 Starting a small SME Although according to the Doing Business rank of the WorldBank, Lithuania is performing pretty well in the business environment, it does not perform well on all indicators. In starting a small or medium‐sized business, Lithuania only ranks number 107 in 2013.43 Starting a small or medium business requires 7 steps in the procedure, which takes at least 20 days.44 Furthermore, the paid‐in minimal capital to start a business is relatively high: 31.3% of the income per capita.45 Consequently, one needs a lot of money in reserve to have the possibility to start a business. Table 15.2 shows the development of the number of procedures that has to be taken to start a business, as well as the time it takes and the paid‐in capital it requires.

Table 15.2: Number of procedures, elapse of time and required capital to start a business

Source: WorldBank (2013), p. 17.

However, there are some measures taken by the government to improve the conditions to start and operate a small or medium‐sized company. Firstly, there is the possibility of setting up a company online.46 This shortens the time and limits bureaucracy that enterprises need to deal with. In 2011, 29.5% of the newly established enterprises were set up online. Secondly, for already established companies, the administrative burden has been reduced. It is now also possible to submit financial reports electronically.47 Almost all companies make use of this possibility (99.5%).48 Thirdly, the government is planning to increase the availability of financial resources for SME,49 for example by guarantees to credit institutions to secure loans granted to SME and to venture capital investments which reduce the risk for investment.50

43 WorldBank, ‘Doing Business 2013: Economy profile: Lithuania’, http://www.doingbusiness.org/~/media/giawb/doing%20business/documents/profiles/country/LTU.pdf, consulted on 13‐ 01‐2013 44 Ibidem, p. 10. 45 Ibidem, p. 10. 46 Government of the Republic of Lithuania, ‘Lithuania: National Reform Programme’, http://ec.europa.eu/europe2020/pdf/nd/nrp2012_lithuania_en.pdf, consulted on 05‐01‐2013 47 Ibidem, 48 Ibidem, 49 Ibidem, 50 Ibidem. 157

According to the Lithuanian government51, measures with the aim to improve the business environment, such as the one mentioned above, could contribute to the growth of newly established enterprises. Therefore, also with respect to the weak business condition, the government is taking measures. And it seems that these measures have an effect: in 2011 1193 more companies were established than in the year 2010 (13%), while the amount of deregistered companies declined by 47%, which was 2844 less than in 2010.52

15.5.2 Other circumstances Besides the alleged difficult circumstances to set up a business, there are some other specific circumstances that disadvantage businesses in Lithuania. First of all, there are some problems with municipalities.53 Local governments often frustrate businesses when it comes to territorial planning and the issuing of construction permits. Although the law and the regulations on the issuing of construction permits look quite good in theory,54 according to different experts in the field,55 the reality is not that good. Municipalities always find reasons to extend the time and to delay the permits. On average it takes eight months to one year, but there are several cases known where it took more than two years before a construction permit was issued.56 Linked to this, the overall bureaucratic and administrative burden is high in Lithuania because of these ineffective local governments and their alleged corruptness (see chapter 8 on corruption). Although there is a lack of academic sources that underpin this, in several interviews it is claimed that it is really a huge problem.57 Without paying officials pocket money, there is a big chance that paperwork or construction permits are delayed. Furthermore, there are some markets in Lithuania, which are strongly ruled by local businesses.58 Because of this, it is hard for new players to function on this market and to compete with local, settled businesses. Linked to this, many domestic companies in Lithuania are distrustful and even fearful of FDI. Some people consider FDI to be negative for the domestic industries.59 Other circumstances that businesses are confronted with in Lithuania are the high energy prices, the good infrastructure, especially in comparison with Latvia and Poland (see chapter 18 on infrastructure)60 and the availability of optic fibre all over Lithuania. Last but not least, employers and employees in Lithuania have to comply with a labour code regarding regulations and rules about working time, temporary contract, minimum wage and so on. For example, it is forbidden to work more than 8 hours a day in Lithuania.61 Although in 2010 the labour code was adjusted in order to create more flexibility (see chapter 16 on the labour market), by many businesses, this labour code is seen as too rigid and they would like it to be more flexible.62 Collective agreements in branches between employers and employees do not exist.

51 Government of the Republic of Lithuania, ‘Lithuania: National Reform Programme’, http://ec.europa.eu/europe2020/pdf/nd/nrp2012_lithuania_en.pdf, consulted on 05‐01‐2013 52 Ibidem. 53 Interview 7; 32; 51; and 57 54 WorldBank, ‘Doing Business 2013: Economy profile: Lithuania’, http://www.doingbusiness.org/~/media/ giawb/doing%20business/documents/profiles/country/LTU.pdf, consulted on 13‐01‐2013 55 Interview 7; 32; 51; and 57 56 Interview 7. 57 Interview 7 and 57. 58 Interview 32 and 57 59 Interview 32 and 57 60 Interview 57 61 Interview 7, 32 and 51. 62 Interview 7, 32 and 51. 158

Overall, there are some specific conditions in Lithuania, which make it unattractive to invest in Lithuania, as well as some specific circumstances, which make it attractive. The positive conditions are mainly related to the good and comprehensive infrastructure; the negative ones are more diverse and thus probably more influent on the business environment.

15.6 Taxation

15.6.1 Income tax for individuals and companies Residents of Lithuania and people who have earned income sourced in Lithuania must pay income tax on their derived income. Income taxes are not only levied on the income from the wage, but also on income from interest, distributed profits, such as dividends and bonuses and on the lease of immovable property.63 Since 2009, almost all income is subject to a uniform, flat rate of 15%. Only on the income from distributed profit the rate is 20%, while the rate for income from individual activities is 5% (except when the income comes from liberal professions or securities).64 There are some tax exempt amounts (TEAs) concerning the income tax in Lithuania. Firstly, there is a TEA for people who earn less than 800 litas per month. The tax exempt amount for these people is 470 litas. So, for the first 470 litas they earn, they do not pay income tax. For people who earn more than 800 litas, the TEA is proportionally reduced. If the income exceeds 3150 litas per month, no TEA will be applied.65 So, for the poorest people, some reductions on the income tax are made. Secondly, residents with children enjoy an additional tax exempt. For the first child, there is a tax exempt of 100 litas, for each next child it is 200 litas (per child).66 So, if a Lithuanian citizen has 3 children, he or she can deduct 500 (100+200+200) litas from his or her taxable income. This tax exempt is not linked with the respective income the parents earn. It is divided equally among them. Thirdly, expenses incurred by a person may be deductible from the taxable income.67 The total amount of the deductible expenses may amount 25 % of the taxable income. Deductible amounts may include contributions paid to a life insurance fund and or private pension fund.68 So, people who earn much money benefit from this exempt, because they contribute more, absolutely as well as relatively, to private pension funds and life insurance companies. So, overall, there are some tax exemptions concerning the income tax. First, people who earn less than a certain amount of money are eligible for tax exemptions, as well as people who have children and people who contribute to private pension funds and life insurance companies. The last group mainly consists of wealthier people. As far as companies are concerned, the income tax rate is 15% as well.69 There is, however, a 5% tax rate for profits made by companies with less than 10 employees on their staff list and with less income than 1 million litas a year. So, this reduced tax rate is profitable for small and medium‐sized enterprises.

63 State Tax Inspectorate, ‘Personal income tax’, http://www.vmi.lt/en/?itemId=1087767, consulted on 06‐05‐13 64 Ibidem. 65 MIPIM,’Personal income tax’, http://www.development.lt/2011/node/24, consulted on 06‐05‐13 66 State Tax Inspectorate, ‘Personal income tax’, http://www.vmi.lt/en/?itemId=1087767, consulted on 06‐05‐13 67 Ibidem. 68 Ibidem. 69 State Tax Inspectorate, ‘Corporate income tax’, http://www.vmi.lt/en/?itemId=108781, consulted on 06‐05‐13 159

15.6.2 VAT The supply of goods and services meaning the transfer of goods to another person70, is subject to VAT, even in the case of barter.71 In 2009, Lithuania introduced a tax reform with respect to the VAT.72 The standard of VAT was increased from 18% to 19% and later in the same year to 21%. Furthermore, Lithuania became the first state in the EU, which eliminated all reduced VAT rates.73 Before 2009, Lithuania had reduced rates of 5% and 9% for some specific goods and services. However, it should be stressed that these reduced rates were applied on a much narrower basis than in other EU‐countries.74 From 2009 on, the reduced rates were in fact eliminated, although, because of the crisis, the applying of reduced rates to the supply of inter alia central heating and hot water (9%), as well as some medical goods and services (5%), was prolonged.75 So, overall, the tax reform was not only about the increase in VAT, but also about the elimination of the reduced tax rates. The increase of the standard rate occurred exclusively as a result of the financial crisis and the search for additional government revenues.76 However, the ratio behind the elimination of the reduced rates is more interesting. According to Bikas and Saikevičius (2010),77 there are two reasons to use reduced VAT rates. VAT rates are mainly reduced for social redistribution aims or to subsidise certain branches of the economy, thereby regulating the economy. Although results of research do not always support the idea that reduced VAT rates are an effective instrument for income redistribution, it is clear that reduced VAT rates are applied in socially sensitive areas, such as foods, heating, water supply etc. Therefore, the ratio behind the use of reduced VAT‐rates is to exempt certain necessary goods and services – food, drinks, medical, etc. – from a high extra burden, the tax. The ratio behind the idea that reduced VAT rates are used for economic regulation, is that reducing tax in certain areas functions the same way as a subsidy would do. This can help improve the employment and business environment in those specific areas, because the burden and constraints caused by the tax are partially removed. The targeted areas could even get a comparative advantage to other industries, because of lower taxes.78 Overall, by removing the tax reduction, the government indicates implicitly that it does not want to use the functions of social redistribution and economic regulation by reduced VAT rates, and thus does not want to interfere too much in the economy. Furthermore, it does not promote the business environment, because the burden of the tax is higher in some fields than others.

15.6.3 Property tax The tax on real estate is between 0.3% and 1% depending on the value of the property.79 This tax is particularly low, especially when compared to taxes on labour and consumption.

70 Republic of Lithuania, nr. IX‐751:Law on Value Added Tax, 2002, pp. 7‐8. 71 Ibidem, p. 12. 72 E. Bikas and D. Saikevičius, ‘The reform of value‐added tax in Lithuania: productivity and collection efficiency’, Business and Management, selected papers, (2010), p. 15. 73 Ibidem. 74 Ibidem, p. 17. 75 Government of the Republic of Lithuania, ‘Lithuania: National Reform Programme’, http://ec.europa.eu/europe2020/pdf/nd/nrp2012_lithuania_en.pdf, consulted on 05‐01‐2013 and KPMG, Tax Card 2012: With effect from 1 January 2012 Lithuania, 2012, p. 7. 76 Ibidem. 77 E. Bikas and D. Saikevičius, ‘The reform of value‐added tax in Lithuania: productivity and collection efficiency’, Business and Management, selected papers, (2010), pp. 15‐16 and 20. 78Ibidem, pp. 15‐16 and 20. 79 Europe.EU, ‘Taxes – Lithuania’, http://europa.eu/youreurope/business/managing‐business/paying‐taxes/lithuania/, consulted on 09‐05‐13. 160

Furthermore, the administration of property tax almost costs more than the revenues it collects. Last but not least, taxes on property in the broadest sense from housing to cars are not as destructive to the economy as taxes on labour and consumption are, especially because the former tax is so low at the moment. Taxes on VAT and income immediately influenced the disposable income, the consumption, the production and therefore the economy. Taxes on real estate do not have such an impact on the economy: it is more like a tax on wealth. Therefore, it would be economically viable to increase this tax in Lithuania, and to reduce the tax on VAT or income. On the other hand, in many interviews it was mentioned that a stable tax system without too many changes is what Lithuania needs the most.80 However, because of the government deficit and financial consolidation measures, as well as measures to attract more FDI, there were a lot of tax reforms in recent years; both the VAT, excise duties and the income tax changed several times. For the business environment and FDI in particular, this is not desirable. Indeed, for businesses there is no certainty for the long term with respect to the regular changes made in taxes.

15.7 Recommendations to improve the business environment

This chapter described the FDI‐performance, the business circumstances and the . Several complex problems were identified. Firstly, the bureaucratic and administrative burden, as well as problems concerning construction permits, which occurred mainly due to the people’s mentality and lack of knowledge about what to do.81 The idea that people deserve pocket money for doing something or helping somebody is still common. Furthermore, because Lithuania is a relatively young democracy and market economy, there is not enough knowledge and expertise about how to do something. These problems need some time to resolve themselves. Secondly, however, with respect to the taxation, some improvements could be made. First of all, the taxation on real estate should be increased, because this tax does not really damage the economy and is even important to counter a credit boom in the real estate sector. Because of that, the taxation on the social insurance may be reduced. In the chapter about social policy some recommendations are given on how to transform the social security system, which would decrease the burden of the tax. Another possibility is to lower the VAT again. This would lead to an increase in consumption and because of that to an increase in production. The most important recommendation we would like to give, is that the country must make a bigger effort to market and brand itself. In several interviews it is stated that the Lithuanian government does not promote its own country enough abroad.82 Indeed, foreign companies and investors have to know why they should invest in Lithuania. Without knowing about the attractive circumstances, they simply will not choose Lithuania. So, for the attraction of FDI, it is important for Lithuania that the government invests a lot of money in the international promotion of the own country.

80 Interviews 5; 7; 32; 51; and 57. 81 Interview 57. 82 Interview 5; 7; 32; 51; and 57. 161

16. The Labour Market

Like most countries in the European Union, Lithuania has suffered immense negative consequences of the global financial crisis of 2008. The labour market, in particular, was hit very hard, which brought deep problems in the overall structure of labour in the country to the fore. The concerns of skyrocketing unemployment levels and its threatening consolidation into rising structural unemployment, as well as the demographic long‐term problem of consistent net emigrations, are among the two most pressing currently facing Lithuania. This chapter intends to provide an overview of the most salient issues concerning the Lithuanian labour market. It will start by specifying the EU employment agenda and Lithuania’s general objectives for the years 2008‐2013. Subsequently, the issues of unemployment, demographics, labour costs, and policy measures and objectives will be discussed.

16.1 The EU Employment Strategy and Lithuanian objectives in the preceding years

The European Employment Strategy (EES) entails four general guidelines. First of these is increased labour market participation: the employment rate of people aged 20‐64 should increase to 75% by 2020. The concept of flexicurity is deemed integral to this objective. Flexicurity roughly means increased flexibility for employers to contract workers as well as terminate such contracts, accompanied by security for employees of sufficient income in case of temporary job loss. By utilising this concept as well as promoting entrepreneurship and general job creation, the young, old, low‐skilled and disabled should gain increased access to work. Furthermore, developing skilled labour forces, and improved education and training systems (so as to allow for so‐called life‐long learning of workers) are also integral to the EES. Lastly, social exclusion, especially poverty, needs to be addressed by providing access to social safety for all of those excluded from true labour market participation.1 In the Strategic Guidelines of Lithuania’s European Union Policy for 2008‐2013, several specific goals are stipulated that need to be fulfilled by the end of 2013 in order to comply with the EES. The ‘success indicators’ of those concerning the functioning of the labour market, are: 70% total employment rate by 2010; poverty risk not exceeding the EU average; and emigration in 2012 not exceeding ten thousand inhabitants.2 Nevertheless, the total employment rate in 2011 was 67.2% after a slight increase from 2010, while the poverty risk in Lithuania was measured as the largest of the entire European Union at 22% of the population aged 18‐64.3 Finally, emigration levels recorded an all‐time high in 2010 with 83,157 emigrants.4 As we can see, none of the declared goals have been achieved.

16.2 Unemployment

The incidence of unemployment is a clear determinant of the proper functioning of the labour market. Of course, in times of economic prosperity, unemployment tends to fall, while in times of economic downturn an upsurge in unemployment is usually an automatic consequence. This

1 Council of the European Union, ‘Council decision on guidelines for the employment policies of the Member States’, Official Journal of the European Union, nr. 308/46 (2010), pp. 46‐51. 2 Government of Lithuania, Strategic Guidelines of Lithuania’s European Union Policy for 2008‐2013, pp.10‐11. 3 Commission of the European Communities, Employment and Social Developments in Europe, 2012,pp. 45‐46. 4 Statistics Lithuania, ‘database on population migration’, http://www.stat.gov.lt/en/, consulted on 10‐05‐2013. 162 also applies strongly to the Lithuanian case. However, notable peculiarities can be found that point to deeper problems that cannot be attributed solely to economic cyclical adjustments. Rather, they point to the possibility of having a structural long‐term unemployment (being unemployed for longer than a year) problem. As shown in Table 16.1, the Lithuanian labour market has struggled for a long time with very high unemployment, remaining within the double digits even throughout strong economic growth from 2000 onwards. Only in 2004 do we see the unemployment rate start to plummet, reaching an all time low in 2007 of 4.4%. Aside from the effects of the positive economic growth trend until 2007, accession to the EU has also contributed to the decline of unemployment, as the free movement of people in the EU suddenly enabled Lithuanians to emigrate in search of jobs elsewhere. Finally, these gross figures illustrate the immense negative effect the global financial crisis has had on the Lithuanian economy, and consequently also its labour market. Unemployment levels have soared, going back to the high double digit levels of before EU accession. A decrease has been noted in 2011, while unemployment in 2012 is believed to have shrunken somewhat further to approximately 13.3%.5 Nevertheless, it remains far removed from the desired low level attained at the height of the economic boom in 2007.

Table 16.1: Unemployment rates in Lithuania 1998‐2012 Unemployment 20

15

10

5 Unemployment % 0 GDP growth ‐5

‐10

‐15

‐20

Source: Eurostat database unemployment and Statistics Lithuania database on GDP growth, consulted on 09‐05‐2013.

Analysing the unemployment figures, the European Employment Observatory (EEO) concludes that long‐term unemployment (LTU) is the primary concern that the Lithuanian governments needs to address. It sees structural problems that the unemployed face, such as huge geographical differences in unemployment incidence from the urbanized core (Vilnius and Kaunas) to the deprived rural areas, as well as skills mismatches that prevent many unemployed from being able to fill the vacancies that are available. Also, the existence of shadow employment, in other words illegal jobs, is a widespread phenomenon that allows officially unemployed to remain on the books with the Lithuanian Labour Exchange (LLE, which regulates social security benefits), while also working in the shadow market. The main point, however, is that job protection legislation could not prevent massive spikes in unemployment, as this

5 Eurostat, ‘database on unemployment’, http://epp.eurostat.ec.europa.eu/, consulted on 10‐05‐2013. 163 amounted to 224 thousand in 2009; up from only 94 thousand in 2008.6 Youth unemployment reached more than 35% in 2010 and became a prime concern for the government. It is now trying to resolve this through special programs such as ‘Start a Job’ specifically aimed at young starters on the labour market.7 Overall, however, structural problems remain to be addressed effectively. In 2011, more than 50% of the unemployed were LTU, which is a dramatic number, especially considering the high percentage of overall unemployed. At the same time, despite a relative rebound towards GDP growth since 2010, job vacancy increases have not nearly matched this rebound growth. As such, labour supply continues to overwhelm demand. Consequently, wages that are being offered are too low and many unemployed choose to remain on the LLE books, while gaining some additional income in the shadow market. Many others that are fit and able to work, however, still prefer emigration as the way out of this structural employment problem.8

16.3 Demographics

The demographics of the Lithuanian labour market are important in two, somewhat contradictive, ways. On the one hand, emigration is a widespread phenomenon that manages to relieve the unemployment rate to some degree, as either unemployed workers leave the country in search for jobs elsewhere or employed persons emigrate leaving vacancies to be filled by the remaining unemployed. On the other hand, those that leave are people who count as part of the labour force, i.e. those that are able to work. This means that permanently high emigration levels place an exceeding burden on the labour force that stays behind to sustain the social security for those outside the labour force, such as pensioners, disabled and the young. Also, it could cause long‐term problems when an economic recovery and increase of vacancies may lead to a shortage of labour supply, possibly making it difficult for Lithuania to reach its full economic potential. Of course, the latter long‐term problems are hypothetical. At the moment Lithuania is not near a sustained recovery, while the recovery that is taking place it is one without a significant increase in jobs. Taking a look at the official statistics provided by the Lithuanian government, in Table 16.2, several aspects of the migration levels are illustrated (see chapter 11 on migration). First, an incredible increase of emigration levels may be noted after accession to the EU in 2004. Even though many EU countries kept their borders closed to the workforce of some of the enlargement countries, the UK and Ireland welcomed these workers. Consequently, these two nations initially received the bulk of Lithuanian emigrants (almost 80% of all Lithuanian emigrants9), being a preferable destination due to its open labour markets, large amount of vacancies, the relative ease of assimilation, as well as of course the significantly higher wages that were offered in these countries.10 The initial high‐point of emigration was reached in 2005, when economic growth in Lithuania already seemed to be on a permanently positive path. Thereafter emigration levels declined and immigration (mostly remigration) occurred as the economic boom started to cause a shortage in the labour supply; the unemployment rate had dropped to only 4.4% in 2007.

6 B. Gruzevskis, and I. Blaziene, Long‐term unemployment: Lithuania, Europan EEO Review, 2012, p.5. 7 Interview 33. 8 B. Gruzevskis, and I. Blaziene, Long‐term unemployment: Lithuania, Europan EEO Review, 2012, pp. 1‐11. 9 M. Hazans, and K. Philips, ‘The post‐enlargement migration experience in the Baltic labor markets’, Discussion paper series Forschungsinstitut zur Zukunft der Arbeit, Nr. 5878 (2011), p.8. 10 T. Davulis, ‘Lithuanian Labour Market and EU Enlargement’, Transition Studies Review, nr. 13 (2006), p. 19. 164

Table 16.2: Migration levels in Lithuania 2001‐2012 Migration levels Lithuania 90000 80000 70000 60000 50000 40000 Emigration 30000 Immigration 20000 10000 0

Source: Statistics Lithuania database consulted on 09‐05‐2013.

It is not surprising that the economic free‐fall of 2009 spiked emigration levels once more, to an unprecedented 83,157 persons in 2010. This figure has fallen since, while it is noteworthy that immigration has also increased significantly for the first time since 2010; the migration trends are converging somewhat. A plausible explanation for the latter could be the lack of jobs in the emigrants’ destination countries. Ireland continues to struggle in the wake of the global financial crisis, experiencing large unemployment levels itself, while the UK has pursued the politics of austerity and now also finds itself in a prolonged negative economic situation. These are precisely the two countries that welcomed the bulk of Lithuanian emigrants. Nevertheless, the net migration level is still negative in 2012; which, as the graph shows, it has been for more than a decade now. The net total migration number from 2001 up to 2012 is ‐392,271, which means that Lithuania has lost close to 9% of its total population of 2001 to workers moving abroad.11 It is even suggested that Lithuanians proportionately have the most active labour force mobility of all the EU accession countries of 2004, influenced by relatively very low unemployment benefits (even compared to other accession countries) and relatively larger unemployment levels to begin with.12 The composition of the Lithuanian emigrants is diverse. Both high and low skilled workers are willing to leave the country. Research points to a large share of young adults and students among the emigrated (see chapter 22 on education); with about 12% of the emigrants between accession and 2010 being unemployed at the time of leaving, which, taking into account the fact that unemployment in Lithuania decreased steadily in those years, can be considered a rather high figure. Also, high‐skilled workers were marginally more common among the emigrated, but not enough to speak of a so‐called brain drain.13 Aside from the negative long‐term consequences net emigration may have on labour market demographics, the Lithuanian fertility‐rate also constitutes a future problem, as the natural population growth rate has turned negative since 1994. A 2003 UN/ILO report warned

11 Statistics Lithuania, ‘Database on population migration’, http://www.stat.gov.lt/en/, consulted on 10‐05‐2013. 12 M. Hazans, and K. Philips, ‘The post‐enlargement migration experience in the Baltic labor markets’, Discussion paper series Forschungsinstitut zur Zukunft der Arbeit, Nr. 5878 (2011), p.8. 13 Ibidem, p.8. 165 that by 2040 Lithuania could face a ratio double the amount of 2000 in terms of pensioners aged 65 and over to persons aged 20‐64, if current trends would continue.14 Net emigration in the past decade has probably served to exacerbate this unfavourable demographic outlook. Emigration, therefore, remains an issue that needs to be tackled by the Lithuanian government.

16.4 Labour costs and wages

Table 16.3: Wages and Salaries in Lithuania 1995‐2011 Wages and salaries in Lithuania 45000 40000 35000 30000 prcices

25000 20000 Wages and current 15000 salaries at 10000 annual LTL 5000 average 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Statistics Lithuania database consulted on 09‐05‐2013

The cost of labour is an important indicator of the health of the labour market in a country. If labour costs rise steeply, as has been the case in Lithuania in its economic boom years during the past decade, this could indicate a shortage of labour supply. Table 16.3 (above) illustrates the evolution of average annual salaries and wages at current LTL prices.15 It shows a steady rise in wages until the Russian crisis of the late ’90s, when wage growth stagnated. Growth was recaptured from 2002 onwards until 2009 when it suddenly dropped deeply. As of 2011, average wages are still well below the levels of 2007. The influence of the cost of labour is also determined by the increase in labour productivity. Broadly speaking, a wage increase is justified if labour productivity also increases. Table 16.4 below depicts the different trends in wage growth and productivity growth from 2001 onwards (earlier productivity figures are not known). Labour productivity has consistently shown an increase, except for the year 2009. Average wage growth, however, has far exceeded this productivity growth for all years since 2002 until 2008. While a disproportionately low starting point may allow for an inflated growth figure for some time, over the long term this can be an unfavourable trajectory that could become an obstacle to growth as competitiveness in the international markets is lost.

Table 16.4: Changes in Labour Productivity and wages 2001‐2011

14 M. Hazans, ‘Looking for the workforce: the elderly, discouraged workers, minorities, and students in the Baltic labour markets’, Empirica, nr. 4 (2007), pp. 320‐321. 15 Statistics Lithuania, ‘Database on remuneration and labour costs’, http://www.stat.gov.lt/en/, consulted on 10‐05‐2013. 166

Changes in labour productivity and wages 25 20 15 10 5 Labour productivity % 0 Wages and salary % ‐5 ‐10 ‐15 ‐20

Source: Own calculations bases on Statistics Lithuania database, consulted on 09‐05‐2013.

The root causes of this large wage increase can be found in the substantial size of net emigration and subsequent shortage in labour supply, while an economic boom was well on its way. The price of labour accordingly increased as a result of demand and supply responses. In other words, the demand far exceeded the supply in the labour force during the boom years. This is further exemplified by the fact that wages in the private sector increased much faster than wages in the public sector, as market forces determine wages in the former much stronger than in the latter. Wage increases were also not the result of effective bargaining by trade unions, as trade unions wield little influence on the wage setting process due to the lack of collective agreements in Lithuania.16 Almost 15% of the workers are member of a trade union, but wage policy is only set in the labour code outside, and limited to the minimum wage.17 This also explains the remarkably swift and deep drop in wages (of more than 15%, and of 30% in the public sector) as the crisis unfolded in 2009. Overall, wages proved to be far from rigid, unlike the situation in most other European countries. The absence of strong trade unions may account for this peculiarity. Lastly, as mentioned earlier, the level of the minimum wage in Lithuania may be an obstacle to relieving the unemployment rate. Many unemployed are discouraged from taking up official jobs at the low wages offered, and prefer to remain on the books as unemployed at the LLE in order to remain eligible for benefits, while gaining some additional income in the shadow market. This is not surprising, as the Lithuanian minimum wage is the third‐lowest of the entire EU, only behind Bulgaria and Romania. 18 The newly installed government coalition has only recently increased this somewhat, from 800 to 1000 litas per month (290 EUR). After taxation, however, only 850 litas remain. At the same time, the EEO writes that in 2012 the ‘realistic minimum living standard (MLS) is around LTL 900 (EUR 261)’ per month.19 This is a very important element for the labour market, as estimates indicate that 20 to 30% of workers are only paid this minimum wage.20

16 T. Davulis, ‘Lithuanian Labour Market and EU Enlargement’, Transition Studies Review, nr. 1 (2006), pp. 21‐22. 17 Interview 9. 18 Eurostat, ‘Database on minimum wages’, http://epp.eurostat.ec.europa.eu/. 19 B. Gruzevskis and I. Blaziene, Work incentives/disincentives in Lithuania, European Employment Observatory, 2012, pp. 1‐ 8. 20 Interview 9. 167

16.5 Policy measures and objectives

Lithuania’s National Reform Programme (NRP) of 2012 observes several labour market concerns that need to be resolved through active policy measures. Those concerns can be summarised into three main categories: a lack of incentives for businesses to create jobs; an unfavourable demographic situation that requires active policies to increase workforce participation for the long‐term, for instance through better youth employment prospects; as well as a clear mismatch of skills demanded by employers and skills held by the unemployed, leaving vacancies unfilled despite high unemployment. The NRP therefore signals four key points concerning the labour market that need to be addressed through national policy21:  improvement of conditions for business, individual work, and new job creation;  increase in labour market participation and employment assistance, particularly to young people;  reduction of the mismatch between demand and supply of skills and competences;  enhancement of the coverage and efficiency of the activities of labour market institutions. Addressing these issues in the immediate future would be important in order to prevent long‐ term unemployment from becoming an insurmountable problem for years to come. The Lithuanian government has already developed policies directed at the labour market since the beginning of the crisis in order to converge to the standards of the European Employment Strategy. A 2012 EEO report discusses the effectiveness of those changes of the labour code. It finds that the Lithuanian government’s first response has, however, focused on sustaining low public deficits and keeping sound public finances. Strict austerity measures have therefore been adopted that cut pensions and reduced the amount of public service employees.22 In other words, sustaining sound public finances actually came at the cost of immediate prospects of the labour market. In 2010 the labour code was adjusted to make work contracts more flexible in many ways, including termination requirements, as well as making overtime constructions easier. Furthermore, it became easier to hire workers on a temporary basis. These changes were directed at the flexibility side of the EES flexicurity approach, and a response to criticism that the Lithuanian labour code is too strict. This fails to take into account, however, the unused possibilities of flexible contracts that can be established through collective agreements. According to the EEO report, moreover, the government of Lithuania has failed to properly provide for the security side of the flexicurity approach, mainly because of lack of resources in light of the focus on austerity of public finances. Initially, workers’ rights were thus lowered in the midst of a very real crisis while hardly any protection was offered in return. Late in 2010 a few policy measures were introduced that for instance aimed at subsidising employment of young workers (in the form of tax credits for employers in such cases), as well as offering some help for young workers in retaining and gaining more skills.23 Overall, however, the scope of active labour market policies effectively geared at the direct eradication of the most pressing problems mentioned above remains limited. In conclusion, Lithuania’s labour market faces serious problems, both in the short‐ and long‐run. Risks of increasing long‐term unemployment levels are high, while persistent high net

21 Government of Lithuania, National Reform Program, 2012, pp. 17‐18 22 B. Gruzevskis, and I. Blaziene, Overview of the labour market situation and employment policy developments in 2009‐ 2011, European Employment Observatory, 2011, p. 8. 23 Ibidem, pp. 10‐11. 168 emigration unfavourably affects demographics. This means public finances will further be strained as the active labour force shrinks and the share of social security recipients increases; a dilemma for a country bound on austerity and limited government spending. Therefore, the EES guidelines that aim at an employment rate of 75% of the total population aged 20‐64; increased job creation and access for young, old, and disabled; establishing lifelong‐learning facilities; and combating poverty, are all still far from being reached in the aftermath of the financial crisis of 2009. Policy should therefore mainly focus on improving the prospects for workers within Lithuania, so that labour can move away from the shadow economy and back into the realm of the real economy, and emigration becomes a less attractive option to those seeking higher real earnings and a better standard of living.

169

170

Section 4: Economic and energy structures

171

Introduction

This section focuses on several seemingly different topics, which however show strikingly many interfaces. The main focuses of this section are the economic sectors and the Lithuanian infrastructural base, which together provide the essential resources for the functioning of the Lithuanian state. An additional important feature in this section is the EU support to Lithuania from structural funds. The whole section is divided in four chapters. The first chapter gives an overview of all economic sectors relevant in Lithuania. In this chapter the most important economic resources of Lithuania will be discussed, including the influence of several events on these, such as Lithuania’s independence, the economic crisis and the accession to the EU. The second chapter will discuss Lithuania’s transportation, energy, and waste and water management networks. These material aspects of the Lithuanian state are essential for its proper functioning as a modern state. The chapter shows that the development of Lithuania’s infrastructure since the 1990s has been predominantly oriented towards building a material and legislative bridge linking the ‘Baltic Island’ with the rest of the EU. The third chapter outlines the Lithuanian environment, focusing mainly on environmental protection and pollution. It is argued that Lithuania’s environmental policies are rather well developed, complying with most EU standards and that Lithuania is among the least polluted countries in the EU. However, not only in these sectors Lithuania has been profiting from EU structural support. Hence, the fourth and final chapter of this section elaborates on the European influence in the Lithuanian sectors described in the previous chapters by giving an overview of structural support received by Lithuania from the EU in the framework of EU cohesion policy. The main targets of this support are improving the economic and social sectors including the accompanying administration. Overall, having read this section, analyses of the preceding sections will be complemented by missing insights concerning the Lithuanian material infrastructure and the process of the structural approximation to the EU.

172

17. Economic sectors

This chapter describes Lithuania’s economic sectors: the main resources of national wealth and employment. In 2012, Lithuania’s services sector accounted for 68.2% of total GDP, while the industry sector accounted for 28.5% and the agricultural sector for 3.3%.1 In that same year, all economic sectors were growing, except for the construction and the transportation sector.2 The first part of this chapter will describe the Lithuanian agriculture, including forestry and fishery, also describing the role of the CAP3 and some other important changes within this sector over time. The second part of the chapter discusses the industrial sector of Lithuania, describing the most important economic resources, such as the production of mineral fuels, oils and distillation products, the production of machinery, vehicles, electronics and high‐tech equipments, and the production of furniture and other wood products.4 The third part will discuss the services sector, after which foreign trade will be briefly analysed, as this is also of great economic importance for Lithuania. A discussion of the energy sector can be found in chapter 18 on infrastructure.

17.1 Agricultural sector

17.1.1 Agriculture The agricultural sector has always been an important sector in Lithuania. Approximately one half (3.5 million ha) of Lithuanian land is used for agricultural purposes. However, 0.9 million ha is abandoned. When entering the EU, agriculture had a relatively inefficiently organised structure, partly because of the previous dominance of the Soviet Union (see chapter 12 on transition).5 After the independency, however, there was a decline in the agricultural production; it decreased from 27.7% of the gross value added in 1990 to 9% in 1995. The main reason for the decrease in productivity was rapid privatisation, caused by a division of agricultural companies. At the same time, financial support was given by the authorities, so that the decrease in production did not lead to a massive loss of employment. In order to be opened up to international competition, the sector was in need of radical forms of restructuring. For example, the product subsidies were to be replaced by direct income support. 6 In this way, Lithuania’s agriculture underwent significant changes during this period. Since the accession of Lithuania to the EU in 2004, the development and structure of the agricultural production has changed. For example, the production of the animal agricultural sector has increased by 8% in 2004, while the production of the plant sector has decreased by 5%. The grape production, on the other hand, has increased by 71% while the flax production decreased by 50% compared to 2003. Both the vegetable and potato production have decreased by 30% since the accession. The production of energy crops, however, is still growing.

1 Central Intelligence Agency (CIA), ‘The World Factbook: Lithuania’, https://www.cia.gov/library/publications/the‐world‐ factbook/fields/2012.html, consulted on 27‐01‐2013. 2 Ministry of Economy of the Republic of Lithuania, ‘Economy review’, http://www.ukmin.lt/en/economy_review, consulted on 10‐05‐2013. 3 The Common Agricultural Policy. 4 International Trade Centre, ‘Trade statistics for international business development’, www.trademap.org, consulted on 27‐01‐2013. 5 CEEC AGRI POLICY, ‘Agro economic policy analysis of the new member states, the candidate states and the countries of the western Balkans: Monitoring of agricultural policy, market and trade development in Lithuania’, http://www.euroqualityfiles.net/cecap/Report%202/CEECAP%20report%202%20section%201.pdf, consulted on 27‐01‐ 2013. 6 European Commission, ‘Advies van de Commissie inzake het verzoek van Litouwen om toetreding tot de Europese Unie’, http://ec.europa.eu/enlargement/archives/pdf/dwn/opinions/lithuania/li‐op_nl.pdf, consulted on 27‐01‐2013. 173

Furthermore, immediately after the accession to the EU, 70% more farms and 30% more agricultural enterprises than before were registered in Lithuania, while the number of rural households decreased.7 This was caused by the fact that a registration was required in order to receive subsidies from the government and the EU. Furthermore, while there was a scarcity of skilled workers, unskilled workers lost their jobs. Overall, the number of people employed in the agricultural sector decreased by more than 2% in 2004, compared to the previous year. Despite these negative consequences there were positive ones too. Firstly, the Lithuanian agricultural producers could operate in a bigger market that was more dynamic and competitive. As a result, more agricultural area was used in a more efficient way. However, the competition with the other EU Member States also led to an increase of the price of land and agricultural products. Moreover, the free movement of capital created better conditions for foreign investments in the sector. At the same time, the speed and effectiveness of the labour market increased due to the free movement of labour.8 Overall, the accession to the EU thus brought positive as well as negative changes. Apart from the aforementioned consequences, the CAP of the EU had significant effects on Lithuanian agriculture. The first pillar of the CAP deals with direct payments. As table 17.1 shows, Lithuania, along with Estonia and Latvia, these days receives the lowest amount of direct payments of all EU Member States.9 The Lithuanian farming sector does receive subsidies from the national budget, but these are only 30 million euro compared to 350 million from the European Union.10 Given the fact that the input prices are higher than the output prices, as can be seen in table 17.2, and that the prices of land, labour and energy are relatively higher than the EU average, these subsidies are crucial.11 Therefore, many farmers advocate for the difference between the average level and the Lithuanian level to be paid from the national reserve. However, because of EU legislation on public finances and subsidies, this is not possible at the moment. Nevertheless, an exemption can possibly be made.12 During a meeting of the EU Council of Ministers for Foreign Affairs on 23 April 2012, the Lithuanain Prime Minister emphasised the importance of the CAP subsidies, responding to the probable reduction of structural funds and the CAP for the Baltic States and Hungary.13 From this perspective therefore, accession to the EU has not had a primarily positive effect for Lithuanian farmers, especially not for the owners of small farms.

7 CEEC AGRI POLICY, ‘Agro economic policy analysis of the new member states, the candidate states and the countries of the western Balkans: Monitoring of agricultural policy, market and trade development in Lithuania’, http://www.euroqualityfiles.net/cecap/Report%202/CEECAP%20report%202%20section%201.pdf, consulted on 27‐01‐ 2013. 8 Ibidem. 9 European Commission, ‘CAP towards 2020 Impact Assessment: Direct Payments’, http://ec.europa.eu/agriculture/rica/pdf/PO0202_direct_payments.pdf, consulted on 10‐05‐2013. 10 Interview 28. 11 Interview 58. 12 Interview 28. 13 ARC2020, ‘Lithuania expresses its critical position on CAP’, http://www.arc2020.eu/front/2012/04/lithuania‐expresses‐ its‐critical‐position‐on‐cap/, consulted on 27‐01‐2013. 174

Table 17.1: Redistribution between Member States and EU

Source: DG AGR

Table 17.2: The evolution of agricultural input and output prices

Source: Eurostat (2012)

Despite this, an argument can be made that Lithuania’s accession to the EU has had some positive sides too, as Lithuania exports many agricultural products such as milk, grain and meat, which is the result of the increased production and efficiency since accession.14 Furthermore,

14 Interview 28. 175 although the number of farmers is constantly decreasing, from the highest number of 250,000 to 170,000 nowadays, both the average size of farms and production levels are increasing.15 As a result of the economic crisis, Lithuania’s agricultural production experienced some difficulties. However, in 2011 the Lithuanian agricultural sector went through a revival. After years of decrease, the consumption of agricultural products increased again and the prices as well as the export increased too. The balance of foreign trade in agricultural and food products was 264 million litas (76.5 million euros) higher in 2011 than in the previous year, up from a total of 1997 million litas (578.8 million euros) in 2010. 2011 was also the first year the balance has been positive since 2004.16 Additionally, several interviewees were positive about the economic outlook for the next few years within the agricultural sector.17 The negative consequences of the crisis on this sector are therefore expected to have been merely temporary.

17.1.2 Forestry Lithuania has a long lasting, important relationship with forest. In 2012, 33.3% of the territory of Lithuania was covered with forest and since the accession to the EU this amount has been increasing by 0.7% each year.18 This is due to artificial afforestation, financially covered by the national budget and state forest enterprise incomes, and since 2004 also from EU rural development money.19 As of today, economic, environmental and social functions are three equally important functions in the sustainable forest management (for more details about forest management see chapter 19 on environment). Important economic functions are the sale of timber and mushrooms and hunting. Lithuania’s furniture industry is also well developed and the country is an important supplier to IKEA.20 In Kazlų Rūda, there are a large number of factories specialised in, for example, primary wood processing, meat products and biofuels.21 There is also a factory that produces medium‐density fibreboard (MDF) for IKEA. The export of furniture comprises about 10% of the total export value of Lithuania. Apart from this, there are forest nurseries and open agricultural land with Christmas trees, for which the demand has been increasing. However, according to legislation, Christmas tree plantations are not to be considered as forestland.22 Overall, along with agriculture, Lithuanian forests generated 3.3% of total GDP in 2012.23

17.1.3 Fishery Fishery is another important economic resource for Lithuania. In the Lithuanian fishery sector approximately 5,900 people are employed. The production of fish accounts for only 0.1% of the total GDP. However, it accounts for around 15% of the total agricultural output and for 7% of the total food export. Most of the fishery activities take place in Klaipeda. The EU supports the fishery sector by providing financial assistance within the Financial Instrument for Fisheries

15 Interview 28. 16 R. Melnikienė, et al., Agricultural and food sector in Lithuania 2011, Vilnius: Lithuanian Institute of Agrarian Economics 2012, p. 4. 17 Interview 28 and 58. 18 Directorate General of State Forests at the Ministry of Environment Republic of Lithuania, ‘Forest resources’, http://www.gmu.lt/forest_resources/, consulted on 04‐05‐2013. 19 Interview 44. 20 Ibidem. 21 Department of Statistics to the Government of the Republic of Lithuania, ‘Kazlų Rūda Municipality’, http://regionai.stat.gov.lt/en/marijampoles_apskritis/kazlu_rudos_savivaldybe.html, consulted on 08‐04‐2013. 22 Interview 44. 23 Central Intelligence Agency (CIA), ‘The World Factbook: Lithuania’, https://www.cia.gov/library/publications/the‐world‐ factbook/fields/2012.html, consulted on 06‐05‐2013. 176

Guidance (FIFG). For the period 2004‐2006, a total amount of over 12 million euro was available to Lithuania, 60% of which was spent on the restructuring of the fishing fleet in order to recover the competitiveness of the Lithuanian fleet. Apart from this support, there is assistance with regard to the modernising of fishing ships.24 Overall, the fishery sector in Lithuania is significant but small.

17.2 Industrial sector

17.2.1 Manufacturing The Lithuanian manufacturing sector has been rapidly growing and nowadays constitutes a major economic resource. The most important activity within the manufacturing industry is the production of machinery, vehicles, electronics and high‐tech equipments.25 Within this production field, the most important products concern applied electronics, such as computers and computer elements, as well as refrigerators, freezers. The car industry is also present in Lithuania, mainly in a form of the production of specific equipments and components.26 Concerning high technologies, laser technology is of great importance for Lithuania. The country is one of the global leaders in this technology, with a share of 80% of the world production of high‐energy pico‐second lasers as well as ultra‐fast parametric light generators.27 This industry is growing by 20% per year and 86% of the domestic production is being exported.28 Most of the companies that are active in this sector were established between 1985 and 1995 and the Vilnius University and the Institute of Physics are responsible for the related scientific research.29 Furthermore, a great ratio of manufacturing is the production of plastics and fertilisers. In addition, large amounts of valves are being produced. An example is RGE Baltic, a factory in Šiauliai, which produces high quality injection moulding for Europe and Scandinavia.30 An important producer of fertilisers is Achema, situated in Jonava, which is a large factory specialised in nitrogen fertilisers and chemical products.31 Lastly, as mentioned in the paragraph about forestry, furniture accounts for a large part of the manufacturing production as well.

17.2.2 Mineral fuels, oils and distillation products The production of mineral fuels, oils and distillation products is the greatest source of national wealth coming from the industrial sector.32 Within this first production field, the production of cokes and petroleum is considered to be the most important.33 The largest factory is ORLEN, which is situated in Mažeikiai and is the only refining company in the Baltic States.34 In 2011, the factory was closed for maintenance for five weeks, which led to a substantial decrease of Lithuania’s industrial output. However, the production of refined petroleum reached an annual

24 European Commission, ‘Fisheries Lithuania’, http://ec.europa.eu/fisheries/enlargement/info_lithuania_nl.pdf, consulted on 28‐01‐2013. 25 Statistics Lithuania, ‘Official Statistics Portal’, http://osp.stat.gov.lt/en/web/guest/home, consulted on 27‐01‐12013. 26 Interview 30. 27 The majority of the lasers is used for cutting metal sheets. 28 Enterprise Europe Network London, ‘Country Profile Lithuania’, http://www.londonchamber.co.uk/docimages/7016.pdf, consulted on 27‐01‐2013. 29 A. Kirvelis, ‘Laser industry makes Lithuania exceptional in the world’, http://www.madeinlithuania.lt/Technologies‐ straipsnis259‐Laser_industry_makes_Lithuania_exceptional_in_the_world, consulted on 27‐01‐2013. 30 RGE Group, ‘Lithuania: Plastic Injection Moulding Facility’, www.rgegroup.com/lithuania.html, consulted on 09‐05‐2013. 31 Achema, ‘About AB “Achema”’, www.achema.com, consulted on 08‐05‐2013. 32 Interview 30. 33 Ibidem. 34 ORLEN Lietuva, ‘Company’, www.orlenlietuva.lt/en/main/company, consulted on 08‐05‐2013. 177 growth of 28.8% in the second half of 2012.35 As figures 17.1 and 17.2 reveal, a great amount of oil products is imported from Russia only to be exported again. Overall, mineral fuels, oils and distillation products constitute a large share of the Lithuania’s total industrial output and are expected to continue to do so in the foreseeable future.

17.2.3 Construction Construction also constitutes a large share of the Lithuanian economy. Its share is, however, decreasing. Before the economic crisis, construction accounted for 10% of total GDP, while employers within the construction sector accounted for 11% of the total number of employees; by contrast, the EU average is around 7%. The main reason for this was the positive business environment, the high demand and the cheap credit during the boom years (see chapter 14 on economic crisis). Furthermore, it stimulated economic growth, as old constructions needed to be replaced, while wages were rising, and loans were cheap and on good terms, even for people who had insufficient unsustainable income. Since the economic crisis took hold, the outlook has changed, but remains positive in terms of productivity growth, as this is now higher than before the crisis.36 In sum, the trends for construction concerning productivity can be considered to be positive, while its contribution to total GDP is decreasing.

17.3 Services sector

17.3.1 Information and communication technology The services sector is the largest sector in Lithuania. Within this sector the information and communication technology is the fastest growing.37 As mentioned earlier in this report, Lithuania has one of the world’s fastest broadband connections. Moreover, the mobile communication framework is well developed. However, as emphasised by some interviewees, overall ICT should be better. Furthermore, Research and Development has increased and is expected to continue to increase, making the use of ICT absolutely indispensable.38 Consequently, the National Reform Programme of 2012 expresses the need to ensure the optimal use of social and economic opportunities through ICT and Internet. Therefore, measures include, for example, promoting the development of e‐business, guaranteeing the geographical development of the broadband network infrastructure in the whole country, and promoting e‐ communication services.39 Moreover, the programme emphasises the importance of Research and Development for a strong competitive position within the global market. The expenditure in Research and Development, therefore, has to increase and should reach 1.9% of total GDP in 2020, compared to 0.84% in 2009.40

17.3.2 Transport and logistics The transportation sector is of great importance for the Lithuanian economy, mainly due to the country’s strategic location, but also due to the relatively low prices, the high quality standards and the modern technologies for stock records. Lithuania is considered to be one of the most

35 Swedbank’s Economic Research Department, ‘The Lithuanian Economy’, http://www.swedbank‐ research.com/english/lithuanian_economy/2013/mars/swb_ltmonthly_mar2013.pdf, consulted on 08‐05‐2013. 36 Interview 30. 37 Trading economics, ‘Lithuania GDP Growth Rate’, http://www.tradingeconomics.com/lithuania/gdp‐growth, consulted on 10‐05‐2013. 38 Interview 30. 39 Republic of Lithuania, ‘Lithuania: National Reform Programme’, 2012, http://ec.europa.eu/europe2020/pdf/nd/nrp2012_lithuania_en.pdf, consulted on 10‐05‐2013. 40 Ibidem, p. 24. 178 important transport hubs in Europe.41 The country has an advantage compared to the other Baltic countries, mainly consisting of the ice‐free seaport of Klaipeda and well developed train connections crossing the EU external border. As a consequence, Lithuania transports large amounts of cargo coming from Russia and Belarus to Lithuania. Moreover, much cargo is transported to Poland and further. International infrastructural enhancements between Lithuania and Poland should facilitate even more cargo transportation, improving the already large share of total GDP transportation constituted in 2012 (10%).42 In the National Reform Programme of 2012, the need for development of economic infrastructure, such as the improvement of the transport infrastructure, is emphasised too (see chapter 18 on infrastructure).43 In comparison with the previous year, the total export of transport increased from 13,726 million litas to 16,579 million litas in 2011. In that same year, more than 4,500 companies were active and more than 72,000 people were employed in this sector.44 In 2012, however, growth of the transportation sector stagnated. This may be caused by the economic malaise in the EU (see chapter 14 on economic crisis) as well as by the maintenance of the important oil refinery in Mažeikiai. Overall, however, the transportation sector is expected to keep growing.

17.3.3 Tourism The Lithuanian tourism sector is a rather small economic sector but has been growing fast. In 2010 it accounted for 2.8% of total GDP and it is hoped to account for 10% of the total value of goods and services exports by 2015. The tourism sector offered jobs to 41,800 people in 2012, which is 4.4% of the total jobs in Lithuania. The development of this sector is financed through an annual budget from the state and several structural funds from the European Union. The national annual budget is now 5.1 million litas and the structural budget for the period 2007‐ 2013 is 240 million euro. For the period 2010‐2013, the National Tourism Development Programme was established, in order to create a competitive tourism industry and thus attract more tourists. In this program the emphasis lies on the cooperation between the tourism industry and the government.45 As such, the Lithuanian tourism sector could be of great economic importance in the future.

17.4 Foreign trade

Lithuania has a relatively small domestic market. Consequently, it is dependent on a large amount of trade with foreign countries. From the 1980s until 1991, Lithuania’s domestic market grew rapidly, which caused a decrease of the total imports from 61% of total GDP in 1981 to 23% of total GDP in 1991. In 1993, around 75% of the total exports went to Estonia and Latvia and other former Soviet Union countries. From then on, however, the majority of exports shifted to the rest of the world and more exports went to Western countries.46 As also mentioned in the

41 Enterprise Lithuania, ‘Transport and Logistics’, http://www.enterpriselithuania.com/en/sectors/transport‐logistics/, consulted on 25‐01‐2013. 42 Interview 56. 43 Republic of Lithuania, ‘Lithuania: National Reform Programme’, 2012, http://ec.europa.eu/europe2020/pdf/nd/nrp2012_lithuania_en.pdf, consulted on 10‐05‐2013. 44 Enterprise Lithuania, ‘Transport and Logistics’, http://www.enterpriselithuania.com/en/sectors/transport‐logistics/, consulted on 25‐01‐2013. 45 OECD, ‘Lithuania, in OECD Tourism Trends and Policies 2012’, http://www.oecd‐ilibrary.org/industry‐and‐services/oecd‐ tourism‐trends‐and‐policies‐2012/lithuania_tour‐2012‐52‐en, consulted on 25‐01‐2013. 46 Mongabay, ‘Lithuania: Economy’, http://www.mongabay.com/reference/country_studies/lithuania/ECONOMY.html, consulted on 14‐01‐2013. 179 chapter on Transition, this is mainly due to the Free Trade Agreement between Lithuania and the EU that came into force in1995.47 Nonetheless, according to some statistics, in the period of January to November 2012, the country that traded most with Lithuania was still Russia. However, Lithuania trades most with the EU as a whole. The biggest recipients of Lithuanian exports are Estonia, Latvia and Germany, followed by Poland, the UK and the Netherlands.48 Most of the imports meanwhile come from Germany, Poland and Latvia, followed by the Netherlands, Sweden and .49 Clearly, Lithuania has become more oriented towards the Western European markets. In 2012, the total amount of exports increased by 14.5% compared to the year before. It is said that this amount could have been higher, as the major oil refinery, in Mažeikiai, was down for maintenance for five weeks.50 As a share of total amount of exports, capital goods constitute 10.5%, intermediate goods 52.7%, consumption goods 26%, motor spirits 8%, passenger motor cars 2.4% and other products 0.4%. The total amount of imports can be divided into 11.5% capital goods, 65.1% intermediate goods, 20% consumption goods, 0.1% motor spirits, 3.2% passenger motor cars and 0.1% other products.51 The number of intermediate goods imports is increasing, which can be related to the growth of the manufacturing industry, since intermediate goods are producer goods that can be processed within this industry. This was also confirmed by several interviewees.52 Figure 17.1 and 17.2 below show the most important export and import products respectively of Lithuania.53 As can be noticed, both the production of mineral fuels, oils and distillation products and the production of machinery, vehicles, electronics and high‐tech equipments constitute the largest share. Overall, more products are imported than exported by Lithuania, leading to a negative trade balance.54 Consequently, according to some interviewees, Lithuania will remain focusing on exports in the future, by considering it to be a long‐term goal for achieving real economic growth.55 Figure 17.1: Lithuania’s export 2012

21% 0Mineral fuels, oils, distillation products, etc.

35% 8Machinery, vehices, electronics and high‐tech equipments 16% Transportaon

)Furniture and other articles 4% 8% 7% made of wood 4% 5% 100%=26.531.767

Source: www.trademap.org (2012)

47 Mongabay, ‘Lithuania: Economic Reforms’, http://www.mongabay.com/history/lithuania/lithuania‐ economic_reforms.html, consulted on 08‐05‐2013. 48 The great amount of export to the Netherlands may be caused by the fact that the harbour of Rotterdam is a large hub. 49 International Trade Centre, ‘Trade statistics for international business development’, www.trademap.org, consulted on 27‐01‐2013. 50 Ministry of Economy of the Republic of Lithuania, ‘Economy review’, http://www.ukmin.lt/en/economy_review, consulted on 10‐05‐2013. 51 Statistics Lithuania, ‘Official Statistics Portal’, http://osp.stat.gov.lt/en/web/guest/home, consulted on 27‐01‐12013. 52 Interview 30. 53 International Trade Centre, ‘Trade statistics for international business development’, www.trademap.org, consulted on 27‐01‐2013. 54 Statistics Lithuania, ‘Official Statistics Portal’, http://osp.stat.gov.lt/en/web/guest/home, consulted on 27‐01‐12013. 55 Interview 30. 180

Figure 17.2: Lithuania’s import 2012

Mineral fuels, oils, distillation products 29% Vehicles, machinery, 24% electronics etc. Chemicals, plastics, 2% pharma, fertilisers etc. Food 3% 3% 18% Transportation 6% 9% Iron, steel and articles 6% thereof 100%=27.808.592 EUR Source: www.trademap.org (2012) 17.5 Conclusion

This chapter has revealed the fact that the Lithuanian agricultural sector is important to the country. However, it is also facing some problems. Firstly, these problems are caused by the relatively low EU subsidies and the related impossibility to increase national subsidies. Secondly, another cause for concern is the considerable input prices, which are increasingly higher than the output prices. In order to cope with this problem, the enlargement of agricultural subsidies is crucial. Although the share of agriculture of total GDP is only 3.3%, it still is an important sector for Lithuania in terms of employment. Despite the decrease of this share since the 1990s, it is important to note that the nominal amount is not decreasing as fast, as the agricultural share of the GDP has also diminished because the services sector has increased very rapidly at the same time. As mentioned earlier, almost all of the Lithuanian economic sectors were growing in 2012.56 Within the industrial sector the production of petroleum is of the greatest importance, while within the services sector the information and communication technology is rapidly growing, partly as a result of the fast broadband connection in the country. The services sector has the largest share of total GDP and the country is increasingly producing more sophisticated products. Consequently, it can be said that Lithuania is currently a to a large extent knowledge‐ based economy. For the future, the country plans to increasingly focus on the services sector, as stipulated in the National Reform Programme of 2012, since the Lithuanian prices of energy and raw materials are high and expected to continue to rise.57 As Lithuania neither has many national resources, nor a large domestic market, export is of great economic importance. As a consequence, transport is an important factor in the Lithuanian economy, contributing to the aforementioned future focus on exports as a long‐term goal.58 In order to stimulate export markets, the rise of wages and costs may need to be curtailed. The question that remains, however, is whether this will not have negative consequences on the business cycle, as most export markets are currently going through an economic slump themselves and demand may stagnate. On the other hand, it seems to be the most effective measure to reach growth at the moment, since Lithuania has relatively few inhabitants and thus only a small domestic market. A growing number of exports will, in turn, lead to the growth of the entire economy and stimulate employment.

56 Ministry of Economy of the Republic of Lithuania, ‘Economy review’, http://www.ukmin.lt/en/economy_review, consulted on 10‐05‐2013. 57 Republic of Lithuania, ‘Lithuania: National Reform Programme’, 2012, http://ec.europa.eu/europe2020/pdf/nd/nrp2012_lithuania_en.pdf, consulted on 10‐05‐2013. 58 Ibidem. 181

18. Infrastructure

Infrastructure comprises all facilities which enable proper functioning of the society. Crucially, the extent to which infrastructure is developed often conditions the level of economic activity and determines the composition of economic sectors. Therefore, this section focuses on most areas of so‐called hard infrastructure, i.e. transport infrastructure (road network, railway network, navigation and air transportation, mass transit), energy infrastructure, waste management and water management, all of which are considered in the EU context. According to many1, Lithuania’s position is strategically very advantageous. Lithuania has a common border with two EU Member States (Latvia and Poland) and two non‐EU countries (Russia and Belarus, one of which is a global superpower) and has access to the sea in an ice‐free zone. Further, Lithuania has come to be the most frequently used transit route between the Russian Federation and its Kaliningrad region exclave. This provides Lithuania with economic benefits and a potential political tool vis‐à‐vis Russia, which is however, not utilised yet. Furthermore, Klaipėda has been continuously developing as a major seaport of regional and international importance. However, deficient infrastructural interconnectedness and high dependencies do not allow Lithuania to optimally exploit this geopolitical location.2 Furthermore, there are some common features characterising Lithuanian infrastructure. Firstly, it is important to realise that most Lithuanian infrastructural networks are better integrated in the former USSR‐framework than in the European/EU infrastructural systems and the Internal Market. Lithuania’s infrastructural interconnectivity with Poland and Scandinavian countries is strikingly insufficient and in some cases even lacking, evident in particular in the railway and energy networks. Secondly, Lithuanian infrastructure is considerably deteriorated and, in some cases, underdeveloped or even non‐existent. Both of the features are perceived as largely limiting Lithuania’s competitiveness and economic growth. Hence, infrastructural enhancements are of crucial importance to Lithuania. After the country’s accession to the EU in 2004, many projects aiming at reconstruction, modernisation and enhancements of interconnectivity with other EU Member States have been realised, a majority of which has been co‐financed by various EU funds. The ultimate plan is to fully integrate all Baltic countries into the rest of the EU infrastructural networks and the Internal Market.

18.1 Transportation infrastructure

18.1.1 Road network There are 71.000 km roads in Lithuania, 61% of which is asphalted or paved by concrete panels. The largest Lithuanian cities are connected by 417 km highways or expressways. The most important roads are A1 and A2. The expressway A1 (E85) links Kaunas and Vilnius and is planned to be extended to Klaipėda. The highway A2 (E272) enables fast connection between Vilnius and Panevéžys and further to Klaipėda. Furthermore, Lithuania is connected to the European E‐roads system by six E‐roads, three of which are of a great international importance:

1 President of the Republic of Lithuania. ‘Economics, Strategic geographic position’, http://www.president.lt/en/lithuania/economics.html, consulted on 15‐2‐2013. 2 Interview 56. 182

Figure 18.9: E‐Route system in Lithuania  E85, connecting Klaipėda with Greek‐ Turkish continental border, through Vilnius and Bucharest  E77, connecting Russian Pskov with Budapest, through Riga, Šiauliai, Kaliningrad and Cracow  E67 (Via Baltica) connecting Tallinn (Helsinki) with Prague, through Warsaw, Kaunas, Panevéžys and Riga. Via Baltica has been financed prevalently by EU funds. The road network is very important to the Lithuanian economy since about half of all freight in the country is transported by road vehicles and transportation (see chapter 17 on economic sectors).3 Therefore, the main network of main roads in Lithuania has been reconstructed and modernised. Road traffic signs are harmonised with the German/EU model. Improvements of the road situations are broadly supported by EU funds. Figure 2 reveals the extent to which the Source: Google Maps, author Lithuanian road network has been reconstructed and enhanced, partially in the framework of the EU Cohesion Policy. However, there are still several problems concerning the Lithuanian road network. Firstly, recurrent season temperature fluctuations cause road surface deterioration, necessitating constant investments. Secondly, the overall road network density is rather low and its quality is often deficient. Consequently, thirdly, Lithuanian roads remain one of the Table 18.1: Freight transportation in Lithuania most dangerous ones in Europe according to Freight Transportation (mil t) the ratio of fatal accidents compared to 2006 2007 2008 2009 2010 2011 other countries, despite some recent improvements. Finally, international Road 56 62,1 59,4 44,7 44,7 46 interconnections, especially with Poland, do Railway 50,2 53,5 55 42,7 48,1 52,3 not comply with actual needs of Lithuania’s Source: Litrail transportation sector and a Polish commitment to significantly improve this situation is not always convincing because of Poland’s other funding and investment prioritising.4

18.1.2 Railway network In 2011, there was 2184 km of functional railway tracks in Lithuania. An absolute majority of the tracks is not electrified and it is built in accordance to the Russian gauge model: 1520 m. Only the track between Vilnius and Kaunas (122km) is electrified. Furthermore, it is important to add that the majority of Lithuanian tracks are single‐track lines. The catenary system is 25kV/50Hz AC (alternating current). However, such railway network characteristics do not fully coincide with those in three of its neighbouring countries:

3 Litrail, ‘Basic technical data about the railway network’, http://www.litrail.lt, consulted on 15‐2‐2013. 4 Interview 56. 183

 Latvia and Russia (Kaliningrad Oblast) do share the with Lithuania but it is electrified by 3kV DC (direct current). This incompatibility does not, however, cause any problems because there is no electrified track connection between these two countries. However, it might cause difficulties in the future.  The Polish railway system significantly differs from the Lithuanian track system. Firstly, the Polish catenary system is 3kV DC (identical to the Russian and Latvian system). However, again, there is no electrified railway track to Poland. Secondly, and much more importantly, Poland has the Stephenson model of track gauge (1435 mm). Consequently, all train services between Lithuania and Poland must be interrupted in Šeštokai, in order to change a train or to adjust the wheel width of each of the railway car. This infrastructural complication considerably impedes international cargo transportation.  Only the Belarusian track system fully matches with the Lithuanian one in terms of catenary voltage and track gauge. However, because of the EU border between these two countries, lengthy customs checks often decelerate the interstate traffic flows. Lithuania is connected by three lines to Latvia, two lines to Russia (Kaliningrad), two lines to Belarus and only one single‐track line to Poland.

Table 18.2: Railway track network in Lithuania Track (km) Year 2006 2007 2008 2009 2010 2011 Operating track length 1771,2 1766,3 1765,4 1765,4 1767,6 1767,6 1520 mm gauge 1749,4 1.744,50 1743,6 1745,8 1745,8 1745,8 1435 mm (standard) gauge 21,8 21,8 21,8 21,8 21,8 21,8 Electrified track length (1520 mm) 122 122 122 122 122 122 double-track lines 117 117 117 117 117 117 single-track lines 5 5 5 5 5 5 Total length of main lines 2187,4 2180,3 2179,6 2182,3 2184,1 2184 1520 mm gauge 2165,3 2158,2 2.157,50 2160,2 2162,2 2162,1 1435 mm gauge 22,1 22,1 22,1 22,1 22,9 22,9 Source: Litrail

The Russian gauge in Lithuania can be considered both as an advantage and disadvantage. On the one hand, it provides Lithuania with relatively easy interconnections with Belarus and Russia, which generates Lithuania large economic benefits. On the other hand, it isolates the country from the rest of the EU. The network serves both passenger and cargo transportation. Litrail is the only Lithuanian railway transportation operator, also managing railway infrastructure.

18.1.2.1 Passengers transport In 2012, Lithuania transported 4.8 mil passengers. Litrail procures passenger lines between the largest cities of the country. The line between Klaipėda, Šiauliai, Kaunas and Vilnius is the most dense one. Approximately 80% of the passengers were transported locally and 20% internationally. There are four international services from  Vilnius to Moscow, served by Litrail;  Vilnius to Saint Petersburg via , served by Litrail;

184

 Kaunas to Warsaw via Šeštokai, served by Litrail to Šeštokai and by Polish Railways subsequently. There is a cross‐platform change in Šeštokai;  Vilnius to Minsk served by Belarusian Railways.5 There is no direct train connection between Vilnius/Kaunas and Riga (Latvia)/Talinn (Estonia).

18.1.2.2 Cargo transport There are four main functional container train services in Lithuania:  Viking train service enables freight transport from the Baltic to the Black Sea: Klaipėda‐ Minsk‐Kiev‐ Ilyichevsk/Odessa (Ukraine).  Saule service crosses Lithuania on its journey from Chongqing (China) to Antwerp (Belgium) via Vilnius, Kaunas and Šeštokai  Vilnius Shuttle frequently links Vilnius and Klaipėda  Merkurijus project assist the freight transportation from Moscow to either Kaliningrad or Klaipėda. Its remarkableness is, inter alia, extraordinarily fast customs procedure on the EU’s external border with Belarus (approximately 30 minutes).6 Next to truck services, Figure 18.2: Freight Transportation 2011‐2012 Lithuania’s cargo trains play a significant role in Lithuania’s cargo transportation. Throughout 2012, 49.3 mil tonnes freight were transported. About 30% of cargo is transported locally and 70% internationally, which makes cargo train services an important facilitator of Lithuania’s international trade. Most freight consists of crude oil and oil Source: Litrail products (36%), and chemicals and fertilisers (25%).7 The volume of freight transported by train has been slightly increasing from Lithuania’s accession to the EU in 2004 on.

18.1.2.3 Current projects There are three main reasons why the Lithuanian railway system needs to be modernised and enhanced. Firstly, the tracks system has been aging, in particular due to insufficient past investments. Consequently, it is lacking in competitiveness with respect to road transportation. Secondly, within the European integration, the Lithuanian railway system must be adjusted to the EU standards, since the Lithuanian railway network, in comparison to other Member States, is underdeveloped in that matter.8 Some of the EU projects being realised or planned in Lithuania are:  Modernisation of telecommunication systems in the railway route crossing the State Border. EU Cohesion Funds’ contribution to this project is 60%.

5 Europe Train Guide, ‘Lithuania’, http://europetrainsguide.com/Countries/Lithuania/Lithuania‐LG.html consulted on 15‐2‐ 2013. 6 Litrail, ‘Container Transportation’, http://www.litrail.lt, consulted on 15‐2‐2013. 7 Litrail, ‘Passangers Transportation Data, December 2012’, http://www.litrail.lt, consulted on 15‐2‐2013; Litrail, ‘Freight Transportation Data, December 2012’, http://www.litrail.lt, consulted on 15‐2‐2013. 8 Litrail, ‘Pursued Projects’, http://www.litrail.lt, consulted on 15‐2‐2013. 185

 Modernisation of Lithuanian Railway Wireless Communication with the help of GSM‐R implementation. About 85% of the costs are covered by the EU Cohesion Funds.  Renovation of the Kaunas Railway Tunnel (built in 1862). The EU contributed with €50 milout of 80 mil.9  Extension of interconnections to Belarus in order to boost international transportation between Russia, Belarus and Lithuania. So far, the project is in a stadium of discussions and dialogues.10

18.1.2.4 Rail Baltica Currently, most freight transportation by train with other Member States happens through Figure 18.3: the Rail Baltica project Russian Kaliningrad exclave and Belarusian Minsk. The capacities and convenience of these connections appear to be, however, insufficient, especially in terms different operating systems (track electrification and gauge). Rail Baltica, as a comprehensive reconstruction of the existing railway tracks and construction of new lines between Germany and Estonia (Finland), should enable a regular train service from Berlin to Tallinn (Helsinki) through Warsaw, Białystok, Kaunas and Riga. Consequently, this project should significantly increase Lithuania’s transport interconnectedness with other Member States and contribute to Lithuania’s competitiveness and economic growth. The original plan was initiated by Lithuania and contained building a new break‐of‐gauge station Source: Rail‐Baltica.com in Kaunas. This was deemed to constitute a transition between the standard and Russian gauge types, such as the present one in Šeštokai. However, according to the most recent plans, the whole track of Rail Baltica is going to be constructed in the Stephenson/standard gauge. An interviewee added that this project revision resulted from an increased commitment of Latvia and Estonia to the project. Possibly this change of attitude might have been entailed by the eruption of Icelandic volcano Eyjafjallajökull in 2010 and subsequent disruptions in aerial transportation in whole Europe. Then, Estonia and Latvia were connected with Europe only by sea navigation and road transportation, whose capacities proved to be rather limited. Moreover, since the maximum speed of the whole track will not exceed 240 kmph, Rail Baltica will be able to provide the region with both passenger and cargo well‐furnished and sustainable transportation links. If the maximum speed was planned to be higher than 240kmp, only passenger high‐speed trains would be allowed to use the track. Hence, Rail Baltica is considered as a major project facilitating the economic integration of the Baltic ‘island’ into the

9 Litrail, ‘The History of the Kaunas Tunnel’, http://www.litrail.lt, consulted on 15‐2‐2013. 10 Interview 56. 186

EU infrastructural framework and the Internal Market. Even, it has become one of the EU’s priority projects within the TEN‐T framework.11 It is important to emphasise that Rail Baltica in Baltic countries is still in a stadium of feasibility studies and minor re‐construction works. Construction works outside Poland have not been initiated yet and major construction works in Lithuania are expected from 2018 on. Overall project costs are estimated on €1.5‐2.4 billion. Thanks to Rail Baltica’s place on a list of EU priority projects, EU Structural Funds will become the most important source of finances for this project. In the long term, Rail Baltica might become a component of a large plan to connect Berlin and St. Petersburg by standard gauge high speed trains. However, these plans can now be regarded only as a possible side‐effect because the foremost purpose of Rail Baltica remains the physical integration of the Baltic region into the EU.12

18.1.3 Navigation

18.1.3.1 Sea navigation Lithuania has access to the Baltic Sea, whereby it can profit from sea trade and ferry traffic. The largest haven of Lithuania is located in Klaipėda, at the very influx of the Curonian Lagoon to the Baltic Sea. It is a major ice‐free cargo and passenger seaport. The port of Klaipėda is a crucial infrastructural unit of Lithuania. A large ratio of Lithuanian economy is somehow related to the port. Next, Klaipėda is also used as an export port for Russian products.13 As far as passenger transport is regarded, regular ferry lines for passengers, cars and cargo are: from Klaipėda to Kiel (Germany), Sassnitz (Germany) and Karlshamm (Sweden).14 In addition, cruise ships arrive to Klaipėda too, although with no firm regular schedule. Overall, Klaipėda was visited in 2010 by 320.991 passengers, most of whom were tourists. The gradual increase of international passengers can be explained by Lithuania’s accession to the EU, signing of Schengen Agreement and subsequent rise of tourism and migration. Concerning cargo, Klaipėda is equipped with a container terminal. Throughout 1999– 2011, the cargo turnover in Klaipėda Port has increased more than twice: from 15 million tons to 36.6 million tons of cargo respectively. The annual capacity of Klaipėda Port amounts to over 52 million tons, therefore it is presumed that, the port capacity will be entirely exhausted by 2017 due to the growth of cargo throughput. Extension and capacity enhancements are therefore necessary to ensure a proper functioning of the seaport. According to an interviewee, there have been plans to significantly extend and deepen the port of Klaipėda to become suitable for ships with larger load capacity. However, because the local community does not support the plan, the project could be transformed into the extension of the port of Būtingė near the Latvian borders, where the Lithuanian oil terminal is located. Yet, reaching Latvian consent might complicate these plans.15

11 Rail Baltica, ‘Site with information about Rail Baltica’, http://www.rail‐baltica.com/pub/, consulted on 15‐2‐2013; Rail Baltica Growth Corridor, ‘Brochure 2012’, http://www.rbgc.eu/media/visuals/iso/info/downloads /rbgc_brochure_2012.pdf, consulted on 15‐2‐2013; Interview 56; European Commission: European Transport Network Executive Agency, ‘Priority Project 27’, http://tentea.ec.europa.eu/en/tent_projects/30_priority_projects/priority_project_27/, consulted on 27‐5‐2013. 12 Rail Baltica, ‘Site with information about Rail Baltica’, http://www.rail‐baltica.com/pub/ consulted on 15‐2‐2013; Rail Baltica Growth Corridor, ‘Brochure 2012’, http://www.rbgc.eu/media/visuals/iso/info/downloads/rbgc_brochure_ 2012.pdf, consulted on 15‐2‐2013; Interview 56. 13 Interview 56. 14 Klaipeda Info, ‘Arrival to Klaipeda’, http://www.Klaipedainfo.lt/en/index.php?page=9&sub=59, consulted on 15‐2‐2013. 15 Interview 56. 187

18.1.3.2 Reconstruction of Port of Klaipėda Even though the haven has not reached its highest possible potential yet, it is becoming limited by its state of advanced deterioration and insufficient capacity. Reconstruction works and builing new facilities are therefore crucial to the future functioning of the seaport. Some of them have already been realised whereas others are in a projection phase. Most of the projects have been co‐financed by the EU funds, in particular by EU INTERREG III B funds. Antwerp Cargo  As a part of Klaipėda Passenger and Cargo Ghent Cargo Denmark Aarhus Cargo Terminal, superstructure objects will be Copenhagen Cargo developed: passenger service and office Esbjerg Cargo buildings, check points, covered gallery (for Frederica Cargo Estonia Muuga Cargo passengers to go on ships), parking site for Talinn Cargo automobiles, cargo storage areas and general Finland Helsinki Cargo cargo warehouses. Pori Cargo Rauma Cargo  As a part of Klaipėda Passenger and Cargo Germany Bremerhaven Cargo Terminal, construction of quays with a pier and Hamburg Cargo Kiel Cargo, ferry development of two regulated ramps are Sassnitz Cargo, ferry planned. Latvia Riga Cargo  Surrounding streets and buildings of the Poland Gdansk Cargo Gdynia Cargo seaport should be reconstructed and so more Szczecin Cargo efficiently utilised. Russia Kaliningrad Cargo St. Petersburg Cargo  A new LNG (Liquefied Natural Gas) station is Sweden Gävle Cargo being built in Port of Klaipėda. It should be put Karlshamm Cargo, ferry into operation by 2015 (see below: Energy Norrköping Cargo Södertälje Cargo 16 infrastructure). The NL Rotterdam Cargo  As mentioned above, there are also some UK Hull Cargo plans to extend and deepen the seaport in order Immingham Cargo Teesport Cargo to facilitate larger cargo ships transportation. Sheerness Cargo However, such a project is not supported by the Table 18.3: Shipping lines from Klaipėda local community. Source: Port of Klaipeda

18.1.3.3 Inland navigation Lithuania has 930.8 km inland waterways, of which 827.8 km of national significance. Most such waterways are not navigated at all or during the whole year. Only 204 km of the River Nemunas from the Curonian Lagoon to Kaunas is navigated throughout the whole year. However, the traffic density on the Nemunas River is rather low because of too shallow riverbed, overall deterioration, lacking technology (e.g. in transport of fertilisers) and non‐existent ship reloading infrastructure in the Port of Klaipėda. The only regular inland ship traffic is gravel transportation from Jubarkas. Some argue that investment necessary to revive the Klaipėda‐ Kaunas route cannot be compensated by possible economic returns, which discourages potential investors. Consequently, the port of Kaunas has lost its importance. However, a new river port in Marvele nearby Kaunas is being projected. EU financial support will be necessary to implement these plans.17

16 Port of Klaipėda, ‘Klaipėda Passenger and Cargo Terminal’, http://www.portofKlaipeda.lt/Klaipėda‐passenger‐and‐cargo‐ terminal, consulted on 15‐2‐2013; Port of Kleipeda, ‘LNG Terminal Project’, http://www.portofKlaipeda.lt/uploads/projects/LNG%20broshiura%20EN.pdf, consulted on 24‐3‐2013. 17 Inland Water Authority of Lithuania, ‘About’ http://www.liwa.lt/lt/menu/about, consulted on 15‐2‐2013; Interview 56. 188

18.1.4 Air Transport

The air transport sector has been recently booming. The rapid increase of the number of international passengers has been mostly enabled by Lithuania’s EU membership and the signing of Schengen Agreement and subsequent rise of tourism and migration. There are four major airports in Lithuania:  Vilnius Airport is the largest, busiest and most important international civil airport of Lithuania. Recently, it has been reconstructed and extended by a new terminal for Schengen‐only flights. This project was mainly financed by the EU funds. The number of passengers has considerably increased from 1.7 mil in 2007 to 2.2 mil in 2012.18  Kaunas Airport is the second largest and busiest international civil airport of Lithuania. It is also a minor cargo airport. Since 2004 the number of passengers has been increasing enormously from 27 thousand in 2004 to 872 thousand in 2012. Ryanair is the main operator of Kaunas Airport.19  Palanga airport is the third largest international civil airport of Lithuania. It is a rather small, regionally oriented airport with 111 thousand passengers in 2011. It is located close to Klaipėda.20  Šiauliai airport, as an international airport, was established in 1994. At present, its main purpose is military. However, the airport has a cargo and civil function too, although very limitedly.21

18.1.5 Mass Transit Concerning mass transit in Lithuania, there is a well‐functioning network of train and bus links over the whole country. Since the Lithuanian railway network is not very dense, bus transportation is more significant in Lithuania. Urban mass transit systems of Vilnius and Kaunas are complemented by trolleybus services. Other larger cities, such as Šiauliai, Klaipėda and Panevéžys are equipped with bus city transit systems only.22 Compared to the EU27 average of 2010, Lithuanians prefer commuting by public transport more (29.9%) and by car less (48.5%), than the rest of the EU (EU average). In addition, Lithuanians consider their national mass transit system as rather convenient, reliable and sufficiently frequent. However, according to them, combining different methods of transportation is perceived as rather inconvenient, because of lacking infrastructure.23 The whole mass transport sector is reconstructed and modernised, partially thanks to the EU funds. For example, new railway vehicle fleet on a track between Vilnius and Kaunas has been recently introduced.

18 Vilnius Airport, ‘Facts and Figures’, http://www.vilnius‐airport.lt/en/airport/facts‐figures/, consulted on 15‐2‐2013. 19 Kaunas Airport, ‘Statistics’, http://www.kaunas‐airport.lt/index.php?lang=en&page=statistics, consulted on 15‐2‐2013. 20 Palanga Airport, ‘Traffic report 2011’, http://www.palanga‐airport.lt/index.php?id=577, consulted on 15‐2‐2013. 21 Šiauliai Airport, ‘About’, http://www.siauliai‐airport.com/en/airport, consulted on 15‐2‐2013. 22 Vilnius Public Transport, ‘Carriers’, http://www.vilniustransport.lt/en/pages/carriers, consulted on 15‐2‐2013; Kaunas Public Transport, ‘Site with information about the Kaunas Public Transport’, http://www.kvt.lt/en, consulted on 15‐2‐ 2013; Klaipeda Public Transport, ‘Site with information about the Klaipeda Public Transport, http://www.Klaipedatransport.lt/, consulted on 15‐2‐2013. 23 European Commission: Eurobarometer, ‘Future of Transport: analytical report’, http://ec.europa.eu/public_opinion/flash/fl_312_en.pdf, consulted on 15‐2‐2013. 189

18.2 Energy infrastructure

Lithuania’s energy sector faces major difficulties caused by its infrastructural isolation vis‐à‐vis other Member States and, consequently, high energy dependence on Russian energy supply. These shortcoming are directly mirrored in high energy prices and complicated relationship with Russia. Hence, Lithuania’s 2012 National Energy Strategy is predominantly oriented towards changing this situation: ‘Until 2020, the country’s highest priority is energy independence’. This should be realised in line with the EU’s energy strategy framework by means of, inter alia, nuclear energy revival, improving interconnectedness with other EU Member States, energy sector liberalisation and unbundling, improving Lithuania’s , implementation of clean energy development, energy storage and energy efficiency.24 Most of these topics will be discussed in this subsection.

18.2.1 Energy generation Lithuania’s overall consumption of energy in 2010 was 6.86 Mtoe (79.8 TWh), including electrical energy, heat, fuels, industrial uses etc. Of this amount, Lithuania consumed 28.98 TWh (2.25Mtoe) natural gas (NL: 457.16 TWh, CZ: 93.26 TWh) in heating and electrical energy generation. All natural gas had to be imported from Russia. Next, the country’s consumption of electrical energy in the same year was 11.74 TWh (NL: 120.92 TWh, CZ: 70.96TWh). Since the country’s maximal electricity generation could technically not exceed 5.75 TWh, 69.6% of electricity consumed had to be imported (while volume equal to18.6% of its consumption was exported or re‐exported).25 Electricity and heat generated domestically have been produced in thermal power plants, i.e. using steam generated by combustion of fossil fuels (coal, crude oil, natural gas) and nuclear fuel. Major power plants currently operational in Lithuania are in:

Table 18.4: Power Plants in Lithuania Location Power resource Power (MW) Elektrėnai Fossil fuel: nat. gas, heavy fuel oil 1800 Klaipėda Geothermal 35 Kaunas Hydroelectric 100 Kruonis Hydroelectric 900 Vilnius Fossil fuel: nat. gas, mazut 384 Kaunas26 Fossil fuel: nat. Gas 170 Mažeikiai Fossil fuel: heavy fuel oil 160‐210 Ignalina (closed) Nuclear 1500 Visaginas (planned) Nuclear 1350 Source: Wikipedia

In 2009, Lithuania was predominantly supplied by energy (electricity and heat) produced by nuclear, oil and natural gas plants, as the graph below shows.27

24 Ministry of Energy of Lithuania, ‘National Energy Independence Strategy of the Republic of Lithuania’, http://www.enmin.lt/lt/activity/veiklos_kryptys/strateginis_planavimas_ir_ES/Energy_independence_strategy0919.pdf, consulted on 15‐2‐2013. 25 European Commission, ‘Energy Market of the European Union in 2011’, http://ec.europa.eu/energy/gas_electricity/doc/20121217_energy_market_2011_lr_en.pdf consulted on 15‐2‐2013; Interview 39 and 35. 26 Kaunas Heat and Power Plant, ‘Site with information about the Kaunas Heat and Power Plant’, http://www.kte.lt, consulted on 15‐2‐2013. 190

Figure 18.4: Energy supply 2009 biofuels and waste hydroenergy nuclear 11% 0% 33% geothermal, solar, wind 5% 3% natural gas 25% crude oil coal 27% 2% Source: REEGLE

As far as electrical energy is concerned, Lithuania produced 70% of its electricity generation by a nuclear power station Ignalina. The rest was generated by power plants using natural gas, oil products and by hydropower plants.

Figure 18.5: Electrical energy production 2009

hydroenergy 7%

wind nuclear 1% 72% 2%

biomass 1%

oil and oil products natural gas 6% 13%

Source: REEGLE

However, Ignalina was decommissioned in 2009. Consequently, Lithuania had to satisfy its energy consumption through imports of electrical energy and increase of electricity production from conventional fossil fuels and renewables. In 2010, Lithuania imported 69,6% of its total electrical energy consumption (however, 18,6% of the overall country electricity volume was (re‐)exported). Electrical energy produced in Lithuania was generated from natural gas and crude oil and petroleum products. Further, as the diagram below shows, energy (incl. electricity and heat) generated in Lithuania in 2010 was prevailingly acquired from natural gas, crude oil and petroleum products and renewables (biomass in heating and hydropower). This trend has not changed considerably so far.28

27 Renewable Energy and Energy Efficiency Partnership REEGLE, ‘Energy Profile Lithuania’, http://www.reegle.info/countries/, consulted on 15‐2‐2013. 28 European Commission, ‘Energy Market of the European Union in 2011’, http://ec.europa.eu/energy/gas_electricity/doc/20121217_energy_market_2011_lr_en.pdf, consulted on 15‐2‐2013: Interview 17; 39 and 35. 191

Figure 18.6: Energy generation since 2010

other 4%

renewables 29% natural gas 56%

crude oil, products 11%

Source: REEGLE

Nuclear energy has the highest potential in the future energy generation due to, inter alia, Lithuania’s low natural resources endowment and its long specialisation in the nuclear energy sector since 1980s.

18.2.2 Nuclear power

18.2.2.1 Ignaline nuclear power plant The history of Lithuanian nuclear energy began in 1974 when preparatory works were initiated for the construction of Ignalina nuclear power plant in order to satisfy USSR’s regional energy needs. It was planned to be the most advanced and powerful nuclear power plant worldwide, equipped with three graphite‐moderated RBMK‐type reactors. Construction works started two years later in 1976. In 1983, the first reactor was commissioned. The commissioning of the second reactor followed five year later in 1988. The third reactor was meant to be put into operation in the beginning of the 1990’s. However, the Chernobyl catastrophe in 1986 postponed and subsequently fully stopped all construction works by 1989, since Chernobyl and Ignalina were using the same type of nuclear reactor. Although no significant security shortages were concluded after some international studies conducted in Ignalina, RBMK‐type reactors were to be removed from operation in the whole of Europe (excl. Russian Federation). Furthermore, it was also one of the accession criteria to the EU and NATO to gradually decommission Ignalina. In 2005, the first reactor unit was shut down and the second unit was closed in 2009. Afterwards, Ignalina has been dismantled. The deconstruction costs are estimated on €2.5 billion, €1.4‐1.6 billion of which will be covered by the EU support. Ignalina radioactive waste management, i.e. construction of a storage area for the leftover spent fuel and supply of storage casks for defueling the central’s two reactors, repositories and other storeroom are included in these numbers.29 Currently, however, the funds for dismantling Ignalina are frozen since 2012 by the EU due to an internal dispute between the operator of the NPP and the consortium delivering the project.30

18.2.2.2 Visaginas nuclear power plant project In the long term, Lithuania has not been meant to be deprived of its nuclear energy. Ignalina should be replaced by a new, modern nuclear power plant, built in accordance to Western

29 Ignalina Nuclear Power Plant, ‘site with information about the Ignalina Nuclear Power Plant, http://www.iae.lt/en/, consulted on 15‐2‐2013; World Nuclear Association, ‘Nuclear Power in Lithuania’, http://www.world‐ nuclear.org/info/inf109.html, consulted on 15‐2‐2013. 30 Ignalina Nuclear Power Plant, ‘Financing of the dismantling’, http://www.iae.lt/activity/financing/, consulted on 15‐2‐ 2013. 192 models and standards. By 2007, it was decided that Ignalina will be substituted by the Visaginas power plant, constructed virtually beside Ignalina, as the region has been socio‐economically highly specialised in nuclear energy generation. Originally, Visaginas was a joint Lithuanian, Latvian, Estonian and Polish project aiming to supply sustainable energy to the whole region. However, Poland withdrew from the project in 2011. So, as far as property rights are concerned, the constructing company Hitachi owns 20% of the power plant, Latvia 20%, Estonia 22% and Lithuania 38%. According to the authentic plan, Visaginas was planned to be finished before 2020 as a power plant of a regional importance, with a capacity of 1350 MW (quite a medium‐ low power reactor unit). However, construction works have not been initiated yet. In October 2012, a non‐binding referendum about the construction of Visaginas was held in Lithuania, resulting in 63% of constituency against the project. According to a majority of interviewees on this topic, the referendum outcome only partially reflects the public opinion concerning the Visaginas NPP project due to its high level of politicisation. They state that the referendum was used as a political instrument to weaken the contemporary government coalition through a manifestation of great popular resentment: voting against the Visaginas NPP project can be understood as voting against the then ruling conservative party.31 Possibly, one interviewee could not exclude Russian influences through Lithuanian media, in particular when thinking of the Russian NPP being constructed near Kaliningrad to supply the Russian exclave and the Lithuanian energy market with electricity.32 However, the consequences of the referendum to Lithuania’s energy security have been significant and the future of Visaginas is unsure. A Lithuanian scientist warned that ‘time is working against the project’. Overall, as he put it, ‘[t]he referendum did not solve the problem of energy dependence; it just complicated it even more’.33 Despite the unfavourable referendum outcomes, nuclear energy has not lost its future in Lithuania. Building no Visaginas would mean prolongation or even consolidation of energy dependence on other countries, especially on Russia, which is in the public and political discourse experiences very negatively.34 . Furthermore, if Lithuania does not build any nuclear power station, its international strategic position in energy would be endangered, since Russia builds a large NPP in the Kaliningrad region, which should be finished in a few years from now. Its power is expected to be 2400 MW (Visaginas is 1350 MW). Lithuania has already signed a contract to purchase 1000 MW a year from 2017 on. In addition, Belarus is planning to construct a new NPP too. On the contrary, continuation of the Visaginas project would guarantee stable energy supply in Lithuania, Latvia and Estonia, decreasing energy imports from and energy dependence on Russia, improving competitiveness of the region, providing Lithuania with employment possibilities etc. 35 However, the most negative side of the project remains its possibly negative effect on environment.

31 Interview 1. 32 Interview 39. 33 WHO, ‘Environment and Health Performance: Lithuania’, http://www.euro.who.int/__data/assets/ pdf_file/0015/91104/E92979.pdf, consulted on 15‐2‐2013; World Nuclear Association, ‘Nuclear Power in Lithuania’, http://www.world‐nuclear.org/info/inf109.html, consulted on 15‐2‐2013. Interview 1;39 and 35. 34 Interview 1. 35 World Nuclear Association, ‘Nuclear Power in Lithuania’, http://www.world‐nuclear.org/info/inf109.html, consulted on 15‐2‐2013. 193

18.2.3 Clean energy development and energy efficiency36 Lithuania’s geographical location does not enable Lithuania to become a large producer of clean, renewable (i.e. non‐fossil fuel based) energy. However, Lithuania is still committed to the EU energy strategy, according to which Member States should implement measures to promote clean energy and energy efficiency in order to contribute to EU energy security and to combat the climate change. An important part of this strategy is the substitution of fossil fuels by renewable energy sources, such as solar, wind, water and biomass energy. The Renewables Directive of 2009 introduced national mandatory targets on the development of renewables. In this respect, Lithuania is doing well, since the mandatory 2020 targets (23% of the energy mix)37 for renewable energy are expected to be fulfilled without major problems. Also, energy efficiency has been partially enhanced. Yet, according to most interviewees on this topic, potentials for renewables in Lithuania remain rather limited and the main obstacles for clean energy development are the too high implementation costs and unsure economic returns.38 Clean energy development in Lithuania is promoted by means of four main economic incentive mechanisms. Firstly, green energy suppliers were exempted from excise duty until 2010. Secondly, green energy suppliers are taxed by feed‐in tariffs, which are lower than taxes applied on suppliers of any other kinds of electrical energy. This incentive takes until 2020. Thirdly, supplies of green energy must be prioritised vis‐à‐vis energy from other sources when joining the Lithuanian transmission grid system. Fourthly, connecting green energy suppliers to the national grid is discounted by 40%. Moreover, Lithuania supports the use of biofuels, cogeneration of power and heat, waste‐to‐energy infrastructure, district heating development and improvement of energy efficiency in the buildings, engineering systems, and transport sectors.39

18.2.3.1 Biomass Lithuania uses wood, straw, products made thereof, and biogas made of manure as biomass. All of these fuels can be supplied by domestic resources. In 2009, Lithuania generated 125MW energy from biomass and since then, this number has been increasing. Recent high energy prices, especially in the natural gas sector, have created an economic incentive for the development of biomass heating. One interviewee even stated, that Lithuania’s motivation to apply the biomass development was based on the need to generate relatively cheaper heating, rather than on the commitment to the climate change mitigation and EU mandatory targets.40 However, the maximum potential in biomass will be reached soon and if the energy prices decrease, biomass will become much less advantageous, thus attractive than at present.41

18.2.3.2 Wind In 2008, Lithuania produced 52 MW by wind turbines. In 2011, this number increased to 161 MW. The maximal potential of wind with current technologies is estimated

36 Renewable Energy and Energy Efficiency Partnership REEGLE, ‘Energy Profile Lithuania’, http://www.reegle.info /countries/, consulted on 15‐2‐2013; European Commission, ‘Energy Market of the European Union in 2011’, http://ec.europa.eu/energy/gas_electricity/doc/20121217_energy_market_2011_lr_en.pdf, consulted on 15‐2‐2013. 37 European Commission, ‘Directive 2009/29/EC (etc.): Renewables Directive’, http://eur‐ lex.europa.eu/LexUriServ/LexUriServ.do?uri=Oj:L:2009:140:0016:0062:en:PDF consulted on 15‐2‐2013, pp. 46. 38 European Commission, ‘European Energy Strategy’, http://ec.europa.eu/energy/index_en.htm, consulted on 27‐05‐2013; Interview 39; 35; 17 and 44. 39 European Renewable Energy Council EREC, ‘Renewable Policy Review Lithuanian’, http://www.erec.org/fileadmin/erec_ docs/Projcet_Documents/RES2020/LITHUANIA_RES_Policy_Review__09_Final.pdf, consulted on 15‐2‐2013. 40 Interview 1. 41 Interview 1 and 39. 194 to be about 500 MW. However, high implementation costs make wind energy rather unattractive in Lithuania.

18.2.3.3 Hydropower Hydroelectricity is the main source of renewable energy in Lithuania. There are already two major hydropower plants with a generation capacity approximately 1000MW. However, according to REEGLE, Lithuania exploits only 14% of its hydroelectricity potential. Yet, also confirmed by an interviewee, due to prevalently flat Lithuanian landscape, the realistically exploitable potential for hydroelectricity remains very limited and economic benefits from new hydropower stations are often estimated not to exceed environmental and construction costs. Hence, no major hydropower development is expected across the country.42

18.2.3.4 Geothermal Lithuania could develop a large geothermal energy network thanks to its relatively high potential close to Klaipėda. However, low technological experience and low heat prices appear to be the most important obstacles to exploit geothermal energy potentials.

18.2.3.5 Solar Lithuanian solar energy potential is very low because of its climate and geographical position.

Figure 18.7: Renewables potential in Lithuania

Biomass potential Wind potential Geothermal potential Source: REEGLE

18.2.4 Energy prices in Lithuania

As mentioned above, Lithuania imports almost all of its energy resources, such as crude oil, natural gas, and, since 2009 also a major part of its electricity. The most important energy partner of Lithuania is the Russian Federation. Hence, Lithuania is largely dependent on international energy prices or prices determined by energy resources providers, such as Russian Gazprom. Lithuania has extraordinarily high energy prices caused by expensive natural gas imports. The wholesale gas price is one of the highest in the EU (2012/2013): €38.3 per MWh (NL: €24.1 per MWh, LV: €33.8 per MWh) and it even increased in four waves within one year, almost doubling the price.43 The heating sector has been affected the most noticeably. An interviewee stated that average monthly costs amount to about 50% of the average monthly income.44 One interviewee asserted that these high prices are Gazprom’s reaction to Lithuania’s commitment to the EU’s energy market liberalisation, which endangers Gazprom’s leading market position. In this context, Lithuanian authorities are convinced that these high energy

42 Interview 17. 43 European Commission, ‘Quarterly Report on European Gas Markets’, Market Observatory for Energy, nr. 5, 2011; Interview 35. 44 Interview 35 and 39. 195 prices are detrimental to Lithuania’s competitiveness, business climate (especially in the fertilisers sector), economic growth and social wealth.45 Consequently, Lithuania has taken a number of measures to improve the country’s situation. In 2010, Lithuania submitted a complaint about Gazprom’s market behaviour to the Commission. Subsequently, DG Competition started antitrust proceedings against Gazprom in 2011. Lithuania claims 5 billion Litas (approximately €1.5 billion) to compensate the wealth loss of Lithuanian citizens. 46 In addition, measures have been taken to make Lithuania less dependent on Russian gas resources and to diversify its energy suppliers. According to an interviewee, gas prices are expected to decline after the LNG Terminal in Klaipėda introduces more competition to the natural gas supply of Lithuania: ‘it [the LNG Terminal] is like a tool to us to get discount from Gazprom’.47 Figure 9 shows in wholesale, industry and household price levels in various Member States. Lithuania’s average wholesale prices are one of the highest in the EU and have increased since 2011 considerably. Only average wholesale gas prices in Slovenia and Bulgaria are higher. Still, gas prices for industries and households remain rather low, though gradually increasing.

Figure 18.8: Average wholesale prices for natural prices in some Member States €per kWh Natural Gas 0,08 0,07 0,06 0,05 Industry 2013 0,04 Households 2013 0,03 Wholesale 2011 0,02 Wholesale 2012/2013 0,01 0 AT BE BG CZ EE FR DE HU IT LV LT NL PL PT RO SK SLO ES UK Source: European Commission

Electricity prices might decline after interconnections with other Members States are put into operation. However, an interviewee added that improved interconnectedness does not always lead to lower prices; prices in the EU fluctuate and are seasonally higher than Russia’s electricity prices.48 He also argued that Visaginas would significantly decrease the current price of electricity in Lithuania. However, the fulfilment of renewable energy targets is unfavourable to electricity price, since the high implementation costs are translated into the energy sales market price. 49

45 Interview 1; 35 and 39. 46 Press releases RAPID, ‘Antitrust: Commission opens proceedings against Gazprom’, http://europa.eu/rapid/press‐ release_IP‐12‐937_en.htm, consulted on 15‐2‐2013; Interview 39 and 35. 47 Interview 35. 48 Interview 1. 49 Interview 1 and 39. 196

18.2.5 Building internal market

Building of the Internal Market is aimed at enabling free trade between EU Member states. It consists of two major elements: interconnections and liberalisations. While the former is concerned below this subchapter explains the latter. As elaborated in the Third Energy Package of the Commission in 2007, the energy sector of Lithuania had to be privatised and unbundled in order to dismantle national monopolies and bring more competition in energy. So far, supply/generation and transmission networks have been unbundled. In electricity, former LEO LT AB (Lietuvos elektros organizacija), a public company was unbundled into two public companies:  Lietuvos Energija AB responsible for generation, distribution and retail,  Litgrid, responsible for transmission grid management. Next, generation and distribution have been privatised and liberalised to a very large extent:  generation: 17 companies, five of which are main generators, the largest: 34,5% Lithuania’s generation volume,  distribution: two companies, 97,5% is owned publicly and 2.5% privately,  retail: 15 companies, three of which are main retailers. 50 In the natural gas sector, there are five major companies bringing gas to Lithuania and six distributing companies. Lietuvos Gujos AB is a joint stock company, an owner of gas transmission network (51% market share in bringing natural gas to Lithuania, 98% market share in retail). Russian Gazprom is a 34% shareholder of Gujos AB.51 Regarding crude oil and oil products network, AB Geonafta AB and Mažeikiu Nafta are responsible for supply of crude oil, gasoline and diesel to Lithuania. Overall, it can be concluded that Lithuania has consistently embraced the targets outlined in the 3rd Energy Package. Lithuania’s gas, oil and electricity sectors are largely unbundled and some of them are, to a large extent, also privatised.

18.2.6 Energy Transition Networks There are four major energy networks in Lithuania: three, one‐direction‐pipelines networks (crude oil, petroleum products and natural gas) and an electrical energy network. All of these transition systems were built during the soviet era and are integrated in the Russia and other former soviet republics’ networks. Consequently, interconnectedness with other Member States, especially Poland is strikingly insufficient. Hence, it is an important part of the EU’s TEN‐E project and Lithuanian national strategies to integrate the ‘Baltic Island’ into the rest of the EU. Firstly, the Unecha‐Polotsk branch of crude oil pipelines with Biržai pump station was originally built to provide Latvia and the Mažeikiai oil refinery in Lithuania with Russian crude oil. However, this pipeline has been closed since 2007 because of, according to the Russian pipeline provider Transneft, bad technical conditions of the pipeline. Consequently, oil supplies to Mažeikiai are ensured by a fully operational pipeline from the oil terminal in Būtingė (105km). After the Unecha‐Polotsk branch was closed, the Būtingė terminal has become the only point where crude oil enters the country.52 Secondly, there is a petroleum products pipeline intersecting Lithuania only very shortly along the Unecha‐Polotsk branch of crude oil pipeline.

50 European Commission, ‘Energy Market of the European Union in 2011’, http://ec.europa.eu/energy/gas_electricity/doc/20121217_energy_market_2011_lr_en.pdf, consulted on 15‐2‐2013. 51 Ibidem, 29; 30; Lietuvos Dujos, ‘About’, http://www.dujos.lt/index.php/apie‐mus/musu‐veikla/17 consulted on 15‐2‐ 2013. 52 Interview 52; The Jamestown Foundation, ‘Russian Oil Supplies to Lithuania Cut Off’, http://www.jamestown.org/single/?no_cache=1&tx_ttnews%5Btt_news%5D=31939 consulted on 15‐2‐2013. 197

Lithuania only serves as a transition territory; products transmitted are determined for the Latvian crude oil and petroleum products terminal in Ventspils.53

Thirdly, natural gas (760km) Figure 18.9: Gas pipelines in the Baltic states pipelines system intersects Lithuania to supply Lithuania, Latvia and the Russian exclave of the Kaliningrad region, crossing most major Lithuanian cities, such as Vilnius, Kaunas and Panevėžys. An important natural gas side‐line supplies also Šiauliai and Klaipėda.54 Lithuania is totally dependent on Russian gas supply, due to limited infrastructural provisions and a monopolistic character of the natural gas provider Gazprom, which is reflected in extraordinarily high gas prices in the country (considerably higher than prices in Latvia, Belarus etc.). Hence, Lithuania is building an LNG terminal in Klaipėda, enhanced gas pipelines towards Kaunas and plans to develop natural gas storage facilities in order to facilitate gas supply diversification, bringing competition to the gas sector and, consequently, to reach a decrease of gas prices. The terminal is expected to be fully functional as from 2015 Source: East European Gas Analysis and it should provide Lithuania with approximately 20% of its consumption of natural gas from alternative source. According to some interviewees, this strategy should be seen in the context of a long‐term political struggle between Lithuania and the Russian Federation after 1991: Lithuania’s energy dependence is a Russian tool to keep Lithuania subjugated in its sphere of influence (see chapter 5 on foreign policy, security and defense).55 However, despite its importance to Lithuania, neither the Klaipėda LNG terminal or Lithuanian gas storage facilities are explicitly supported by the EU, since they do not correspond with the EU’s strategy on enhanced interconnectedness of the Baltic region, known as BEMIP. This regional project, including eight EU Member States which have access to the Baltic Sea (Lithuania, Latvia, Estonia, Finland, Sweden, Denmark, Germany, Poland ), foresees an LNG terminal in Estonia/Finland and gas storage in Latvia, rather than Lithuania. Moreover, Lithuania’s energy supply diversification is to be realised by interconnectors to Poland and Latvia.56 Lithuania does not oppose these plans, but it is argued that BEMIP will not offer any sufficient relief to Lithuania’s energy problems in the short run (BEMIP interconnections are expected to be operational in 2020s‐2030s), whereas Lithuania needs to resolve its high energy prices and high energy dependence as soon as possible. So, while cooperating regionally,

53 Ventspils Nafta Terminals. ‘About Company’ http://www1.vnt.lv/en/about‐vnt/par‐vnt/, consulted on 15‐2‐2013. 54 EEGAS, East European Gas Analysis, ‘Baltic States and Finland map’, http://www.eegas.com/baltmap.htm, consulted on 15‐2‐2013. 55 Interview 35; 39. 56 European Commission, ‘BEMIP’, http://ec.europa.eu/energy/infrastructure/bemip_en.htm, consulted on 27‐5‐2013. 198

Lithuania develops also its own national infrastructure plans and is considering having an important complementary function. While interconnector plans with Poland have already been approved and the project should be finished by 2020, the Klaipėda LNG Terminal and natural gas storage remain Lithuanian national projects.57 Concerning electrical energy transmission, the electricity network system consists of 1671 km of 330kV grids and 4967 km of 110kV grids. Same as the pipelines network, it was built mostly during the Soviet period and has considerably deteriorated since then. As a result of the Lithuanian historical context, its electricity grid is connected

 4 times 330kV and 3 times 110kV to Latvia,  5 times 330kV and 7 times 110kV to Belarus,  3 times 330kV and 3 times 110kV to Russia.

Like in the natural gas sector, Lithuania is an Figure 18.10: Electricity network of important transition territory for Russian energy Lithuania destined for the Kaliningrad exclave. However, it is also an endpoint of energy streams from Finland/Estonia/Latvia and Russia/Belarus because Lithuania has become a net importer of electrical energy after the closure of Ignalina NPP. Furthermore, the commissioning of the new NPP in Russian Kaliningrad Oblast is expected to inevitably cause new electricity streams throughout Lithuania. Hence, the Lithuanian grid must be enhanced in order to cope with this imminent situation. Reparation costs are estimated to approximately €330 mil. Source: www.geni.org

Another part of the grid enhancement concerns building new interconnections to Sweden and Poland within the EU’s TEN‐E, BEMIP and ENTSO‐E contexts:

Table 18.5, Figure 18.11: ENTSO‐E projects in the Baltic region MS1 To be Name (from) MS2 (to) Capacity finished Estlink 1 Estonia Finland 250 MW 2007 Estlink 2 Estonia Finland 650 MW 2015 LitPol 1 Lithuania Poland 500 MW 2015 LitPol 2 Lithuania Poland 500 MW 2020 Nordbalt Lithuania Sweden 700 MW 2016 Source: European Commission

These new interconnections are expected to significantly contribute to the integration of the Baltic countries to the Internal Market, improving competition in the regional electricity market,

57 Interview 35 and 39. 199 offer better energy diversification possibilities and so to better ensure energy supply security across the country. 58

18.3 Waste management

18.3.1 Current situation The total quantity of waste generated in Lithuania has been increasing since 2004 and municipal waste in particular has been growing at a steady rate. Figure 18.10: Waste quantity in Lithuania Still, even though producing waste is closely related to per thousand tons growing wealth and consumption trends, the quantity of waste generated per capita in Lithuania is one of the lowest among the European Union Member States. However, there are still some important shortcomings which need to be gradually solved. Producing waste is closely related to growing consumtion trends, facilitated by income increase (see Source: EEA section 3). So, in 2007, the quantity of packaging per capita released on the domestic market amounted to 101 kg against 84 kg in 2006. Most packaging is in plastic, which is one of the greatest contributors to the total waste production in Lithuania.59 With regard to recycling, EEA states that Lithuania has not been performing well since 2006. The amount of glass and plastic recycled has been decreasing ever since 2005. Because the management of these secondary raw materials is inadequate, recycling of glass and plastic packaging waste does not prove to be very efficient. As a result, the waste recycling rate in Lithuania is only 14 %.60 Since its independence, Lithuania has made major progress in sustainable waste management. By the end of 2008, around 470 old landfill sites had been closed down because they did not meet environmental and public health requirements. 88 other landfill sites were to be closed by the end of 2010. Subsequently, the old landfill sites have been replaced by 11 modern, regional landfill sites. Furthermore Lithuania has built new green waste composting facilities, bulk waste acceptance facilities and container sites for secondary raw materials. 61 Moreover, the public collection system has been supplemented by bulky waste collection for specific wastes such as collecting glass, paper, batteries, metal etc. at municipal level. Around 20,000 containers for recyclable material were added to the infrastructure for this purpose.62. Most of these projects have been co‐financed by the EU Cohesion Funds. According to an interviewee, however, the Lithuanian waste management currently faces a major problem: emigration. While capacities of infrastructure for waste management, in

58 European Network of Transmission System Operators for Electricity, https://www.entsoe.eu/, consulted on 15‐2‐2013; European Bank for Renewable Development Initiative EBRD, ‘Lithuania’, http://ws2‐23.myloadspring.com/sites /renew/countries/lithuania/profile.aspx, consulted on 15‐2‐2013; Renewable Energy and Energy Efficiency Partnership REEGLE, ‘Energy Profile Lithuania’, http://www.reegle.info/countries/, consulted on 15‐2‐2013; Litgrid, ‘NordBalt Project’, http://www.litgrid.eu/index.php?633577945 consulted on 15‐2‐2013; World Nuclear Association, ‘Nuclear Power in Lithuania’, http://www.world‐nuclear.org/info/inf109.html consulted on 15‐2‐2013. 59 European Environmental Agency, ‘Waste Management Lithuania’ http://www.eea.europa.eu/soer/countries/lt/soertopic_view?topic=waste consulted on 15‐2‐2013. 60 Ibidem. 61 Ibidem. 62 Lithuanian Ministry of Environment, ‘Waste Management, Strategy Division’, http://www.eea.europa.eu/publications/managing‐municipal‐solid‐waste/lithuania‐municipal‐waste‐management consulted on 15‐2‐2013. 200 particular recycling, are sufficient, the outflow of waste producers to other countries are causes underexploitation of existing infrastructural facilities and lower financial profits of waste management companies. In the long term, the population decrease might limit future investments and progressive developments within the sector. 63 Another problem identified by the interviewee is the insufficient liberalisation of the waste management market. There is no significant position granted to the private sector in the field of municipal waste management.64 At the beginning of 2009 municipal waste collection services were provided by 104 companies and collection and transport was largely carried out by public entities. Private entities operated on a small scale. Consequently, even though the situation has been gradually improving, the waste collection system is ‘leaky’ i.e. gap between the quantity of waste collected and the estimated quantity of waste generated65. However, according to the interviewee, the private sector is capable of managing waste for lower tariffs and more efficiently.66

18.3.2 Organisational structure The system of waste collection has been inherited from the Soviet era. At a national level, there are several institutions responsible for legislation and administration in the area of waste management. The Lithuanian Ministry of Environment (see chapter 19 on environment) is the main national institution involved in legislation and organisation in the area of waste management. It coordinates the activities of the State and prepares the National Strategy Waste Plan. In addition, the Environmental Protection Agency (see chapter 9 on environment) organises and performs the national environmental monitoring by providing methodological help for ministerial departments in the field of environmental protection in order to implement waste policy. Further, at the municipal level, municipalities are the main institutions responsible for organising waste management. Their main task is to create effective municipal waste management systems in their territories67. They are responsible for organising municipal waste management and fulfilling EU requirements in the areas of recycling and recovery, among which some of waste streams, such as packaging, accumulators and batteries.68 In addition, there are also regional waste management centres, which coordinate waste management in neighbouring municipalities in their region. These centres are represented in the Association of Regional waste management centres in Lithuania. These centres are legal entities created by several municipalities.69 Aside from the institutional level, one interviewee pointed out that what makes the waste management structures work well, is also the people’s mentality towards tidiness.70

63 Interview 17. 64 Environmental Centre for Administration and Technology, ‘Waste management system in Lithuania – history, trends, main actors and future scenarios’, http://www.vartotojai.lt/get.php?f.1311, consulted on 15‐2‐2013. 65 Ernst & Young, ‘Key issues in municipal waste management in EU‐11 countries’, http://www.ey.com/Publication/vwLUAssets/Key_issues_in_municipal_waste_management_in_EU‐ 11_countries/$FILE/Raport_eng.pdf, consulted on 18‐5‐2013. 66 Interview 49. 67 Environmental Centre for Administration and Technology, ‘Waste management system in Lithuania – history, trends, main actors and future scenarios’, http://www.vartotojai.lt/get.php?f.1311, consulted on 15‐2‐2013. 68 Ernst & Young, ‘Key issues in municipal waste management in EU‐11 countries’, http://www.ey.com/Publication/vwLUAssets/Key_issues_in_municipal_waste_management_in_EU‐ 11_countries/$FILE/Raport_eng.pdf consulted on 18‐5‐2013. 69 Lithuanian Ministry of Environment, ‘Waste Management, Strategy Division’, http://www.eea.europa.eu/publications/managing‐municipal‐solid‐waste/lithuania‐municipal‐waste‐management consulted on 15‐2‐2013. 70 Interview 17 and 49. 201

Table 18.6: Overview Waste management of Lithuania Municipal waste treatment in Lithuania according EUROSTAT 2012 Self‐sufficiency for disposal of total waste (in %) 67.8 (2009 data) Rates Lithuania EU 27 Recycling of municipal waste 3.8% 24.9% Composting of municipal waste 1.7% 14.7% Recovery of municipal waste (including incineration 0.1% 17.2% with energy recovery) Disposal of municipal waste 94.586 (waste export excluded) 38.2% Information on treatment facilities, compliance/BAT and capacity Facilities for Composting recycling Currently there are 21 green waste composting sites in operation. 13 of them have been constructed using 2004‐2006 EU funds; 40 more are planned to be constructed using 2007‐2013 EU funds. Paper recycling With respect to paper and cardboard, there are 10 recycling facilities. The main 3 paper mills are: JSC “Klaipėdos kartonas”, CJSC “Kauno popierius” and JSC “Grigiškės”. The total capacity is more than 220 kt/a. Glass recycling The 4 glass recycling facilities include: CJSC “Alytaus keramika”, CJSC “Kauno stiklas”, JSC “Warta Glass Panevėžys”, and CJSC “Stikloporas”. Their total capacity estimated 54,7 kt/a. Plastic recycling There are in total 24 plastic recycling facilities in Lithuania. The total capacity is 72 Kt/a. Mainly, polyethylene packaging waste is recycled in Lithuania. Metal recycling There are 4 metal facilities for recycling: (1) CJSC “EMP recycling”, (2) CJSC “Panevėžio ketus” (3) CJSC “BALTICAL”, (4) CJSC “Torlina”. Incineration of municipal waste (20 01 01, 20 01 38, 20 01 28 and similar) is Incinerators applied in LT [LT MoE 2012]. In 2009 there were 0,115 kt of municipal waste with energy incinerated (R1), in 2010 – 1,31 kt. 2 incinerators with a total capacity of 420 kt/a recovery are planned and one of them is already starting its testing phase [LT MoE 2012]. Landfills for Lithuania possesses 11 regional landfill sites. Almost 612 formal landfills which non‐ did not meet the environmental requirements have been shut down. The EU hazardous structural support funds (2007–2013 period), have been use to shut down a waste further 198 landfill sites [EEA 2010]; [LT MoE 2012]. Infringement procedures and court cases related to WFD and Landfill Directive Number of infringement procedures and cases brought to the CJEU No infringement cases in terms of WFD and LD identified Fulfilment of targets related to biodegradable waste going to landfills Fulfilment of target of the Landfill Directive on biodegradable 85 % waste going to landfills Statistics on packaging waste as available for 2010 (EUROSTAT 2012d) Plastic Glass Total Paper waste Metal waste waste waste packaging

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waste LT EU LT EU LT EU LT EU LT EU Total generated (kt) 54 14,590 82 29,783 11 4,544 60 16,01 261 76,593 Total generated per capita 16.2 29.2 24.6 59.5 3.3 9.1 18.1 32 78.1 153.1 (kg) Share total packaging 20.8 19 31.5 38.9 4.2 5.9 23.1 20.9 100 100 waste (measured in %) Recycling rates (measured 35.9 32.2 73.5 83.4 62.9 69.5 76.1 67.6 57.7 62.5 in %) Recovery rates (incineration with energy 35.9 59.7 73.5 90.7 62.9 69.9 76.1 67.6 58.4 51.1 recovery is included) (measured in %) Disposal rates (measured 64.1 40.3 26.5 9.3 37.1 30.1 23.9 32.4 41.6 25.4 in %) Source: Eurostat

Overall, it can be concluded that while the basic infrastructural and legislative framework of Lithuania’s waste management was inherited from the soviet era, the EU environmental policy has boosted new progressive development within the sector. As a result, technology, know‐how, liberalisation, decentralisation and more popular awareness have been, to some extent, brought to the country. Recent emigration (see chapter 11 on migration) appears to be one of the greatest threats to the waste management of Lithuania. Still, Lithuania can be considered to be a predominantly clean country.

18.4 Drinking water management

According to the WHO, Lithuania’s water and sanitation may be considered to be of relatively good quality. Only few fresh water diseases occur in Lithuania and the cleanness status of surface water is very good. There were 407 drinking water providers using 1918 drinking water facilities in 2009, all of which were groundwater aquifers. 10% of drinking water supply is managed by large companies and 90% by small companies. Despite the overall good status of Lithuania’s water management, it has been stated that 60% of water supply inspected showed some water irregularities, such as excessive amount of iron, magnesium, sulphur, chlorine and fluorine. However, this problem predominantly concerns the small fresh water suppliers. In 2009, 92% of urban population and 58% countryside population had access to improved communal drinking water infrastructure. About one million people use their own groundwater dug wells for water consumption, but no good quality of this water source can be guaranteed. In many cases, excessive amounts of nitrates were found. Only joining drinking water network and using water exclusively from official sources can improve the situation. According to WHO, one of the most important challenges for water quality in Lithuania is the enhancement of the monitoring system along international standards.71

71 WHO, ‘Environment and Health Performance: Lithuania’, http://www.euro.who.int/__data/assets/pdf_file/0015/91104/E92979.pdf, consulted on 15‐2‐2013. 203

18.5 Conclusion

This section has described the infrastructure of Lithuania, with particular attention to transport infrastructure, energy infrastructure, waste management and water management. Each of these subtopics was assessed with regard to its current status, recent developments, correspondence with the EU’s frameworks (if relevant) and future challenges and prospects. It has been shown that Lithuania’s infrastructure is relatively well developed. However, there are still many shortcomings which prevent Lithuania from becoming a regional infrastructural hub. As a legacy of former soviet times, Lithuanian infrastructure still seems to be better integrated in the former USSR infrastructural networks than in the EU networks. This provides Lithuania with some advantages, especially economic ones, but also with many disadvantages. From the EU perspective, Lithuania, next to Latvia and Estonia, constitutes a so‐ called ‘Baltic Island’, implying the region’s isolation from the rest of the EU. Indeed, interconnections with other Member States are often strikingly insufficient, especially in the transport and energy sectors. In energy, this infrastructural limitation is even perceived as a security threat to the country. This, on the one hand, speeds up Lithuania’s commitment to international infrastructural developments and the country’s integration in the EU legislative and strategic framework, but, on the other hand, also justifies the country to undertake some national measures aiming to rapidly improve the ‘dangerous’ situation. The national project of the LNG terminal is a good example of this, since it explicitly diverges from the EU’s official strategy. Another, more general problem of Lithuanian infrastructure is its overall technical deterioration because of a long‐term lack of investments in the maintenance and modernisation of the network. Within this context, interconnecting the ‘Baltic Island’ with the EU through Poland, Sweden and Finland, and overall technical improvement of the Lithuanian infrastructure have become EU priorities. For example, the international road Via Baltica E67, the railway project Rail Baltica, new energy interconnectors and the implementation of EU legislation energy, transport, waste and water management etc. should be seen as a joint endeavour of the EU and Lithuania to build a solid bridge between the EU and the Eastern Baltic region through Lithuania. However, Lithuania itself is not able to finance the realisation of such great integration projects. Hence, the EU’s commitment to these projects, which is visible in the form of transposition of EU’s legislation to Lithuania, structural funds and other forms of assistance, plays a crucial role here, as will be discussed in the next chapter.

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19. Environment

The composition of economic activities has direct effects on the quality of the environment. Therefore, this chapter outlines Lithuania’s policy approach to protect and regulate the country’s environment. Firstly, the most important public institutions responsible for relevant policy making, expertise, transformation of EU environment legislation and its subsequent implementation will be uncovered. Subsequently, a short analysis will place Lithuania’s environmental policy in the EU context, followed by an examination of Lithuanian forest management from a perspective of environmental protection and the country’s pollution concerns. The main finding is that Lithuania does not face large or unique threats to its environment, facilitated by national environmental policies, which are mostly in line with EU legislation.

19.1 Institutional framework

The Ministry of Environment is responsible for state policy on environmental protection, forestry, utilisation of natural resources, geology and hydrometeorology, territorial planning, construction, provision of residents with housing, utilities and housing, and coordination of their implementation. Its main focus areas are:  to implement the principle of sustainable development;  to set preconditions for rational utilisation, protection and restoration of natural resources;  to ensure provision of information about the state of environment and its forecasts to the public;  to create conditions for the development of construction business and the provision of residents with housing;  to ensure proper environmental quality, taking into account the norms and standards of the European Union.1 Monitoring, evaluation, forecasts, provision of information on environmental quality and nature resources use is delegated to Lithuania’s Environmental Protection Agency. Its main concerns are air monitoring, water analysis and waste management.2 Aside of these public institutional bodies, there are also some NGOs committed to environmental topics, such as environmental protection. However, even though the environment of Lithuania is represented by a ‘green’ party, its popularity among people has not been stable.

19.2 Policy

According to some interviewees, compliance with EU environmental norms and standards has not constituted significant problems so far. They ascribed this to two facts: firstly, the environmental policy framework of Lithuania is, to a large extent, inherited from the Soviet era, and, secondly, this framework has proved to be more stringent than the European one, as far as

1 Ministry of Environment of the Republic of Lithuania, ‘Site with information about the Ministry of Environment’ http://www.am.lt/VI/en/VI/index.php, consulted on 19‐02‐2013. 2 Environmental Protection Agency Lithuania, ’Site with information about the Environmental Protection Agency’ http://gamta.lt/cms/index?lang=en, consulted on 19‐02‐2013. 205 environmental protection is concerned.3 For example, EU sustainable development policy is clearly integrated in Lithuanian environmental priorities: The main objective of sustainable development in Lithuania is to achieve the present EU average by 2020, according to the indicators for economic and social development as well as resource efficiency, and not to exceed the allowable EU standards, according to the indicators for environmental pollution, as well as to meet the requirements of international conventions limiting environmental pollution and effects on the global climate. 4 However, businesses in particular lobby against these strict policy structures. Consequently, it is expected that some of the Lithuanian requirements on the entrepreneurial sector will be loosened in order to increase its efficiency and credibility and to facilitate a friendlier business climate.5 A part of the implementation of the EU environmental legislation in Lithuania is the commitment to combating the climate change. Some interviewees argued that this commitment can be better perceived at the legislation level, rather than in the daily practice and awareness of the Lithuanian society in the broad sense. An interviewee stated that people are aware of the climate change issue but it is a not clear to what extent they actually understand what it means.6

19.3 Forest management

Since forests have a special place in the Figure 19.1: Protected areas of Lithuania Lithuanian society, Lithuania’s sustainable forest management comprises three equal focus areas:  Economic (wood gathering, producing biomass mushrooms collecting, hunting etc.), see chapter 17 on economic sectors  Environmental (protection, biodiversity etc.)  Social functions (recreation, spiritual needs) Currently, 33.3% of Lithuania’s surface is Source: Environmental Protection Agency of Lithuania covered by forests, 13% of which is highly protected and 17% is partially protected, e.g. water protection. Even when an area is not explicitly protected, there are always some restrictions for forest activities which might distort some species’ habitat, biodiversity and, for example, bird nesting. There are five national parks and 30 regional parks in Lithuania. National parks have a higher degree of preservation than regional parks.7 Concerning Lithuanian forest ownership, about 50% is public, 38% is in private ownership and 12% is being considered for privatisation.

3 Interview 17 and 44. 4 European Environmental Agency, ‘Country Profile: Lithuania’, http://www.eea.europa.eu/soer/countries/, consulted on 19‐02‐2013. 5 Interview 17. 6 Interview 17 and 44. 7 Lithuanian State Parks and Reserves Association, ‘Site with information about the Lithuanian State Parks and Reserves Association’, http://www.parkai.lt/show/lt/about.html, consulted on 19‐02‐2013; European Environmental Agency, ‘Nature Protection and Biodiversity: Lithuania’, http://www.eea.europa.eu/soer/countries/, consulted on 19‐02‐2013. 206

Following from national legislation, Lithuania is seriously committed to reforestation and afforestation efforts. While reforestation is a strict requirement, Lithuania additionally enlarges the forest surface by 0.7% each year. Since 1991, Lithuania has managed to increase its forest surface by 3%. This trend is expected to continue, especially due to Lithuanian plans to afforest and reforest large areas of Lithuanian landscape up to 34‐35% by 2020, as one of the main objectives of the National Sustainable Development Strategy. Moreover, areas afforested usually concern abandoned agricultural grounds. These afforestation efforts are supported by the necessity to sequestrate CO2 in order to combat the climate change. According to one interviewee, the main threats to Lithuanian forests are: firstly, local consequences of the climate change, such as pests, natural disasters and invasive species migration; secondly, economic viability in forestry and thirdly, EU policies supporting private ownership.8

19.4 Pollution

Due to current orientation of economic sectors, relatively low industry and population density, people’s attitude and improving waste management, Lithuania’s levels of pollution are below‐ average compared to average EU levels.9

19.4.1 Water pollution Ground water in Lithuania is predominantly unpolluted, as is surface water. Furthermore, the EEA stated that Lithuanian ground and surface water pollution has even decreased in recent years.10 However, the main causes of remaining surface water pollution are agricultural activity, fertilisers industry and wastewater and storm water runoff produced in agglomerated areas. So far, chemical pollution has not been sufficiently analysed.11 Regarding Curonian Lagoon, the largest polluters of this bay are the city of Klaipeda as well as Belarusian and Russian settlements and industries in the basin of the Nemunas River. Consequently, Lithuania claims not to be fully responsible for the water pollution. Moreover, the largest polluters of the Nemunas River remains to be a pulp and paper mill located in Neman in the Kaliningrad region. According to one interviewee, Lithuania does not add any significant pollution to the Nemunas River due to a well‐developed water treatment infrastructure in the industrial and urban areas. Even the Urban Waste Water Directive12 was fulfilled completely. Currently, smaller cities and the countryside are being provided with new waste water treatment plants too. In order to diminish pollution of both the Nemunas River and the Curonian Lagoon, dialogues between Lithuania, Belarus and Russia have been conducted. This interstate environmental endeavour can be considered to be protracted, politically complicated and so only partially successful, even though some agreements have been reached.13

8 Interview 44. 9 Interview 44 and 49. 10 European Environmental Agency, ‘Fresh Water: Lithuania’, http://www.eea.europa.eu/soer/countries/, consulted on 19‐ 02‐2013. 11 European Commission, ‘Commission Staff Working Document: Implementation of the Water Framework Directive in Lithuania’, http://ec.europa.eu/environment/water/water‐framework/pdf/CWD‐2012‐379_EN‐Vol3_LT.pdf , consulted on 19‐02‐2013. 12 European Commission, ‘Urban Waste Water Directive Overview’, http://ec.europa.eu/environment/water/water‐ urbanwaste/, consulted on 19‐02‐2013. 13 Interview 44. 207

19.4.2 Air pollution In 2007, emissions to air in Lithuania were significantly lower than in 1991, induced by the implementation of environmental measures (low‐sulphur fuel, filters) and changes in economic sectors of the country leading to considerable contraction of GHG emissions. Up until now,

Lithuania’s production of GHG emissions is far below its Kyoto maximum (data is in Mt CO2‐eq):

Table 19.1: Kyoto GHG limits for EU Member States KYOTO TARGET EU MEMBER STATE 2003 2004 2005 2006 2007 2008 2012 % UNDER KYOTO TARGET ESTONIA 21.2 21.2 20.7 19.2 22.0 20.3 40 49.25 % LATVIA 10.7 10.7 10.9 11.7 12.1 11.9 23.3 48.93 % LITHUANIA 16.7 21.1 22.6 22.8 24.7 24.3 44.1 44.90 % ROMANIA - 160.1 153.7 153.9 152.3 145.9 259.9 43.86 % BULGARIA - 68.9 69.8 71.5 75.7 73.5 127.3 42.26 % HUNGARY 83.3 79.5 80.5 78.8 75.9 73.1 114.9 36.38 % POLAND 382.5 396.7 399 399.3 398.9 395.6 551.7 28.29 % SLOVAKIA 51.1 49.5 48.7 49.0 47.0 48.8 67.2 27.38 % CZECH REPUBLIC 147.5 147.1 145.6 149.1 150.8 141.4 180.6 21.71 % SWEDEN 70.9 69.7 67 66.9 65.4 64.0 75.2 14.89 % GREECE 137.2 137.6 139.2 128.1 131.9 126.9 139.6 9.10 % UNITED KINGDOM 658 660.4 657.4 647.9 636.7 628.2 678.3 7.39 % FRANCE 560.9 556.1 553.4 541.7 531.1 527.0 564 6.56 % BELGIUM 147.6 147.6 143.8 136.6 131.3 133.3 135.9 1.91 % GERMANY 1024.4 1025 1001.5 980.0 956.1 958.1 972.9 1.52 % FINLAND 85.4 81.2 69.3 79.9 78.3 70.1 71.1 1.41 % % ABOVE KYOTO TARGET 83.7 84.6 85.5 84.7 81.8 78.4 77.4 1.29 % NETHERLANDS 215.4 218.4 212.1 208.5 207.5 206.9 200.4 3.24 % IRELAND 68.4 68.6 69.9 69.7 69.2 67.4 63 6.98 % ITALY 577.3 580.5 582.2 563.0 552.8 541.5 485.7 11.49 % SLOVENIA 19.7 19.9 20.3 20.5 20.7 21.3 18.6 14.52 % DENMARK 73.6 68.2 63.9 71.0 66.6 63.8 54.8 16.42 % SPAIN 407.4 425.2 440.6 433.0 442.3 405.7 331.6 22.35 % AUSTRIA 92.5 91.2 93.3 91.6 88.0 86.6 68.7 26.06 % LUXEMBOURG 11.3 12.8 12.7 13.3 12.9 12.5 9.1 37.36 % MALTA 3.1 3.2 3.4 2.9 3.0 3.0 NO TARGET CYPRUS 9.2 9.9 9.9 9.9 10.1 10.2 NO TARGET Source: www.energy.eu

Countries in the green do well and emit less than their 2012 target. The countries in the red emit more than their Kyoto target. So far, in the framework of ETS, Lithuania has even been able to export its emission allowances to other European countries such as Luxembourg.14 In the period 2005–2008, average annual Figure 19.2: PM Pollution EU concentrations of the main pollutants in Lithuania did not exceed the limit values. 15 Yet, the largest sources of air pollution, to which emission ceilings were introduced in 2007, are:  production and storage of petrochemicals  power and heat generation (coal, natural gas, oil, biomass)  other industry (such as glass, textile and cement industry) Source: Dieselretrofit

14 Ibidem. 15 European Environmental Agency, ‘Air Pollution: Lithuania’, http://www.eea.europa.eu/soer/countries/ consulted on 19‐ 02‐2013. 208

 household sector (60 % of total SO2 emissions)

 agriculture (largest NH3): livestock manure  the burning of wood‐based fuels by households (14.3%);  transport (emissions from passenger vehicles and heavy goods vehicles) Urban air pollution by particulate matter has been gradually decreasing since 2004. When looking at Lithuania’s performance on limits for GHG emissions, the country’s GHG production is 44.9% below its maximum. Overall, compared to EU27, Lithuania´s air pollution is below average.16

19.4.3 Soil contamination Although the relevant pollution levels do not exceed the EU standards, the Lithuanian soil is Figure 19.3: Nitrogen surplus in soil slightly contaminated. The three main causes of the soil deprivation in Lithuania are:  soil acidification caused by a decline in the use of lime in agriculture and by acid rains;  pollution by heavy metals (chromium, cadmium, lead, nickel copper, zinc and iron)  use of fertilisers, herbicides, fungicides and Source: EEA pesticides in agriculture.17 As shown in figure 19.3, Lithuania belongs to the EU’s lower average regarding the amount of nitrogen from fertilisers in Europe.18

19.4.4 Radiation pollution As far as radiation is concerned, Lithuania is not a country with high radiation volumes and densities. Despite the country’s geographic proximity to Ukraine (about 600km), Lithuania was not significantly exposed to radiation as a consequence of the Chernobyl disaster in 1986. The highest radiation values are measured at the coastal part of Lithuania: 3400Bq/m2. However, a majority of Lithuanian ground radiation is between 1000‐3000Bq/m2, both of which are low to moderate values. The United Kingdom, Austria, Bavaria, Greece, Romania and especially Scandinavian countries received exponentially higher volumes of radiation in 1986 by spread of radioactive Cesium‐137, Strontium‐90 and Iodine‐131, arisen from the fission of Uranium‐235. The half‐life decay time of Cs‐137 is 30 years, of Sr‐90 19 years and I‐131 8 years. This means that current values of radiation are significantly lower than in 1986. Additionally, in order to ensure sufficient radiation management in Lithuania, radiation protection and monitoring, expertise provision, state supervision, dissemination and maintenance of relevant infrastructure was delegated to the Radiation Protection Centre.19

16 D. Retrofit, ‘Map of radiation in Europe’, http://www.dieselretrofit.eu/why.html, consulted on 19‐02‐2013. 17 European Soil Bureau, ‘Soil Survey and Available Soil data in Lithuania’, http://eusoils.jrc.ec.europa.eu/esdb_archive/eusoils_docs/esb_rr/n09_soilresources_of_europe/Lithuania.pdf, consulted on 19‐02‐2013. 18 Ibidem. 19 OneEurope, ‘Radiation Levels in Europe’, http://one‐europe.info/in‐brief/radiation‐levels#.UQUHvh3C2B8, consulted on 19‐02‐2013; Radiation Protection Centre of Lithuania, ‘Reports’, http://www.rsc.lt/index.php/pageid/428, consulted on 19‐ 02‐2013; Interview 44. 209

20. EU Structural Support to Lithuania

European Member States are eligible to receive EU assistance if their GDP before enlargement in 2004 was lower than 90% of the average GDP of the 15 EU Member States. Lithuania proved to meet this criterion, while in 2005 its GDP amounted to 47% of that of the first 15 EU Member States. From 2005 until 2011 the GDP of Lithuania increased with 20%, even though there was a large setback in 2009 due to the economic crisis.1 Lithuania has successfully exploited this membership opportunity to stimulate its economic development and growth. It is even estimated that through these funds Lithuania will be able to approach the level of development of some of the older Member States, such as Ireland, in terms of the level of development by 2015.2 This chapter focuses on the EU’s cohesion policy and will explore the four periods in which Lithuania has received and will receive EU support. The first period covers the pre‐accession years from the PHARE programme from 1994 until the accession of Lithuania to the EU in 2004. The second period includes the first two years after accession, 2004‐2006, during which the Single Programming Document (SPD) was operational. The third period will discuss the multi‐annual structural funds programme from 2007‐2013, which was aligned with the Lisbon Strategy. Although we are currently in this timeframe, the EC has already drafted a structural funds budget for 2014‐2020, with regard to its 2020 targets. This will be covered in the discussion about the fourth period, which also discusses Lithuania’s own strategies to enhance effectiveness of the programme.3

20.1 EU support in the pre‐accession period

In 1989 the PHARE Programme was founded which was originally intended to transform the economic and political systems of Poland and Hungary. PHARE was the financial instrument of the EU’s pre‐accession strategy and was used as such since 1994 to support the transition of ten CEECs, among which Lithuania, in preparation of the accession to the EU. PHARE programs were based on country‐specific priorities and needs. They were especially designed to facilitate the financial and technical co‐operation between the candidate countries and the EU for two reasons. Firstly, to help the candidate country build the capacity for implementing the Acquis Communautaire with the accompanying knowledge of Community targets and administrative procedures. A second priority was to help the candidate countries upgrade their industry and infrastructures in order to comply with EU standards regarding, inter alia, transport, working conditions, product quality and environment.4 Because of the publication of the Agenda 2000, a new EU pre‐accession programme, and the coming EU enlargement, PHARE and the subsequent management of the European Cohesion and Structural Funds which would then be allocated became even more aimed at preparing the candidate countries for their accession. Agenda 2000 was a European Commission project for strengthening the EU policy and establishing a firm Financial Framework for facing the

1 No author, ‘EU Structural Support’ http://www.euro.lt/en/lithuanias‐membership‐in‐the‐eu/eu‐structural‐support/, consulted on 10‐01‐ 2013. 2 Ibidem. 3 Interview 10. 4 European Union, ‘Phare Programme’, http://www.euro.lt/en/lithuanias‐membership‐in‐the‐eu/eu‐structural‐support/, consulted on 8‐01‐2013. 210 challenges of supporting the ten candidate Member States.5 Since Agenda 2000, PHARE started stimulating economic development through improving the implementation of budgets, increasing the size of projects and further decentralising the management to the recipient countries. In these new measures, financial institutions such as the World Bank and the European Investment Bank were also involved.6 In addition to PHARE, there were two complementing EU support programmes; the Instrument for Structural Policies for Pre‐ Accession (ISPA) and the Special Accession Programme for Agricultural and Rural Development (SAPARD). After accession the projects under SAPARD were to be continued through the Agricultural and Rural Development Programmes and the projects under ISPA through the Cohesion Fund (CF).7 The Lithuanian preparations for accession to the EU officially started at the end of 1996. Many developments occurred in the eight years previous to accession and the process paced up gradually. From 1996‐1998 Lithuania experienced a slow start in preparing for the accession, especially regarding the division of the country in regions, which was required by the EU. In 1998 the issue was completed with an important legal framework: the Regional Policy Guidelines. In the following two years the process accelerated with the implementation of programs under PHARE, SAPARD and ISPA in the national programmes and legal frameworks. Large budgets had to be processed by Lithuania: (in euro’s) 14‐16 million from PHARE, 29 million from SAPARD and between 50‐70 million from ISPA.8 As from 2001 the process accelerated even more resulting in many domestic reforms. The European Commission requested that the Ministry of Foreign Affairs took the responsibility for drafting the structural support programmes. The Ministry of Finance was held responsible for the implementation of the structural programmes.9 In this first period structural reforms thus were aimed towards aligning the Lithuanian economy increasingly with that of the 15 original Member States.10

20.2 EU support in the period 2004‐2006

After Lithuania’s accession to the EU in 2004, the first official EU support programme covered the years 2004‐2006. The funds for this programme came from the EU Regional Policy or Cohesion Policy framework, which both allocate funds to diminish the structural differences dividing EU regions in order to support a balanced development in the EU, and to create equal social and economic opportunities. The programme was drawn up in the Single Programming Document (SPD). The major aim of the SDP was to develop a good basis for competitiveness and to promote a knowledge economy to facilitate an increase in GDP, employment and welfare in Lithuania. For these purposes approximately 1.2 billion euro was allocated by the EU in structural funds and the government of Lithuania. The SPD included an analysis of the economic context and conditions in Lithuania, on which a strategy was based for tackling the issues with

5 European Union, ‘Agenda 2000: For a Stronger and Wider Union’, http://europa.eu/legislation_summaries/ enlargement/2004_and_2007_enlargement/l60001_en.htm, consulted on 8‐01‐2013. 6 European Union, ‘Phare Programme’, http://europa.eu/legislation_summaries/enlargement/2004_and_2007 _enlargement/e50004_en.htm, consulted on 8‐01‐2013. 7 European Commission, ‘General Report on pre‐accession assistance in 2002’ http://eur‐lex.europa.eu/smartapi/ cgi/sga_doc?smartapi!celexplus!prod!CELEXnumdoc&numdoc=503DC0844&lg=en, consulted on 10‐01‐2013. 8 V. Nakrosis, ‘Effectiveness of Implementing the EU Cohesion Policy in Lithuania’, Paper for the Fourth Pan‐European Conference on EU Politics of the ECPR (2008), p.3. 9 Ibidem, p.4. 10 European Commission, ‘The Economies of Latvia, Estonia and Lithuania’, http://ec.europa.eu/economy_finance/een/002/article_4073_en.htm, consulted on 16‐01‐2013 211 joint investments. The document had a clear vision: “by 2015, Lithuania will have achieved parity with the more prosperous EU Member States in terms of key social and economic indicators. Its people will enjoy a high quality of life based on modern, knowledge‐driven economy that exploits the country’s many unique strengths”.11 In order to implement these targets, four priorities were taken up in the SPD. First, the development of a social and economic infrastructure, second, human resource development, third, development of the productive sector and last, rural and fisheries development. Later, technical assistance was added as a fifth priority for the support of management and administration of the programs. This included implementation, monitoring, financing and evaluation.12 The programme was thus intended to facilitate an overall development of the country. The main areas of focus from the structural support initially under ISPA, were continued after accession under the SPD. These areas were mainly water management and transport. Looking for example at the Cohesion Fund support per sector, 34% of it was dedicated to water management for cleaner water in Lithuania. Also 29% of the budget was used for the renewal of roads. Furthermore, 20% of the budget was used for the renewal of railways, 13% for waste management and 4% for technical assistance.13 In this period an important focus was already on developing the hard infrastructure in Lithuania, which has lasted until today (see chapter 18 on infrastructure). Evaluations show that during the period 2004‐2006 the Lithuanian government performed better on the input than the outcome side. The EU rules and standards regarding the areas touched upon by the funds were fairly easily transposed into the Lithuanian system, however, the actual absorption of allocated funds under the SPD proved difficult to implement and targets were not reached.14 According to Vitalis Nakrosis, associate‐professor at Vilnius University, the lagging behind of Lithuania in reaching targets and implementing policy was largely due to a shortage of civil staff to cover the workload. However, the number of structural programmes increased and, consequently, more management of EU support was requested. In order to bridge this gap new units were created for the management of EU support programmes. In 2006‐2007 additional staff was recruited for the multi‐annual plan and the implementation of the operational programmes for 2007‐2013.15 Furthermore, an evaluation of the 2004‐2006 SPD showed that the main problems related to the SPD implementation were caused by the lack of project planning and implementation experience and insufficient administrative capacities of the applicants, project promoters and the SPD administrative authorities.16 Also. although before 2004 it was decided that the Ministry of Foreign Affairs was responsible for drafting the structural support programs, the SPD was developed by the Ministry of Finance, which was also coordinating its

11 No author,’Single Programming Document of Lithuania 2004‐2006’, www.transp.lt/files/uploads/client/Lithuanian_SPD__03.12._FINAL.do, consulted on 06‐06‐2013 12 Ibidem, p.7. 13 ESTEP for the Ministry of Finance, European Commission: Evaluation of the Impact of Assistance from the Cohesion Fund on Lithuania, p.7. 14 V. Nakrosis, ‘Effectiveness of Implementing the EU Cohesion Policy in Lithuania’, Paper for the Fourth Pan‐European Conference on EU Politics of the ECPR, (2008), p.7. 15 Ibidem, p.8. 16 Lithuanian Ministry of Finance, ‘Qualitative and Quantitative evaluation of the Achieved Aims and Objectives of the Lithuanian Single Programming Document 2004‐2006’, http://www.esparama.lt/es_parama_pletra/failai/fm /failai/Vertinimas_ESSP_Neringos/Ataskaitos_2009MVP/BPD_pasiektu_tikslu_vertinimo_ataskaita_EN.pdf, consulted on 5‐ 04‐2013 212 implementation. In 2006 it was decided that the Ministry of Finance would become the Managing Authority for the EU 2007‐2013 Cohesion Policy.17 The first programming period thus had its ups and downs and mainly suffered from a lack of administrative experience. In the next programming period, this problem was addressed through more technical assistance.

20.3 EU support in the period 2007‐2013

20.3.1 Structural support programmes 2007‐2013 In the period 2007‐2013 Lithuania received 8,4 billion euro from the European Regional Development Fund (ERDF), the Cohesion Fund (CF) and from the European Agricultural Fund for Rural Development (EAFRD). The Lithuanian government has added 1.5 billion euro to this sum to co‐finance the total amount of structural support programmes. The total budget, 9.9 billion euro for 2007‐2013, has been spent on four programmes: Human Resources Development (1.1 billion), Economic Growth Action (3.5 billion), Cohesion Promotion Action (3 billion) and additional on Rural Development Programmes (2.3 billion). The support for the latter has also been derived from the European Agriculture and Fisheries Funds. In addition, Lithuania receives financial support for the participation in European Community programmes (for example in the fields of culture, education, and science and research), for external EU border protection, for facilitation of the Russian transit to and from the Kaliningrad region through the Lithuanian territory, and also for financing the closure of the Ignalina Nuclear Power Plant (see chapter 18 on infrastructure).18 In order to divide the allocated EU structural funds, Lithuania has drawn up several documents under the National Strategic Reference Framework (NSRF). First of all, there was the EU Structural Funds Absorption Strategy, aimed to help Lithuania use all the structural funds allocated, while this had posed difficulties according to the evaluation of the 2004‐2006 SPD mentioned earlier. In addition to this, three separate operational programmes have been designed. First the ‘Human Resources Development Programme, which is allocated 16% of the structural funding and is financed by the European Social Fund (ESF) whose priorities are attracting and retaining people in the labour market, enhancing life‐long learning and developing the quality of workforce. Second is the Economic Growth Action Program, which receives 45.3% of the structural funding budget. This program is financed by the ERDF and the CF. Priorities for this programme are increasing the number of high added‐value businesses as well as the business productivity, promoting innovation and improving the effectiveness of economic infrastructure. The third programme concerns cohesion policy and accounts for 38.7% of the structural funding. The financing for this programme is also obtained from the ERDF and CF. It is designed to employ local potential, enhance the accessibility and quality of public services and improve the environment.19 A fourth programme, Technical Assistance, was added later and can be compared with the Technical Assistance which was operational during the 2004‐2006 SDP.20

17 Lithuanian Ministry of Transport and Communications, ‘Structural Funds for period 2004‐2006’, http://www.transp.lt/en/eu_support/stuctural_funds, consulted on 13‐01‐2013. 18 No author, ‘EU Structural Support’, http://www.euro.lt/en/lithuanias‐membership‐in‐the‐eu/eu‐structural‐support/, consulted on 12‐01‐2013. 19 Ibidem. 20 V. Nakrosis, ‘Effectiveness of Implementing the EU Cohesion Policy in Lithuania’, Paper for the Fourth Pan‐European Conference on EU Politics of the ECPR, (2008), p.10. 213

The overall aim of the structural support programmes is to contribute to a rapid improvement of investment, working conditions and living standards in Lithuania to the benefit of the whole population. In order to achieve this, the programmes aim for acceleration of economic growth in the long term, the creation of more and better jobs and the promotion of social cohesion. With the Operational Programmes, investments are made in the improvement of the economic infrastructure, altering business activity, the development of new energy resources, urban areas, environment friendly farming and the accessibility of public bodies. Furthermore, initiatives in fields of innovation, accessibility of the Internet, creation of jobs and lifelong learning are stimulated.21 Besides the structural support given under the cohesion and development programs, it is also possible for businesses to attract grants directly from the EU. However, according to an interviewee, a problem of this support is that applying for it is a lengthy and complicated process with a lot of paperwork. Large companies are well able to make it through the process and receive the EU support, but small and medium sized businesses often experience difficulties in attracting them. Especially the credit crisis has hit these small and medium sized companies hard, hence a major adjustment was needed. To overcome this problem Lithuania redirected its funds to Financial Engineering Instruments (FEI’s), to tackle the sudden lack of financial resources as a consequence from the credit crunch.22 FEI’s are a relatively new instrument and are mainly used in two areas, namely to support small and medium enterprises, and to develop energy efficiency in housing, which proved to be an underexposed issue after evaluation of the market. In the programming period of 2007‐2013, FEI’s were provided under two operational programmes (OP’s); the small and medium sized companies under the Economic Growth OP and the housing energy efficiency financing under the Cohesion Promotion OP. With regard to FEI’s to small and medium sized businesses, there are several instruments available, such as soft loans, micro‐loans, guarantees, credit insurance and venture capital investment. These FEI’s are mainly gained from the European Regional Development Funds and co‐financed by the private sector.23 An important rationale to use these FEI’s is that they don’t require funding from the Lithuanian state, since they are funded by the EU and the private sector.24 This new instrument thus provided for desirable investments and new economic development opportunities.

20.3.2 Structural support implementation 2007‐2013 As in the former planning period, the programmes during 2007‐2013 are mainly drafted on a central level and they are coordinated by the Ministry of Finance, which is the Managing Authority. However, the selection of the specific projects happens on a lower level. The budgets are allocated and divided among the regions, in which the project selection happens. Moreover, institutions of local government have been promised the discretion over the investment of 12% (Approximately 1 billion euro) of the whole EU structural Support budget for Lithuania.25 In order to process the funds in specific projects, the municipalities are working together in regional councils formed by the mayors of several municipalities. These are in charge of negotiating and approving the choice of projects. Vilnius is for example working together with

21 No author, ‘EU Structural Support’, http://www.euro.lt/en/lithuanias‐membership‐in‐the‐eu/eu‐structural‐support/, consulted on 13‐01‐2013. 22 Interview 25. 23 K. Maniokas and A. Miseliuiene, ‘Expert evaluation network delivering policy analysis on the performance of Cohesion policy 2007‐2013’, European Commission (2012), pp. 2‐5. 24 Ibidem, p.6. 25 No author, ‘EU Structural Support’, http://www.euro.lt/en/lithuanias‐membership‐in‐the‐eu/eu‐structural‐support/, consulted on 13‐01‐2013. 214 five surrounding municipalities in a regional council. When funding becomes available, standing commission consisting of the heads of planning departments in the municipalities chooses projects from a database. These have to be approved by the regional council before they can get implemented. In the projects the municipalities often have to co‐fund approximately 15% of the budget. However, for some projects more has to be co‐funded. For example in the case of constructing the Western Bypass, the total cost of the projects was 400 million litas, for which the municipalities co‐funded 40‐50%. On the other hand, projects such as renovation of schools, hospitals or outpatient clinics are fully financed by the structural funds.26 According to an interviewee, the 12% of the budget for which the municipalities have their own discretion is not such a big budget. The budget has to be divided by ten regions and then over an even greater number of municipalities. What is eventually left is thus a small budget which limits the opportunities.27

20.3.3 Evaluation While Lithuania is still implementing some structural support programs, data already shows positive results of the Lithuanian and European efforts. In October 2012 Lithuania outpaced all other European Union Member States in the absorption of structural funds, according to statistics of the European Commission. 49.4% of structural funds for Lithuania from the EU’s financial framework for the period 2007‐2013 had been disbursed in the programs. Lithuania’s Minister of Finance stated this was due to improvements made in continuous project supervision. Over the last 5 years 6,500 projects were implemented, accounting for 86% of the total of funds allocated to Lithuania.28 According to an interviewee this improvement in absorption rates is due to Lithuania’s accumulated experience and administrative stability. The people involved in processing structural support increasingly learned how to deal with this, created proper administrative structures, and got used to the rules. Also, there was more stability in structures, institutions and the people working in them. These developments have smoothened the process and increased its efficiency.29

20.4 EU support in the period 2014‐2020

Currently, Lithuania is preparing for its third programming period. This programming period is based on the EU 2020 strategy, which emphasises ‘Growth’. Firstly, the strategy prioritises ‘Smart Growth’, secondly ‘Sustainable Growth’ and thirdly ‘Inclusive Growth’.30 The operational targets in the strategy must bring improvements to research and innovation, climate change mitigation and clean energy development, employment, education and poverty reduction by 2020. These aims have to be translated into national targets.31 In order to reach these goals efficiently and effectively the European Commission has also proposed the adoption of a Common Strategic Framework (CSF) to improve coherence between the different financing funds for structural assistance (ERDF, ESF, CF, EAFRD and EMFF 32).

26 Interview 2. 27 Ibidem. 28 No author, ‘Lithuania Ranks First in EU Structural Funds Absorption’ http://www.15min.lt/en/article/business/lithuania‐ ranks‐first‐in‐eu‐structural‐funds‐absorption‐527‐268366, consulted on 15‐01‐2013. 29 Interview 25. 30 European Commission, ‘Europe 2020’, http://ec.europa.eu/europe2020/europe‐2020‐in‐a‐nutshell/flagship‐ initiatives/index_en.htm, consulted on 20‐01‐2013. 31 Section for Economic and Monetary Union and Economic and Social Cohesion, ‘EESC working document: Common Strategic Framework on Cohesion: 2014‐2020’, European Economic and Social Committee (2012), p. 4. 32 ERDF: European Regional Development Fund, ESF: European Social Fund, CF: Cohesion Fund, EAFRD: European Agricultural Fund for Rural Development and the EMFF: European Maritime and Fisheries Fund 215

According to the Lithuanian Ministry of Finance, the cohesion policy for 2014‐2020 should be concentrated on a limited number of priorities in order to increase the impact and visibility of the investments.33 This issue was also posed in the September 2012 working document A Common Strategic Framework for Cohesion Policy 2014‐2020, stating there has been criticism on the implementation of structural and cohesion funds in the period 2007‐2013 because the funding was said to be fragmented on many projects, which diluted the effectiveness of the actions.34 To respond to these issues the Lithuanian government has developed several strategic approaches. For instance, according to an interviewee, for the coming programming period, the Lithuanian government and the Ministry of Finance are working on a highly integrated approach to avoid the fragmentation. The budget is limited, so it has to be used in an efficient way. On the one hand the support programs must aim on improving solidarity and compensation, which means that there has to be more investment in less developed areas. However, on the other hand, growth and economic potential of specific areas also have to be born in mind. The idea for 2014‐2020 is to invest in the big cities to employ their potential.35 An integrated approach will be used to target problematic areas by covering several issues (infrastructure, human resources, poverty and unemployment) with broad investment projects, such as a project in cultural heritage, which can also be used by the local community for some purpose and around which businesses and tourism can be developed. All the ministries should have the interest to develop jointly and coordinate basic national and sectorial interests. In addition, Lithuania is even taking the integrative approach a step further. The previous government prepared a long‐term development strategy document for the future of Lithuania called Lithuania 2030, which was adopted last year. This strategy was combined with the EU 2020 targets, which resulted in a comprehensive document covering the Lithuanian as well as the European Union development goals. Lithuania has thus developed quite a unique program for the future.36 Another approach to avoid the fragmentation, is to focus on a limited number of priorities, thus on a few basic areas. The most important for Lithuania are basic infrastructure and Human Resources. Lithuania needs investments in energy infrastructure, while at the same time following the 2020 targets, renewables and biomass are also being developed. Secondly, the connectivity of the core network of roads and rails need to be enhanced and third, work has to be done on the industry infrastructure to expand businesses and improve logistics. Evenly important are the infrastructure regarding high added value, research centres and innovation.37 Additionally, for the coming planning period, the use of FEI’s, already mentioned before, will be extended. These instruments are designed to be as efficient as possible with government money, while these instruments are mostly co‐financed by the private sector.38

20.5 Evaluation and concluding remarks

In a presentation given by the Lithuanian Ministry of Finance named: The Future of Cohesion Policy: Lithuanian Perspective in March 2011, some insights on the impact of Cohesion Policy

33Lithuanian Ministry of Finance, ‘The Future of Cohesion Policy: Lithuanian Perspective’, http://www.esparama.lt/es_parama_pletra/failai/fm/failai/Verinimo_konferencija_2011/Konferencijos_pranesimai/2nd_d ay_Closing_session/3_Closing_session/Closing_Stankaitiene_EN.pdf, consulted on 15‐01‐2013. 34 Section for Economic and Monetary Union and Economic and Social Cohesion, ‘EESC working document: Common Strategic Framework on Cohesion: 2014‐2020’, European Economic and Social Committee (2012), p. 2. 35 Interview 10. 36 Ibidem. 37 Ibidem. 38 Ibidem. 216 were given. The noticeable effects of the programmes under the Cohesion policy from 2007‐ 2013 were the following: firstly, the Cohesion Policy has helped reduce economic, social and environmental disparities. Furthermore, it has benefited all regions through foreign direct investment and improvement of competitiveness. However, regional disparities remain wide and even though the past ten years have helped to reduce these, the crisis has disrupted the process.39 Furthermore, it was also stated that the ambitious EU 2020 goals have already been partially met in Lithuania. The Ministry of Finance provided some numbers, regarding the Lithuanian situation compared to the other Member States and the Europe 2020 goals. These numbers state that Lithuania belongs to the group of fastest growing regions, that the employment rate lies within the 2020 target and that there is a lot of productivity growth. Furthermore, there are positive trends in the education rates, which meet the 2020 targets. And lastly, almost 50% of Lithuanian houses have a broadband connection, which is also one of the 2020 targets.40 Moreover, several interviewees working on this subject answered positively to the question whether structural support programmes have had a positive influence on the development of Lithuania. Especially in the past few crisis years, there has been no money available to invest in the development of the country, which made the structural funds an essential source of funding.41 However, on the question whether the EU was highly effective in giving its structural funds, the opinion was less clear. Of course, through negotiations Lithuania has had some influence on the size of the budget and it applied for funding in the areas where it could benefit most. However, one interviewee stated that the effectiveness of the structural support suffers from a one‐size‐fits‐all approach from the EC. Lithuania wants to negotiate, but the instruments it chooses are not the ones the EU currently proposes for investing in the Member States. Also, the accountability of Lithuania to the EC regarding the strategic support documents is treated per sector and by different DG’s, which makes it hard to explain the effectiveness of the programmes focused on integration of these different sectors. The different DG’s set different priorities and are not adequate in coordinating the budgets among each other.42 However, over the last years Lithuania has received billions of euros under the EU structural and cohesion programmes. The overall aim of the programmes was to improve the life of all people in Lithuania. Indeed, in the programmes that have been operational in the last 20 years an economic development trend can be discovered. Since the introduction of Agenda 2000 the focus was put increasingly on economic convergence. This trend continued with the 2004‐2006 period during which more than half of the budget was allocated to development of the economic infrastructure and on increasing productivity. In 2007‐2013 half of the budget was again directly allocated to Economic Growth. In the 2020 strategy this aim on growth is still significant and focuses on economic policy and other growth and innovation policy to support this. Many programmes have thus been implemented during the past twenty years and different numbers show improvement in a range of sectors. Although it remains hard to prove whether

39 Lithuanian Ministry of Finance, ‘The Future of Cohesion Policy: Lithuanian Perspective’ http://www.esparama.lt/es_parama_pletra/failai/fm/failai/Verinimo_konferencija_2011/Konferencijos_pranesimai/2nd_d ay_Closing_session/3_Closing_session/Closing_Stankaitiene_EN.pdf, consulted on 18‐01‐2013 40Lithuanian Ministry of Finance, ‘The Future of Cohesion Policy: Lithuanian Perspective’, http://www.esparama.lt/es_parama_pletra/failai/fm/failai/Verinimo_konferencija_2011/Konferencijos_pranesimai/2nd_d ay_Closing_session/3_Closing_session/Closing_Stankaitiene_EN.pdf, consulted on 18‐01‐2013. 41 Interviews 2; 10; and 25. 42 Interview 10 217 these developments are the result of EU funding, the significant growth rates and improvements in certain areas described above cannot be denied.

218

Section 5: The social domain

219

Introduction

This section provides insight into several of Lithuania’s social domains, namely the national education system, health care system and social security system. All three of these domains have changed significantly since Lithuania became independent from the Soviet Union. During Soviet rule, Lithuanian education, health care and social security were organised centrally and strictly ideologically controlled by the communist government. The social security system was based on compulsory employment with a huge redistributive mechanism. In practice this meant that although coverage was available to everyone in society, the benefits were relatively low. With regards to education, the content of the curriculum and assessment as well as examination procedures were decided upon by the Soviet government situated in Moscow. Health care was mainly organised on the level of hospitals and was not accessible to many people. Despite the fact that the three domains were in some aspects organised differently during the Soviet era, they were all governed in a very centralised and universal way. Not long after Lithuania gained independence from the Soviet Union, the country started taking measures to move away from this type of state‐cantered organisation. In all three domains, Lithuania underwent reforms supporting the processes of decentralisation and liberalisation. Examples of such reforms are the introduction of private educational institutions and private health care institutions. Moreover, since 2004 Lithuanians may choose their own general practitioner and doctors and have the possibility in the social security system to accumulate their own pension account. Even though Lithuania became a member of the European Union in 2004, it is hard to tell whether and to what extent the EU influenced the transformations in the three social domains. Unlike with most other economic and political topics discussed in this report, Lithuania is relatively autonomous when it comes to the organisation of health care, education and social policy. According to the Maastricht Treaty of 1992, the fields of education, health care and social security are subject to the principle of subsidiarity, which means that these domains are considered to be a member state competence. Despite the fact that Lithuania is rather autonomous in the areas of health care, education and social policy, the country seems to be aligning much of its policy regarding these matters with other European Union member states. This becomes clear when examining changes made in health care due to the EU‐structural funds and educational changes undergone with respect to the Bologna Declaration. The first chapter of this section provides insight into how the Lithuanian education system has transformed from Soviet times up until now and how this system is currently organised. The second chapter gives an overview of how the Lithuanian health care system has developed since Lithuania became independent, how health care currently works in Lithuania, and what issues and challenges still need to be dealt with. The third and final chapter describes the changes made in social policy, as well as the current organisation of social policy in Lithuania. Also, a discussion is provided about problems regarding social policy, especially concerning the huge shadow economy and the unemployment trap.

220

21. Social policy

To understand the contemporary social security system of Lithuania and the development it has undergone, it is first of all important to get to know the system it has inherited from the Soviet period.1 Indeed, it seems that this has influenced the contemporary social security system considerably. This chapter is structured as follows: firstly, this chapter describes the social protection system Lithuania has experienced until 1991; subsequently, it addresses the current welfare system of Lithuania including the different parts of the social security system, with a particular elaboration on reforms of the pension system; and, finally, it discusses the influence of social benefits on the emergence of the shadow economy in Lithuania. As a conclusion, the chapter discusses the main characteristics of Lithuanian social policy and compares the current situation with the Soviet system.

21.1 Social security during the Communist era

In the Communist era, the social security system in Lithuania was based on compulsory employment with a huge redistributive mechanism.2 The state delivered not only employment for all, but also guaranteed social security in all cases, from loss of working capacity to old age and illness, as well as free education and free medical treatment for everyone.3 The coverage of social security was universal, but the amount of the benefits was relatively low.4 In general, the social security and services were tied to the workplace.5 Much of the social services like health care, education and housing were provided by, or distributed with the help of employers.6 Furthermore, the government used the provision of social services to influence the labour market. Because much of the services were (almost) free, the demand for these services was controlled by queuing. By the guarantee to, for example, rapid access to certain services, the regime could manipulate the supply of labour to strategic or unpopular industries, like the military, or to geographically remote areas.7 Finally, the benefits were explicitly linked to the length of the working record and the level of pay.8 Thus, in the Communist era, social security and employment were tied to each other. Even though the social security system was in fact a huge redistributive mechanism, because benefits were allocated to all people in the same amount and equality was thus promoted, there also existed a so‐called nomenclature in the Soviet period. There was an upper class that profited from special arrangements with regards to benefit levels and the required

1 A. Guogis and D. Bernotas, ‘Development of Social Security in Lithuania: Achievements and Drawbacks’, Forum Bosnae, nr. 55 (2012), pp. 158‐159 2 J. Aidukaite, ‘The welfare system of Lithuania’, in: K. Schubert ed., The handbook of European welfare systems, London: Routledge, 2009, p. 295 and M. Gedvilaitė, ‘The Shift of Welfare Regimes in Lithuania: Bureaucratization as a De‐ Humanizing Mechanism’, Socialiniai Mokslai, nr. 2 (2006), p. 24. 3 M. Gedvilaitė, ‘The Shift of Welfare Regimes in Lithuania: Bureaucratization as a De‐Humanizing Mechanism’, Socialiniai Mokslai, nr. 2 (2006), p. 24. 4 J. Aidukaite, ‘The welfare system of Lithuania’, in: K. Schubert ed., The handbook of European welfare systems, London: Routledge, 2009, pp. 295‐296. 5 A. Guogis and D. Bernotas, ‘Development of Social Security in Lithuania: Achievements and Drawbacks’, Forum Bosnae, nr. 55 (2012), p. 158. 6 Ibidem, p. 154. 7 Ibidem, p. 154. 8 Ibidem, p. 154. 221 working record.9 In other words, there were special groups of people who, according to their (political) status, received special treatment in the social security system.10 This partly subverted the aim of social equality and justice.

21.2 The current situation

Just as in other policy areas, social policy has undergone considerable reform after the collapse of the Soviet regime. Nevertheless, as will be mentioned below, some characteristics of the Soviet system are still present in the current welfare system of Lithuania. First, however, the contemporary social security system has to be described. Lithuanian social policy is divided into two systems:11 social insurance and social assistance. Whereas social insurance is financed from the extra‐budgetary Social Insurance Fund12, SoDra, social assistance is provided by the state and financed from general tax revenues.13 There are two separated budgets, because the Social Insurance Fund receives the money to pay the benefits mainly from employee and employer contributions.14 Indeed, the social insurance system in Lithuania is based on the pay‐as‐you‐go principle.15 This means that benefits for retirees, unemployed, and the like are paid from the contributions that are made in the same time period by employers and employees. By using a separate budget for SoDra, people can see that their contributions are really redistributed as benefits to insured people and are not used for other purposes. Contributions to the Social Insurance Fund are obligatory for everyone who is contractually employed.16 These individuals are consequently also required to be insured and may receive all kinds of insurance benefits in case of incapacity for work because of old age or unemployment. The insurance scheme covers all social risks.17 For self‐employed persons and farmers, the situation is somewhat different. They are only required to be insured for pensions (old age as well as incapacity for work), the reimbursement of some expenses of medical treatment and prevention, and funeral benefits. In case they also want to be insured against unemployment, occupational disease and accidents, they can contribute on a voluntary basis.18

9 A. Guogis and D. Bernotas, ‘Development of Social Security in Lithuania: Achievements and Drawbacks’, Forum Bosnae, nr. 55 (2012), p. 154; A. Guogis and D. Bernotas, ‘Lithuanian Social Policy Model: Why Does it Not Resemble the Swedish One?’, Philosophy, Sociology, Psychology and History, nr. 1 (2008), p. 16; and interview 53. 10 Interview 53. 11 Interview 53 and government documents, such as Social Policy Unit, Social Security System in Lithuania, Vilnius: Ministry of Social Security and Labour, 2011, p. 1, made this divison. However, J. Aidukaite, ‘The welfare system of Lithuania’, in: K. Schubert ed., The handbook of European welfare systems, London: Routledge, 2009 also made a distinction between the social services and social money assistance and stated that there are three components. 12 I. Hawkesworth et al., ‘Budgeting in Lithuania’, OECD Journal on Budgeting, nr. 3 (2010), p. 9. 13 J. Aidukaite, ‘The welfare system of Lithuania’, in: K. Schubert ed., The handbook of European welfare systems, London: Routledge, 2009, p. 297 and interview 53. 14 Interview 53. 15 The Ministry of Social Security and Labour of Lithuania, ‘State social insurance system’: http://www.socmin.lt/index.php?‐ 1010697092, consulted on 15‐01‐13; A. Bitinas, ‘Modern Pension System Reforms in Lithuania: Impact of Crisis and Ageing’, Jurisprudence, nr. 3 (2011), p. 1056; C. De La Porte and B. Deacon, ‘Social policy influence of the EU and other global actors: the case of Lithuania’, Policy Studies, nr. 2 (2004), p. 129. 16 J. Aidukaite, ‘The welfare system of Lithuania’, in: K. Schubert ed., The handbook of European welfare systems, London: Routledge, 2009, p. 297. 17 A. Bitinas, ‘Modern Pension System Reforms in Lithuania: Impact of Crisis and Ageing’. Jurisprudence, nr. 3 (2011), p. 1056. 18 J. Aidukaite, ‘The welfare system of Lithuania’, in: K. Schubert ed., The handbook of European welfare systems, London: Routledge, 2009, pp. 297‐298; European Commission, Your social security rights in Lithuania, Brussels: 2011, p. 6; and the website of the Ministry of Social Security and Labour, ‘State social insurance system’, http://www.socmin.lt/index.php?‐ 869395108, consulted on 15‐01‐13. 222

The contributions people are required to pay are calculated as a percentage of the salary paid to an employee.19 The rate is set at 34 per cent of the calculated wage, from which the employer has to pay 31 per cent over the salary and the employee has to pay 3 per cent. According to data from the Ministry of Social Security and Labour20, the contribution rates for the different insurances are (as a percentage of the salary) 26.3% for pensions,21 3.4% for sickness and maternity, 1.1% for unemployment, 0.2% for accidents at work and occupational diseases, and 3% for the health insurance.22 The social security system of Lithuania is thus mainly insurance based. People are only eligible to benefits and allowances for unemployment benefits, pensions and free health care (see chapter 22 on health care) if they have paid contributions to the Social Insurance Fund.23 However, as mentioned before, the social security system is divided into two components from which the social insurance is only one part. There is also a range of universal benefits in Lithuania that are not based on the contributions made to the Social Insurance Fund. Indeed, these universal benefits and services are not financed from the Fund, but from the state budget and concerns social assistance and social services.24 They are mainly targeted at children and families with children, disabled people, and persons who are not eligible to the social insurance pension. Some of these are means‐tested, which means that these benefits are paid only in case the income of an individual or family is below a certain amount. The administration is done by the local municipalities. Below, you will find a more detailed discussion of the social assistance and services. First, however, a description of the different insurance benefits and allowances will follow, with a particular focus on the pension system and the reform it has undergone.

21.3 The pension system

21.3.1 Old age pension Before 2004, the pension system was, like the other insurance schemes, fully based on the pay‐ as‐you‐go principle. The workers paid contributions for the benefits of the retirees. It was a solidarity between generations: employees supported their retired (grand‐)parents by in fact paying their pension. And if the employees reached the retirement age themselves, their pension would be fully paid from the contributions of their ‘children’.25 But because the Lithuanian population is getting older, like in many other European countries, and the fertility rate is particularly low, retired people make up an increasing proportion of the population.26 Consequently, contributions paid by present employees have to be divided among an increasing number of elderly. Because of this, the system became untenable for the future, and reforms were required to also guarantee future pension provisions to an ageing population. One of the measures to resolve this challenge was to raise the retirement age. From 1995 until the

19 The Ministry of Social Security and Labour of Lithuania, ‘State social insurance system’, http://www.socmin.lt/index.php?2019910138, consulted on 15‐01‐13. 20 Ibidem. 21 So not only for old age, but also for the incapacity of work and for widows and morphans. 22 The Ministry of Social Security and Labour of Lithuania, ‘State social insurance system’, http://www.socmin.lt/index.php?2019910138, consulted on 15‐01‐13. 23 J. Aidukaite, ‘The welfare system of Lithuania’, in: K. Schubert ed., The handbook of European welfare systems, London: Routledge, 2009, p. 299. 24 Interview 53. 25 J. Aidukaite, ‘The welfare system of Lithuania’, in: K. Schubert ed., The handbook of European welfare systems, London: Routledge, 2009, p. 299. 26 Website of the Ministry of Social Security and Labour about the funded pension system, ‘Pension system in Lithuania’, http://www.pensijusistema.lt/index.php?‐586352733, consulted on 10‐05‐2013. 223 beginning of 2001, the retirement age was 55 years for women and 60 years for men.27 From 2001 onwards, this age gradually increased until it reached 60 years for women and 62.5 for men in 2008.28 A new increase of the retirement age began in 2012. Until 2026, the retirement age will increase every year by 4 months for women and 2 months for men, so that it reaches the age of 65 for both genders in 2026.29 However, an increase of the retirement age alone is not sufficient to guarantee a sustainable old‐age pension system in the future. Therefore, the system itself also has been transformed. Since the pension reform of 2004, a three pillar system in the pension insurance scheme exists. The first pillar has remained the same and has been operating since 1995.30 It is the pay‐as‐you‐go principle: compulsory pension contributions (and thus insurance) by the employees are used to pay insured retirees their pension. The benefits of the old age pension derived from the first pillar are linked to previous payments and the pensioner’s service record.31 People are eligible for the first pillar old‐age pension if they are insured for at least 15 years. If they do not meet the minimum requirement of 15 years, they are not eligible for the old age pension and they have to rely on state supported income, which is 350 litas.32 For people who meet this minimum requirement, the first pillar old age pension consists of three parts: a basic amount (the basic pension), an additional amount, and a bonus for the length of record.33 The basic amount is the same payment for everyone who was in paid employment and has paid insurance contributions for at least 30 years. The amount of the basic pension is set by the government and is currently 360 litas.34 Those who have not paid the compulsory insurance contributions for at least 30 years, face a proportionally reduced amount of the basic pension.35 The additional amount is the earnings‐related part. The height of this supplementary old‐age pension depends on the amount of contributions made to SoDra and on the length of the insurance record.36 It is therefore related to the insured income the employee had paid to the Social Insurance Fund.37 Furthermore, a bonus for the length of the insurance record exists in the first pillar old‐age pension. This bonus is paid to people whose record of payments to the social pension insurance exceeds 30 years. It is calculated by multiplying 3% of the basic

27 Social Policy Unit, Social Security System in Lithuania, Vilnius: Ministry of Social Security and Labour, 2011, p. 5. 28 J. Aidukaite, ‘The welfare system of Lithuania’, in: K. Schubert ed., The handbook of European welfare systems, London: Routledge, 2009, p. 299. 29 Ministry of Social Security and Labour, ‘State social insurance pensions for old‐age’, http://www.socmin.lt/index.php?1992596697, consulted on 09‐05‐13. 30 J. Aidukaite, ‘The welfare system of Lithuania’, in: K. Schubert ed., The handbook of European welfare systems, London: Routledge, 2009, p. 299. 31 A. Guogis and D. Bernotas, ‘Lithuanian Social Policy Model: Why Does it Not Resemble the Swedish One?’, Philosophy, Sociology, Psychology and History, nr. 1 (2008), p. 15; and J. Aidukaite, ‘The welfare system of Lithuania’, in: K. Schubert ed., The handbook of European welfare systems, London: Routledge, 2009, p. 299. 32 Interview 53. 33 Ibidem. 34 The reduced rate is proportional to the 360 litas. So, in case an individual has a record of 28 years, the amount he receives is (360/30)x28=336 litas. Information from interview 53 and from the Ministry of Social Security and Labour, ‘State social insurance pensions for old‐age’, http://www.socmin.lt/index.php?‐2028154024, consulted on 15‐01‐13. 35 The Ministry of Social Security and Labour, ‘State social insurance pensions for old‐age’, http://www.socmin.lt/index.php?‐2028154024, consulted on 15‐01‐13. 36 Interview 53. 37 J. Aidukaite, ‘The welfare system of Lithuania’, in: K. Schubert ed., The handbook of European welfare systems, London: Routledge, 2009, p. 299 and the Ministry of Social Security and Labour, ‘State social insurance pensions for old‐age’, http://www.socmin.lt/index.php?‐2028154024, consulted on 10‐05‐2013. 224 pension by the sum of the full years the pension insurance record exceeds 30 years.38 Indeed, the first pillar of the old age pension is fully determined by the government. The basic amount is set by the government and is not subject to indexation, while the government also determines the formula used to calculate the supplementary part and is free to make amendments in this formula.39 So, in the first pillar, people are fully dependent on politics for their (future) pension. A second pillar started to operate in the Lithuanian pension system in 2004. This was necessary to meet the challenges Lithuanian society was confronted with. However the most important reason for starting this second pillar was to decrease the dependency of people on the state, and to give them two sources of benefits after retirement.40 With the introduction of the second pillar, people can choose to accumulate a part of their pension themselves. This second pillar is not, like the first one, mandatory for employees, but voluntary.41 However, once an individual chooses to participate in the second pillar, there is no way back and the person has to participate in the second pillar until he or she reaches retirement age.42 People who want to join the second pillar must sign a pension accumulation agreement with a private pension fund. In 2012 there were 30 private pension funds operating in Lithuania.43 People can choose which private pension fund they want to accumulate their money with. When a person has chosen one, the pension fund will subsequently inform the administration of the SoDra that this agreement has been made. After three years, participants are eligible to change their pension fund.44 Thus, with the introduction of the second pillar, an individual has more control on a part of his or her own pension. They can choose the pension fund themselves and can switch quite easily. When an agreement between an individual and a pension fund has been made, a government‐determined fixed part of the social insurance contributions of the individual will be transferred by SoDra to the concerning private pension fund. This part was increased gradually since the insertion of the second pillar (see table 21.1). From 2009 until 2012, however, this decreased to only 1.5 per cent in 2012. This was instigated by the economic crisis that engulfed Lithuania in these years. As the transferred part of the social contributions is used for the accumulation of an own pension account, it cannot be used for the payment of benefits to current retirees. With high unemployment and a significant decrease in GDP (which is, after all, also an indicator of the total income earned by the Lithuanian population) in 2009, the contributions of employees were not sufficient to pay the current retirees. The largest part of the pension system was, and still is, based on the pay‐as‐you‐go principle, despite the introduction of the own pension accumulation. Therefore, the contributions to the SoDra by employees and employers were directly used to pay the pension benefits, with less payments going to the social insurance fund (because less people were at

38 So, for example, if someone has paid 33 years contributions to the Social Insurance Fund, and is thus 33 years insured for old‐age pension, the amount of its old‐age pension is at least (excluding the additional part which also depends on the length of record) 360 + 10.8 x 3 = 392.4 litas. Ministry of Social Security and Labour, ‘State social insurance pensions for old‐ age’, http://www.socmin.lt/index.php?‐2028154024, consulted on 10‐05‐2013; and A. Guogis and D. Bernotas, ‘Lithuanian Social Policy Model: Why Does it Not Resemble the Swedish One?’, Philosophy, Sociology, Psychology and History, nr. 1 (2008), p. 15. 39 Interview 53. 40 Ibidem. 41 J. Aidukaite, ‘The welfare system of Lithuania’, in: K. Schubert ed., The handbook of European welfare systems, London: Routledge, 2009, p. 299; and Ministry of Social Security and Labour, ‘Pension system in Lithuania’: http://www.pensijusistema.lt/index.php?‐586352733, consulted on 13‐03‐2013. 42 Interview 53. 43 Ministry of Social Security and Labour, The Social Report 2011‐2012, Vilnius 2012, p. 55. 44 Ibidem, p. 55. 225 work and the people that were at work earned less) the payments from the fund to the insured came under pressure. By decreasing the contributions to the own account of an individual, there was more money left to pay for benefits. This urgent problem explained the unsustainable character of a pension system based fully on pay‐as‐you‐go. In case of an economic crisis, there would be not only fewer people required to pay for more benefits, but the system itself would also face urgent illiquidity, as contributions would decline and the total amount of unemployment benefits would increase. People that participate in the second pillar do not have to pay additional contributions.45 The contributions for pensions are a fixed percentage of the wage (in 2013: 26.3%), just like the total social insurance contributions, regardless of whether an employee chooses to accumulate a part of this contributions for his or her own future or not. Those who pay this contribution are insured for the whole social insurance pension of the first pillar, so for the basic as well as the supplementary part.46 In case an individual chooses to accumulate a part of his or her contributions in their own pension account, only the supplementary part will decrease, which does not influence the amount of the basic pension.47

Table 21.1: Contributions to SoDra

Source: http://www.pensijusistema.lt/index.php?‐586352733

Finally, there is also a third pillar in the new pension system. It is a voluntary funded private pension scheme and it started to operate in 2004, along with the second pillar. The third pillar differs from the second one in that any voluntary contribution to the third pillar pension is additional.48 So it is not financed from the obligatory social insurance contributions an individual already makes (34 per cent of the wage). An individual that chooses to participate in the third pillar pays their own additional contributen to a life insurance company or private pension fund. Recently, an amendment there was made to the pension law to foster participation in the third pillar.49 Since then, the state will also contribute a fixed amount to these people’s pension accounts if they pay additional money to a private pension fund themselves. This fixed amount is determined by the average wage in Lithuania. As mentioned before, the pension reform was necessary to guarantee future pension provisions, due to an ever smaller workforce and an ageing population. In addition, the reform has given more freedom to people and makes them less dependent on state institutions and their decisions. People can choose to accumulate an own pension account in a freely chosen

45 J. Aidukaite, ‘The welfare system of Lithuania’, in: K. Schubert ed., The handbook of European welfare systems, London: Routledge, 2009, pp. 299‐300. 46 Ministry of Social Security and Labour, ‘Pension system in Lithuania’, http://www.pensijusistema.lt/index.php?‐ 586352733, consulted on 13‐03‐2013. 47 Ibidem. 48 J. Aidukaite, ‘The welfare system of Lithuania’, in: K. Schubert ed., The handbook of European welfare systems, London: Routledge, 2009, p. 300. 49 Interview 53. 226 pension fund. But these are not the only reasons behind the pension reform. Those who accumulate a part of the contributions in their own accounts (whether it is with the second or the third pillar or with both) receive higher pensions than those who do not. The latter only receive the basic pension and the supplementary part.50 This is generally the case because the contributions are accumulated and are used to buy securities and other financial assets with usually high rates of return. However, as the Ministry of Social Security and Labour rightly notes on its special website for the new pension system,51 that will result only in a higher pension if the investment return is higher than salary growth. And whereas the Ministry assumes that this will be the case, there are some specific characteristics of Lithuania which make this assumption at least problematic. The level of the prices and wages in Lithuania are low in comparison with other European countries.52 It is possible, certainly when Lithuania adopts the euro in 2015 (see chapter 13 on Currency Board), that the price levels will increase considerably or at least more than usually.53 In that case, it is doubtful whether the rate of investment return is really higher than the salary growth. Therefore, the Ministry stated that it cannot guarantee a higher pension in case an individual choose to accumulate in a pension fund.54 Although this uncertainty exists, pension funds are investing in securities and financial assets in which there is almost certainly granted a profit.55 Therefore, money collected in private pension funds from the social contributions are mainly used to buy securities and financial assets abroad. Because of the small Lithuanian market and the vulnerability of it, there is also a big risk of loss. So by investing in foreign companies and financial assets, private pension funds are looking for safer investments, which will increase the chance on higher pensions. Moreover, with the possibility of individual pension accumulation, the amount of the pension will also be based more strongly on the former earnings of the pensioner.56 Although the first pillar consists of a supplementary part, the formula used indicates that just a small share of the income determines the future pension benefits.57 So, the amount is partly based on the contributions made by the individual, but not that much. In the pension accumulation scheme, the amount of the pension is fully determined by the contributions an individual has paid to the pension fund. If someone’s income is higher, there will be go a bigger amount paid to the pension fund. Because this amount is not used immediately to pay the benefits of insured people, but only to accumulate for the future pension of the individual, the latter will eventually receive an amount that reflects its former earnings. On top of that, in case of a higher rate of return, there will be more profit when the amount of accumulated contributions is higher.58 In other words, the richer the individual, the more profit he or she will make.

50 Ministry of Social Security and Labour, ‘Pension system in Lithuania’, http://www.pensijusistema.lt/index.php?‐ 586352733, consulted on 13‐03‐2013. 51 Ibidem. 52 Interview 53; 51; 57 and 7. 53 Interview 51; 57; 7; 5 and 32. 54 Interview 53. 55 Ibidem. 56 Ibidem. 57 According to the Law on State Social Insurance Pensions (http://www.socmin.lt/index.php?418287030), the supplementary part is calculated by the formula 0.005 x S x K x D, where S is determined by the period of insurance, K stands for the persons amount of insured income and D stands for the average monthly insured income. The coefficient 0.005 means that 0.5 percent of the annual average wage of the employee is added to the supplementary part of his or her future pension. If an employee decides to accumulate an own account in a private pension fund, the percent of the annual average wage of the employee that is added to the private pension fund is determined by the government, but was since the insertion of the private pension funds not lower than 1.5 percent. So, with the private pension fund a bigger share of the wage is going to the future pension.

227

21.3.2 Disability, widow and orphan Table 21.2: Minimal Obligatory record to pension receive pension The pension system for the disabled, widowers and orphans (‘survivor pensions’) differs from Age Minimum record Obligatory record under 22 2 m1 y that for old‐age. The second pillar is only for 22 4 m1 y old‐age, and does not exist to accumulate 23 6 m1 y money to an own account in case of disability 24 8 m1 y 4 m 25 10 m1 y 8 m or death. Only the first and third pillars also 26 1 y2 y 59 cover disability and survivor pensions. The 27 1 y 2 m2 y 4 m system for disability and survivor pensions is 28 1 y 4 m2 y 8 m thus still mainly based on the pay‐as‐you‐go 29 1 y 6 m3 y 30 1 y 8 m3 y 4 m principle. The inflow of money from the social 31 1 y 10 m3 y 8 m contributions is directly used to pay disabled 32 2 y4 y persons, widowers and orphans their pension 33 2 y 2 m4 y 4 m benefits (first pillar). Furthermore, an 34 2 y 4 m4 y 8 m 35 2 y 6 m5 y individual can choose to pay additional money 36 2 y 8 m5 y 4 m to a life insurance company or private pension 37 2 y 10 m5 y 8 m fund to have a supplementary amount of 38 3 y6 y money in case he or she loses for example the 39 3 y 6 m7 y 40 4 y8 y capacity for work (third pillar). 41 4 y 6 m9 y A disabled person is entitled to a 42 5 y 10 y disability pension if on the day the disability is 43 5 y 6 m11 y determined he or she has made a minimum 44 6 y12 y 45 6 y 6 m13 y period of contributions to the social insurance 46 7 y14 y fund, and thus is insured for a minimum 47 7 y 6 m15 y number of years.60 This minimum period 48 8 y16 y depends on the person’s age, and will be higher 49 8 y 6 m17 y 50 9 y18 y for someone who is older. However, to receive 51 9 y 6 m19 y the full amount of the disability pension, 52 10 y 20 y people are required to have a so‐called 53 10 y 6 m21 y obligatory pension insurance period.61 So, the 54 11 y22 y 55 11 y 6 m23 y same principle as in the first pillar of the old‐ 56 12 y24 y age pension is used. The minimum period is 57 12 y 6 m25 y the threshold from which disabled people are 58 13 y26 y eligible for the pension. In other words, to 59 13 y 6 m27 y 60 14 y 28 y receive the full amount of this pension people 61 14 y 6 m29 y need to meet the obligatory period.62 Table 62 15 y30 y 21.2 sums up the minimum and obligatory 63 15 y30 y periods for each age. 64 15 y30 y 65 15 y30 y Source: SoDra

59 J. Aidukaite, ‘The welfare system of Lithuania’, in: K. Schubert ed., The handbook of European welfare systems, London: Routledge, 2009, p. 299. 60 Social Policy Unit, Social Security System in Lithuania, Vilnius: Ministry of Social Security and Labour, 2011, p. 8. 61 Ibidem; and SoDra, ‘Work Incapacity (Disability) Pension’, http://www.sodra.lt/index.php?cid=1949, consulted on 14‐04‐ 2013. 62 SoDra, ‘Work Incapacity (Disability) Pension’, http://www.sodra.lt/indez.php?cid=1949, consulted on 14‐04‐2013. 228

The social insurance disability pension consists of a main part, a supplementary part and a bonus for the length of record, as in the first pillar of the old‐age pension.63 The main part consists of 150 per cent of the basic pension amount (360 litas) for people who have lost 75‐100% of their work capacity (group 1).64 Most people of this group are fully incapable of any work and a majority of them needs nursing.65 For people who have lost 60‐70% of their work capacity (group 2) the main part is 110% of the basic pension.66 For people who have lost 45‐55% of their capacity to work, the main part should be reduced to 50% of the basic amount people with 60‐70% of work incapacity receive.67 As with the first pillar of the old‐age pension, the basic amount of the disability pension is reduced proportionally in case the minimum period has not been reached. The supplementary part is only for those who have contributed to the social insurance fund by working under an employment contract, and is dependable on the duration of the payment and the disability group the person is in. The formula used to calculate the supplementary part is the same as with the supplementary part of the old‐age pension in the first pillar.68 But also in the supplementary part, the amount for people with 45‐55% work incapacity shall be decreased by 50%.69 Furthermore, there is also a bonus for the length of record, which is exactly the same as in the first pillar of the old‐age pension and thus only eligible for disabled people who have an insurance record exceeding 30 years.70 Again, this bonus shall be decreased by 50% for people who have lost work capacity of 45‐55%.71 Widowers and orphans are eligible to receive a survivor’s pension if their husband, wife or parent was entitled to an old‐age or disability pension.72 The widower’s pension is paid irrespective of whether the widower receives an old‐age or disability pension him‐ or herself. However, in case of re‐marriage, the widower’s pension is discontinued.73 The amount of this pension is set by the state, but cannot be less than 70 litas per month, which it has been since 2007.74 The amount of the orphan’s pension is equal to 50 per cent of the work incapacity pension or the old‐age pension the parent could have been entitled to, but did not receive yet.75 In case the deceased already received disability or old‐age pension, the orphan’s pension has to be calculated according to the pension amount the parent received.76

21.4 Sickness benefit

Sickness benefit is paid to persons who are temporary incapable for work, because they have fallen ill, they have to take care of a sick family member, they need treatment in a hospital or

63 Social Policy Unit, Social Security System in Lithuania, Vilnius: Ministry of Social Security and Labour, 2011, p. 8. 64 SoDra, ‘Work Incapacity (Disability) Pension’, http://www.sodra.lt/index.php?cid=1949, consulted on 14‐04‐2013. 65 Social Policy Unit, Social Security System in Lithuania, Vilnius: Ministry of Social Security and Labour, 2011, p. 8. 66 SoDra, ‘Work Incapacity (Disability) Pension’, http://www.sodra.lt/index.php?cid=1949, consulted on 14‐04‐2013. 67 Ibidem. 68 Ibidem. 69 Ibidem. 70 Ibidem. 71 Ibidem. 72 Social Policy Unit, Social Security System in Lithuania, Vilnius: Ministry of Social Security and Labour, 2011, p. 10. 73 Ibidem, p. 11. 74 SoDra, ‘Survivor’s and Orphan’s Pension’, http://www.sodra.lt/index.php?cid=1967, consulted on 05‐05‐2013 and Ministry of Social Security and Labour, ‘State social insurance pensions for widows, widowers and orphans’, http://www.socmin.lt/index.php?‐173613337, consulted on 06‐05‐2013. 75 SoDra, ‘Survivor’s and Orphan’s Pension’, http://www.sodra.lt/index.php?cid=1967, consulted on 05‐05‐2013. 76 Ibidem. 229 they need to stay at home to care for a child that cannot attend a child‐care institution.77 To receive sickness benefit people have to be insured for at least three months during the last 12 months, or six months during the last 24 months.78 This three or six months record does not only include the periods in which social contributions have been paid, but also the periods during which the insured has received sickness insurance benefits, vocational rehabilitation, maternity, or paternity benefits and unemployment benefits.79 The first two days of the temporary incapacity to work have to be paid by the employer, except when the incapacity for work is because of nursing a family member or organ donation.80 The amount of this benefit is at least 80% of the employee’s wage and cannot exceed 100%.81 From the third day on, the benefit is paid by SoDra. From the third until the seventh day of the temporary incapacity for work, the amount of this benefit is 40% of the average monthly wage the recipient received during the last three months. From the eighth day onwards, this amount is increased to 80% of the former wage.82 There are two special cases: people who are nursing a family member or looking after a child receive 85% of the former wage from the first day; people who are undergoing an operation to donate tissues or organs receive 100%.83 The amounts of the sickness benefit cannot be higher than four times the average insured income, and cannot be lower than 25% of the average insured income.84 In case of sickness, injury, treatment in a medical institution, or transplantation, the duration of the payment period is not fixed; the benefit is paid until the capacity for work has been restored.85 There is a maximum duration for the payments of sickness benefits of seven days for each instance of an illness in case the person is nursing an adult family member. For children under the age of 14 the maximum is 14 days, and for children under the age of seven who are treated ‘in‐patient’86 the maximum is 120 days per year.87

77 European Commission, ‘Your social security rights in Lithuania’, http://ec.europa.eu/employment_social/empl_portal/SSRinEU/Your%20social%20security%20rights%20in%20Lithuania_en .pdf, consulted on 06‐06‐2013 78 European Commission, ‘Your social security rights in Lithuania’, http://ec.europa.eu/employment_social/empl_portal/ SSRinEU/Your%20social%20security%20rights%20in%20Lithuania_en.pdf, consulted on 06‐06‐2013; SoDra, ‘Sickness allowance’, http://www.sodra.lt/index.php?cid=1972, consulted on 07‐05‐2013; and Ministry of Social Security and Labour, ‘Sickness benefit (sickness and maternity social insurance)’, http://www.socmin.lt/index.php?173932254, consulted on 07‐ 05‐2013. 79 SoDra, ‘Sickness allowance’, http://www.sodra.lt/index.php?cid=1972, consulted on 07‐05‐2013. 80 Ibidem. 81 European Commission, ‘Your social security rights in Lithuania’, http://ec.europa.eu/employment_social/empl_portal/SSRinEU/Your%20social%20security%20rights%20in%20Lithuania_en .pdf, consulted on 06‐06‐2013; and SoDra, ‘Sickness allowance’, http://www.sodra.lt/index.php?cid=1972, consulted on 07‐ 05‐2013. 82 Ibidem. 83 SoDra, ‘Sickness allowance’, http://www.sodra.lt/index.php?cid=1972, consulted on 07‐05‐2013. 84 European Commission, Your social security rights in Lithuania, Brussels: 2011, p. 11; and SoDra, ‘Sickness allowance’, http://www.sodra.lt/index.php?cid=1972, consulted on 07‐05‐2013. 85 The duration is not unlimited, although it may look like it is. To receive a sickness benefit, the person has to be recognized as temporarily incapacitated for work (SoDra, ‘Sickness allowance’, http://www.sodra.lt/index.php?cid=1972, consulted on 07‐05‐2013). As the injury or sickness is permanently, the person may be eligible for a disability pension or will receive the state supported income. 86 Bluntly, in‐patient is the treatment of a person in the hospital (for a more detailed discussion, see the Health Care chapter). 87 SoDra, ‘Sickness allowance’, http://www.sodra.lt/index.php?cid=1972, consulted on 07‐05‐2013 and European Commission, ‘Your social security rights in Lithuania’, http://ec.europa.eu/employment_social/empl_portal/SSRinEU/ Your%20social%20security%20rights%20in%20Lithuania_en.pdf, consulted on 06‐06‐2013 230

21.5 Maternity and paternity benefit

Maternity and paternity benefits are paid to persons who have had an insurance period of at least 12 months during the last 2 years. This minimum insurance period is not required for people under the age of 26, when the period between their graduation and status as an insured person is less than 3 months.88 Both the mother and the father are eligible for a benefit in the initial period (maternity and paternity benefit respectively). After that, the one that remains off work to take care for the child will still be eligible for a benefit (maternity or paternity benefit).89 The maternity benefit is paid for 126 days, which covers the 70 days before the delivery and the 56 days after.90 In case of a complicated delivery or a multiple birth, the benefits are paid for 70 days after the delivery.91 Women that are not eligible for a maternity benefit receive a pregnancy grant of 260 litas.92 The paternity benefit is paid for one month after child birth.93 For both the maternity and paternity benefit, the amount is equal to 100 per cent of the former wage.94 In case of a multiple birth, the maternity benefit shall be increased according to the amount of children born. So, with twins, the amount of the benefit is 200% of the former wage, with triplets it is 300%, and so on.95 Also with the maternity and paternity benefits, there is a minimum and maximum amount of payments. The minimum amount of both benefits consists of one third of the average insured income in the corresponding year, while the maximum amount is equal to four times the average insured income.96 The parent that remains off work to take care for the child receives a maternity or paternity benefit. From the 57th day after the delivery until the child is one year old, the amount of this benefit will be equal to 100%of the compensatory wage.97 The benefit is reduced to 85 per cent in the second year. Again, in case of a multiple birth the amount is multiplied by the number of children. As before, there are minimum and maximum amounts for the benefit. The benefit should not be lower than one third of the average insured income and not be higher than five times the average insured income.98

21.6 Unemployment insurance

All employed people are also paying compulsory social contributions to the unemployment insurance scheme.99 Through this, they are eligible for unemployment insurance in case they

88European Commission, ‘Your social security rights in Lithuania’, http://ec.europa.eu/employment_social/empl_portal/ SSRinEU/Your%20social%20security%20rights%20in%20Lithuania_en.pdf, consulted on 06‐06‐2013. 89 Ibidem. 90 European Commission, ‘Your social security rights in Lithuania’, http://ec.europa.eu/employment_social/empl_porta l/SSRinEU/Your%20social%20security%20rights%20in%20Lithuania_en.pdf, consulted on 06‐06‐2013, p. 12; and SoDra, ‘Maternity allowance’, http://www.sodra.lt/index.php?cid=1974, consulted on 09‐05‐2013. 91 Ibidem. 92 European Commission, ‘Your social security rights in Lithuania’, http://ec.europa.eu/employment_social/ empl_portal/SSRinEU/Your%20social%20security%20rights%20in%20Lithuania_en.pdf, consulted on 06‐06‐2013 93 SoDra, ‘Paternity allowance’, http://www.sodra.lt/index.php?cid=1976, consulted on 09‐05‐2013. 94 European Commission, ‘Your social security rights in Lithuania’, http://ec.europa.eu/employment_social/empl_portal/SSRinEU/Your%20social%20security%20rights%20in%20Lithuania_en .pdf, consulted on 06‐06‐2013; SoDra, ‘Maternity allowance’, http://www.sodra.lt/index.php?cid=1974, consulted on 09‐ 05‐2013; and SoDra, ‘Paternity allowance’, http://www.sodra.lt/index.php?cid=1976, consulted on 09‐05‐2013. 95 SoDra, ‘Maternity allowance’, http://www.sodra.lt/index.php?cid=1974, consulted on 09‐05‐2013. 96 Ibidem; and SoDra, ‘Paternity allowance’, http://www.sodra.lt/index.php?cid=1976, consulted on 09‐05‐2013. 97 European Commission, ‘Your social security rights in Lithuania’, http://ec.europa.eu/employment_social/empl_portal /SSRinEU/Your%20social%20security%20rights%20in%20Lithuania_en.pdf, consulted on 06‐06‐2013 98 Ibidem, p. 12. 99 Ibidem, p. 28. 231 lose their job. However, there are some requirements that must be met to receive the benefit. The entitlement conditions for the unemployment insurance benefit are first of all that the person is unemployed, that he or she is of working age, and that he or she is registered at the Labour Exchange and is consequently (in cooperation with this Labour Exchange) actively seeking for work, ready to accept jobs that are suggested and participating in active labour market policy measures.100 Furthermore, the unemployed must be insured for at least 18 months and thus have made contributions in the last 36 months.101 The unemployment benefit comprises a fixed and a variable component. The fixed component represents the State Supported Income (350 litas;102 minimum monthly benefit), while the variable element is dependable on the insured income of the unemployed. The income of the insured person concerns all incomes of the individual from which the unemployment insurance contributions were paid or had to be paid.103 The variable component is calculated by dividing the insured income of every month in the last 36 months by the average insured income of the Lithuanian population in the corresponding year. Subsequently, the average of these values is to be calculated and this amount must be multiplied by the average insured income in the specific month that the benefit is to be allotted. Finally, 40 per cent of this amount is taken, which comprises the variable component. Although the unemployment insurance benefit is related to earnings through this variable component, there is a maximum for the benefit. The maximum amount of the unemployment insurance benefit cannot exceed 70% of the average insured income of that specific year.104 This would therefore entail a huge decrease of disposable income for relatively high earners; if someone who earned far more than average (for example 3,000 litas per month) became unemployed, that individual could only get the maximum of 70% of the average insured income. For example, in 2009, this was 1,041.6 litas, as the average insured income was 1,488 litas in that year. In sum, the unemployment insurance benefit comprises a fixed and a variable component. During the first 3 months of the unemployment benefit, the full amount of this benefit is paid. After that, the variable component is reduced with 50% for the remaining months until the end of the payment period for the benefit.105 The duration of the unemployment insurance benefit depends on the length of the unemployment insurance record. So, the number of months the unemployed receives the benefit depends on the number of years he or she has contributed to the social insurance fund, and thus on the number of years the person has been employed.106 In case the person’s record contains less than 25 years, the duration of the payments is six months. Between 25 and 30 years, it is 7 months, between 30 and 35 years it is 8 months, and in case the person has worked more than 35 years, the duration of the payments is 9 months.107 The duration is extended by two months

100 European Commission, ‘Your social security rights in Lithuania’, http://ec.europa.eu/employment_social/empl_portal /SSRinEU/Your%20social%20security%20rights%20in%20Lithuania_en.pdf, consulted on 06‐06‐2013. 101 Ibidem. 102 This amount was set in 2008 by the government, and has not changed since then. The Lithuanian government does not work with indexation of pensions and benefits, so any change in state supported income (as well as in, for example basic pension) is done by the government. 103 European Commission, ‘Your social security rights in Lithuania’, http://ec.europa.eu/employment_social/empl_portal/SSRinEU/Your%20social%20security%20rights%20in%20Lithuania_en .pdf, consulted on 06‐06‐2013; and B. Gruzevskis and I. Blaziene, Work incentives/disincentives in Lithuania, Lithuania: EEO 2012, p. 1. 104 European Commission, Your social security rights in Lithuania, Brussels: 2011, p. 29; and OECD, ‘Lithuania’, Benefits and Wages, Lithuania: OECD 2011, p. 3. 105 Ibidem. 106 Ibidem. 107 Ibidem. 232 for persons who are within 5 years of retirement age, so the maximum duration possible is 11 months.108

21.7 Social assistance and social services

As mentioned in the overview of the social system of Lithuania, social policy is divided into two components, the largest of which (the social insurance system) has been discussed above. The other component consists of social assistance and social services. The poorest residents that are unable to obtain enough income for a living by themselves receive social benefits.109 This depends on the family income and the value of the property owned by the family. The average income of a resident or a family during the three months before the month the social benefit is assigned must be less than the state supported income (350 litas for an individual). In case the income of an individual is less than 350 litas, he or she will be eligible for a social assistance cash benefit.110 The amount of the social benefit consists of 100% of the difference between the actual income per single person and the state supported income per single person.111 When persons are living together, the amount of the social benefit is dependable on the number of people. For the first person in a family, the social benefit is equal to 100% of the difference between the average state supported income for the persons living together and the average income of the family. For the second person this amount will be reduced to 80%, and for the third and subsequent family members the amount will reach 70% of the difference between the state supported income and the family income.112 So, the Lithuanian government granted a minimum income of approximately 350 litas for all individuals which have to live with less. Even when an individual already receives an insurance benefit, but the amount of this benefit is less than 350 litas, the government will pay the difference between the insurance benefit and the state supported income.113 The state supported income of 350 litas is so‐called means‐tested social assistance. Another example of a means‐tested support scheme is compensation for the cost of heating and/or water.114 Full compensation for all heating costs is applied to people whose income is less than the state supported income.115 For people who earn more than the state supported income but whose heating costs are higher than 20% of the amount of the difference between the income and the state supported income, the part that exceeds the 20% is compensated.116 People are eligible for compensation of drinking water costs when the costs exceed 2% of the income, while for hot water costs this amount is 5%. Means‐tested benefits are always subject to proven needs.117 The other social assistances are universal or category‐targeted support schemes and are mainly focused on cash support to families and children. There is, for example, a birth grant. It is

108 European Commission, ‘Your social security rights in Lithuania’, http://ec.europa.eu/employment_social/empl_portal/ SSRinEU/Your%20social%20security%20rights%20in%20Lithuania_en.pdf, consulted on 06‐06‐2013 109 OECD, ‘Lithuania’, Benefits and Wages, Lithuania: OECD 2011, p. 4. 110 European Commission, ‘Your social security rights in Lithuania’, http://ec.europa.eu/employment_social/empl_portal/ SSRinEU/Your%20social%20security%20rights%20in%20Lithuania_en.pdf, consulted on 06‐06‐2013 111 Law amending on the Law on Cash Social Assistance for Poor Families and Single Residents: article 9. 112 Ibidem. 113 Interview 53. 114 European Commission, ‘Your social security rights in Lithuania’, http://ec.europa.eu/employment_social/empl_portal/ SSRinEU/Your%20social%20security%20rights%20in%20Lithuania_en.pdf, consulted on 06‐06‐2013 115 Law amending on the Law on Cash Social Assistance for Poor Families and Single Residents: article 11 116 Ibidem, p. 14. 117 J. Aidukaite, ‘The welfare system of Lithuania’, in: K. Schubert ed., The handbook of European welfare systems, London: Routledge, 2009, p. 303. 233 given to the mother at birth and is a fixed lump sum paid in one instalment and not income tested. Furthermore, there is child care benefit up to the child’s eighteenth birthday. The child benefit varies according to the number of children in a family. Families with only two children receive less benefit than families raising three children or more. If a family has three children or more, it receives more benefit for each child.118 As regards the social services, it is important to emphasize that after the regaining of independence in 1991, Lithuania has also decentralized the system. The responsibility for organizing and rendering social services was transferred from the central government to the municipalities.119 Examples of social services are social care institutions for elderly and the supply of services at home, for instance because the owner is a disabled person. NGOs were and are still quite active in the developing of social services.120

21.8 Problems and recommendations for the social security system

21.8.1 SoDra As became clear from the description of the several insurances, all parts of the social insurance scheme do contain certain required insurance record periods in order to become eligible for the insurance concerned. If someone has, for instance, an insurance record of 14 years for the old‐ age pension, he or she is not eligible for the benefit and the person will get nothing from SoDra.121 Furthermore, all the contributions that have been made during these 14 years by this individual will have vanished. In that case, this person will receive his or her income from the state supported income, which is 350 litas. This means that people who don’t have the minimum record for social insurances do not have the right to receive insurance benefits, but that they are always covered by the social assistance. Because employers and employees are required to pay a large part of the wage as contributions to SoDra and the received insurances are at the same time very limited in amounts and requirements, Lithuanians do not always get the services they are expecting.122 Furthermore, the people in Lithuania are in all cases covered by the state supported income of 350 litas. In the case of unemployment insurance for example, 1.1% from the wage is paid for unemployment insurance. There is, however, a strict requirement to receive the benefit, as well as a low amount and duration of the benefit. Moreover, in case they do not meet the requirements to receive the unemployment insurance, they will receive the state supported income anyway. So, even though a large part of wages are paid for social contributions, the benefits are very moderate and not as much as people would expect considering their high contributions. The huge amount of contributions employers and employees have to pay is interlinked with the wide range of areas that are covered by the insurances. However, not every individual will need all the covered areas. For example, when an individual pays 34% of and over his or her wage to social contributions each month and he or she becomes unemployed after ten years, the amount and duration of benefits is disappointing. The same applies to the other benefits.

118 J. Aidukaite, ‘The welfare system of Lithuania’, in: K. Schubert ed., The handbook of European welfare systems, London: Routledge, 2009, p. 303. 119 Ibidem, p. 304. 120 Ibidem, p. 304. 121 Interview 53. 122 Interview 51. 234

There is a good reason for this small amount of benefit. Lithuania has budget restraints and an increase in the benefits will indirectly cause a government budget deficit.123 Therefore, they have to find an optimal choice between the budget and the amount of the benefits. However, this is only because of the use of the pay‐as‐you‐go principle. Almost all the earnings gathered from the social contributions are used directly to pay the benefits of the unemployed, the disabled and so on. Increasing the benefits (and thus the expenditures) would directly cause a deficit, because of the unchanged amount of contributions (and thus income). A recommendation would be to disconnect partly the transfer of money from the current employees to the current unemployed, pensioners, disabled and so on. This does not mean that the pay‐as‐you‐go principle should be stopped: the solidarity between young and old, employed and unemployed is very important for a viable and reliable social security system, but the extent to which the pay‐as‐you‐go principle is applied may be too large. It could be reduced, and benefits and contributions could be more individually based. The introduction of the second pillar in the old‐age pension is a good example of this. Concerning basic pensions, the distinction between the state supported income (350 litas), which is financed by the income tax on labour, and the basic pension (360 litas), which is covered by SoDra, is very small and more artificial than substantial. Another recommendation is to work with the same amount for state supported income and basic pension. Moreover, the integration of the income tax on labour, which is paid by the employee, into the social contributions could be considered. As a result, the basic pension would also be paid by the contributions of the employee. Last but not least, a possibility to enhance the financial security of the social safety could be to introduce more income solidarity in this newly integrated system. Above a certain income, for example four times the average wage, people could contribute a higher percentage of their income to social contributions. This would increase the income for SoDra, and that higher revenue could be used to increase the basic pension and state supported income. Moreover, to reduce the tax burden on very moderate wages, the amount of income tax could then be lower for people with minimum (or just above minimum) wage. Because this income tax is paid by the employee, this will benefit the employee.

21.8.2 Social assistance and the shadow economy The social assistance system also raises a few issues. As every person who earns less than 350 litas receives a social benefit equalling the amount of the difference between the income he or she has and the state supported income, every person in Lithuania has an income of at least 350 litas per month. On top of that, people receiving state supported income are fully compensated for heating costs. At the same time, as mentioned above, workers have to cede a percentage of their wages to social contributions (3%) and income tax (15%). So for people earning the minimum wage of 1000 litas, the net wage is no more than 820 litas. Furthermore, they no longer receive full compensation of their heating costs. Therefore, the difference between the amount the unemployed gets and the amount the employed earns is small. Because of this, Lithuania has a so‐called unemployment trap of 70%.124 It means that labour taxes and unemployment benefits, which are foregone when an individual finds a job, account for approximately 70 per cent of the wage. And this constitutes a serious problem, because a high unemployment trap reduces the

123 Interview 53. Albeit SoDra has an indepent budget, deficits in this budget will be covered by the general government budget. 124 Interview 7; 32 and 51. 235 incentives for people to work. Indeed, it increases the incentives for people earning the minimum wage to start work in the shadow economy, while remaining eligible for social benefits. Therefore, the combination of high social benefits when compared to the minimum wage, and high taxes on labour, will possibly move people earning the minimum wage into the shadow economy. Unsurprisingly, according to different experts, this is already happening in Lithuania, and they estimate that the shadow economy in Lithuania accounts for 30% of the GDP in 2012.125 To decrease this share, there are two possibilities for the Lithuanian government. They can choose to reduce social benefits, or to increase the minimum and average wage levels. Our recommendation would be to focus on increasing rewards for workers, as benefits are low already. Increasing the minimum wage, currently among the lowest in the European Union (see chapter 16 on the labour market), could offer the Lithuanian government the easiest path to increased incentives to work and to reduce the unemployment trap, the shadow economy and even emigration. It could therefore reduce some of the most salient problems Lithuania is currently facing. By increasing the minimum wage and the disposable income of a large portion of the population, work becomes more attractive for people inside and outside the labour market. At the same time, it would reduce government expenditures because of fewer benefit payments, increase incomes through taxes over wages, and stimulate the economy through higher consumption levels. In conclusion, Lithuania’s social benefits are mainly related to the labour market and the previous contributions an individual has made to the social insurance fund.126 However, the coverage of the insured is broad while the height of the benefits is quite low, as it was in the Soviet social security system. This raises some problems, from a high tax burden for work to disappointing benefits in case a person becomes unemployed. Some changes could therefore increase support of employers and employees for the social security system. In this respect, the reform in the pension system and the emphasis on individual accounts can be regarded a positive development, which could perhaps be extended to the entire pension system. At the same time, the social insurance and social assistance system currently strongly resembles the system from Soviet times. While the economy, the state and the labour market transformed to a market economy and democracy to a great extent, social policy has lagged behind. Therefore, it is most important to bring the social policy in line with the labour market and the economy. Aside from signaling these issues, this chapter has also intended to provide some suggestions on how to solve them.

125 Interview 7; 9; 32 and 51. 126 A. Guogis and D. Bernotas, ‘Lithuanian Social Policy Model: Why Does it Not Resemble the Swedish One?’, Philosophy, Sociology, Psychology and History, nr. 1 (2008), p. 15. 236

22. Health care

After regaining independence in 1991, Lithuania inherited a centralised health care system from the Soviet regime.1 The Soviet health care model was organised from the level of the hospital,2 which meant people went directly to a district physician. There was no general practitioner (GP) or family physician that first checked the patient and if necessary made a referral to a specialist.3 This centralised system mainly delivered inefficient health care management and usage of resources.4 To increase the efficiency of the health care system, Lithuania opted for restructuring and decentralising it after the restoration of its independency. Since the beginning of the 90s, Lithuania thus reformed its health care system considerably. To facilitate this reformation, Lithuania received much support from the EU with structural funds. With these funds, Lithuania could totally transform its health care system in just 20 years. Nonetheless, despite the huge transformations made, some characteristics of the Soviet period are still present in the health care system.

22.1 From Soviet to current health care system

After regaining independence, the health care system of Lithuania had to start from scratch. In the Soviet area GPs did not exist and therefore there was hardly any primary health care. There were only hospitals or big clinics.5 First of all, general practitioners had to be trained. Since 1991/1992 general practitioners have been educated at two Lithuanian universities.6 Also, a lot of physicians have been retrained to become general practitioner.7 This whole process has been supported by structural funds for training purposes.8 Moreover, primary health care centres had to be developed. Because of this, the access to health care services was problematic in the beginning of the reform of primary health care.9 Most of the health care centres (also called: outpatient departments), such as the general practitioners’ office or the polyclinics, were located in the cities and not in the rural areas. Additionally, the private sector hardly existed at all. So, also the primary health care services had to be built up. Overall, structural changes had to be made in order to establish a health care system based on primary health care.

1 I. Jakušovaitė, Z. Darulis and R. Žekas, ‘Lithuanian health care in transitional state: ethical problems’, BMC Public Health, nr. 5 (2005), pp. 2; I. Buciuniene, A. Blazeviciene and E. Bliudziute, ‘Health care reform and job satisfaction of primary health care physicians in Lithuania’, BMC Family Practice, nr. 6 (2005), p. 1.; J. Aidukaite, ‘The welfare system of Lithuania’, in: K. Schubert ed., The handbook of European welfare systems, London: Routledge, 2009, p. 305; and K.K. Polluste et al., ‘Primary care in Baltic countries: A comparison of progress and present systems’, Health Policy, nr. 109 (2012), p. 122. 2 I. Buciuniene, A. Blazeviciene and E. Bliudziute, ‘Health care reform and job satisfaction of primary health care physicians in Lithuania’, BMC Family Practice, nr. 6 (2005), p. 1. 3 A. Kiskiene, S. Giest and J. Dumortier, ‘European Commission Country Brief: Lithuania’, http://ehealth‐ strategies.eu/database/documents/Lithuania_CountryBrief_eHStrategies.pdf, consulted on 06‐06‐2013 4 A lot of authors mentioned this. One of them is I. Buciuniene, A. Blazeviciene and E. Bliudziute, ‘Health care reform and job satisfaction of primary health care physicians in Lithuania’, BMC Family Practice, nr. 6 (2005), p. 1 5 Interview 23. 6 I. Liseckiene, I. Miseviciene and M. Dudonis, ‘Organizational changes in the course of the PHC reform in Lithuania from 1994 to 2010’, Health Policy, nr. 106 (2012), p. 277. 7 Ibidem. 8 Interview 23 and J. Watson, Health and Structural Funds in 2007‐2013: Country and regional assessment, http://ec.europa.eu/health/health_structural_funds/docs/watson_report.pdf, consulted on 06‐06‐2013 9 I. Liseckiene, I. Miseviciene and M. Dudonis, ‘Organizational changes in the course of the PHC reform in Lithuania from 1994 to 2010’, Health Policy, nr. 106 (2012), p. 277. 237

The responsibility of primary health care was delegated mainly to the municipalities. The municipalities are still responsible for the providing of primary health care to their local population.10 They facilitate outpatient services and nursing homes and also run the medium and small hospitals in their territory.11 Municipalities also have the right to grant or refuse the establishment of private primary health care services.12 However, this has caused some problems. Firstly, Jakušovaitė et al. (2005) stated in 2005 that the municipalities preferred public institutions, and that they made it almost impossible for private institutions to establish in the more settled areas, where the activity of a public institution would be profitable. This would reduce private initiative and entrepreneurship, as well as limit the citizens’ choice for health care providers.13 This might harm the aim of cost‐efficient health care, as well as the goal to bring health care closer to the people. Despite Jakušovaitė’s criticism, it looks like the situation has improved significantly since then. Whereas the number of primary health care institutions was 306 in 2002 and 322 in 2003, and the increase of 16 institutions was entirely due to an increase in private institutions from 108 to 124,14 the number of primary health care institutions was 1736 in 2010,15 from which only 452 where state‐owned and the other 1284 where private institutions. So, there has been a huge increase in primary health care institutions the last years, especially due to the private health care services. It seems that the aim to organise the health care system mainly around the primary health care has worked. Secondly, another problem of the health care system in Lithuania is the long waiting times.16 According to Jankauskienė (2011), waiting times are one of the most problematic issues in the health care.17 Surprisingly, however, the waiting times for a GP are longer in cities than in rural areas: in the city the average waiting time for a GP is 4.2 days, while in rural areas it is only 2 days on average.18 Nevertheless, this situation has also been improved. The accessibility and transparency for patients has increased a lot during the last couple of years. After receiving a referral from the GP to go to a specific specialist, people can choose which specialist they want to visit, regardless of in which municipality this specialist operates.19 Moreover, to broaden the choice possibilities even further, there are also some online systems in which people can see how long the waiting times are for different specialists and institutions and what ratings and opinions other people have about these doctors.20 This system does not apply to GPs. However, each person is free to choose his or her own general practitioner and primary health care institution since 1996.21 Furthermore, there is even the possibility, after at least six months, to change from GP without making an additional

10 A. Kiskiene, S. Giest and J. Dumortier, ‘European Commission Country Brief: Lithuania’, http://ehealth‐ strategies.eu/database/documents/Lithuania_CountryBrief_eHStrategies.pdf, consulted on 06‐06‐2013 11 Ibidem, p. 10. 12 I. Jakušovaitė, Z. Darulis and R. Žekas, ‘Lithuanian health care in transitional state: ethical problems’, BMC Public Health, nr. 5 (2005), p. 5. 13 Ibidem, p. 5. 14 Ibidem, p. 5. 15 A. Kiskiene, S. Giest and J. Dumortier, ‘European Commission Country Brief: Lithuania’, http://ehealth‐ strategies.eu/database/documents/Lithuania_CountryBrief_eHStrategies.pdf, consulted on 06‐06‐2013; Although Kiskiene et al. don’t use a specific date, it is retrievable from the context that it is 2010, or maybe 2009. 16 D. Jankauskienė, Annual National Report 2012: Pensions, Health Care and Long‐term Care, Vilnius: ASISP, 2012, pp. 25‐ 27. 17 Ibidem, p. 24. 18 Ibidem, p. 25. 19 Interview 23. 20 Ibidem. 21 I. Jakušovaitė, Z. Darulis and R. Žekas, ‘Lithuanian health care in transitional state: ethical problems’, BMC Public Health, nr. 5 (2005), pp. 5 and A. Kiskiene, S. Giest and J. Dumortier, ‘European Commission Country Brief: Lithuania’, http://ehealth‐strategies.eu/database/documents/Lithuania_CountryBrief_eHStrategies.pdf, consulted on 06‐06‐2013 238 payment.22 Nonetheless, the introduction of an online system to choose the GP per visit could reduce the waiting time for GPs and this would, consequently, make the system even more liberal and transparent. A final problem consists regarding the alleged bribery and corruption in the health care system (see chapter 8 on corruption). According to surveys held by Transparency International, corruption and bribery are a large problem.23 However, it is doubtful whether it is real bribing or rather an element of the culture. In two independent interviews, it was stated that it is very common to give a gift after receiving certain services, such as a health treatment.24 So, it seems not to be an aspect of corruption. Rather, it is considered to be a friendly gift meant to thank the practitioner for medical treatment.

22.2 The reform in the health care system

In the former section, the general development of the health care system is outlined and the main challenges, problems and solutions which contributed to the contemporary health care system were discussed. In this section, the most important parts of this reform will be elaborated: the focus on the GP; the decentralisation of the health care system; the emphasis on the outpatient services; and the support from the EU to facilitate this transformation. The health care reform in Lithuania, which started after independence, focused in particular on the GP structures, because this function did not exist in the Soviet health care system.25 There was thus no real primary health care. People went directly to the hospital. To deliver a more cost‐efficient and high quality type of health care, it was, according to the Lithuanian government, important to initiate and strengthen the primary health care services.26 Consequently, the GP structures became the core of the health care system. Further, decentralisation of healthcare was achieved by separating primary health care (GPs), secondary health care (physicians and specialists) and tertiary health care levels (high specialisation, mainly in universal clinics), whereas the development and formation of primary health care was seen as a key factor in the reform.27 The making of primary health care as a starting point, but also as the centre of the health care, was like a two‐edged sword. On the one hand, health care was delivered closer to the people, while on the other hand, the general practitioners also functioned as a gatekeeper, which was very important in terms of economic efficiency.28 Consequently, the GP became the first contact for the patient. GPs diagnose and treat the patient, if possible, and also fulfil a health preserving and disease preventing function. So, generally speaking, practitioners offer the consultation on elementary health issues. Only if, in their opinion, consultation by a specialist is required, do they make a referral for this necessary

22 A. Kiskiene, S. Giest and J. Dumortier, ‘European Commission Country Brief: Lithuania’, http://ehealth‐ strategies.eu/database/documents/Lithuania_CountryBrief_eHStrategies.pdf, consulted on 06‐06‐2013 23 Bertelsmann Stiftung, BTI 2012 – Lithuania Country Report, Gütersloh: Bertelsmann Stiftung, 2012, p. 30; interview 23 and 46. 24 Interview 23 and 46. 25 I. Liseckiene, I. Miseviciene and M. Dudonis, ‘Organizational changes in the course of the PHC reform in Lithuania from 1994 to 2010’, Health Policy, nr. 106 (2012), p. 277. 26 A. Kiskiene, S. Giest and J. Dumortier, ‘European Commission Country Brief: Lithuania’, http://ehealth‐ strategies.eu/database/documents/Lithuania_CountryBrief_eHStrategies.pdf, consulted on 06‐06‐2013 27 Ibidem, 28 I. Liseckiene, I. Miseviciene and M. Dudonis, ‘Organizational changes in the course of the PHC reform in Lithuania from 1994 to 2010’, Health Policy, nr. 106 (2012), p. 277. 239 specialist consultation.29 Overall, decentralisation and the importance of the GP were two crucial parts of the health care reform. In this context, it is also an important aim to (further) develop the so‐called outpatient services, which means that medical and health care services are as much as possible organised in such a way that the patient shouldn’t have to spend an overnight stay in the hospital. Even for surgeries, the Lithuanian government tried to move these to the outpatient level as much as possible. For instance, in 2009 the measures taken to foster these outpatient services were the transferring of funds and professionals from the inpatient (generally speaking: the hospital) to the outpatient level.30 Additionally, the outpatient and decentralisation reforms were mainly financed from the structural funds of the EU (see chapter 20 on structural funds).31 The money was used to modernise the institutions, to establish more family doctors in rural areas, for inpatient care, for primary care and for health care infrastructure.32 With this money, the Lithuanian authorities could for example establish multiple small GP offices in rural areas and municipalities instead of one big health centre; they could use it to buy cars for doctors to go to very small villages and remote areas and provide consultations at home; and they could use it to renovate buildings and buy medical equipment.33 Therefore, the structural funds from the EU were important in improving the accessibility of primary health care and outpatient services. Overall, with the funds, it was possible to provide health care nearer to the people and to improve the conditions and the possibilities of the GPs.34 To conclude, the main aim of the health care reform was to improve efficiency as well as to bring the health care system closer to the people. To achieve this, focus was put on the GP as a gatekeeper and central point of health care. Furthermore, decentralisation and the development of the outpatient services was stressed. The EU has been important in supporting these transformations.

22.3 Health care insurance

In Lithuania, people are insured for health by employment. A part of the wage they earn (3%) is paid as a compulsory contribution to the Health Insurance Fund. In the case of unemployment, or self‐employment – when a contribution to the Health Insurance Fund is not compulsory, people can choose to take out a voluntary sickness insurance. An insured person has access to all health care services, since the main costs of treatment are covered by the insurance. People that are not insured, have to cover the costs of treatment themselves. However, all residents in Lithuania are guaranteed for urgent health care.35 So, for example, for a diagnosis or blood sample, people need to have insurance, otherwise they must cover the cost of treatment themselves. However, when an immediate operation is needed, the costs are guaranteed by the Lithuanian government. For an insured person, medical care is generally free of charge. There is, however, also a list of services that must be financed entirely by the person, whether he or she is

29 A. Kiskiene, S. Giest and J. Dumortier, ‘European Commission Country Brief: Lithuania’, http://ehealth‐ strategies.eu/database/documents/Lithuania_CountryBrief_eHStrategies.pdf, consulted on 06‐06‐2013 30 D. Jankauskienė, Annual National Report 2012: Pensions, Health Care and Long‐term Care, Vilnius: ASISP, 2012, p. 20. 31 Interview 23. 32 Interview 23 and and J. Watson, Health and Structural Funds in 2007‐2013: Country and regional assessment, http://ec.europa.eu/health/health_structural_funds/docs/watson_report.pdf, consulted on 06‐06‐2013. 33 Interview 23. 34 Esparama, ‘EU Structural Funds for Lithuania, 2007’, http://www.esparama.lt/ES_Parama/angliskas_medis/ spd_for_2004_2006_tree/publicity_measures/publications/files/SF_projects_2_EN.pdf, consulted on 08‐05‐2013. 35 Ibidem, p. 8. 240 insured or not. This list includes inter alia abortion when not performed on medical recommendation and cosmetic surgery.36 Further, some products and treatments are covered under certain conditions. Pharmaceutical products, including drugs, are fully covered in outpatient cases when they are mentioned on an official list and are prescribed by a GP. Also, drugs prescribed to children under eighteen, persons who are incapable of working and people who have reached the retirement age ‘for whom a level of major special needs is established’37 are fully covered. In other cases, pharmaceutical products are partly reimbursed, from which the amount depends on the specific situation of the individual. For example, there is a special list with specific illnesses that stipulates a percentage of reimbursement for each illness, ranging from 50% to 100%. Elderly pensioners and persons with a certain degree of disability38 receive between 60% and 70% of the costs of drugs, and people who receive social assistance have a reimbursement rate of 50%. The reimbursement rate is only for the basic price of the drug which is on a government list.39 When the patient wants a more expensive or better medicine which is not on the list, he or she has to pay for it themselves. The same applies to prostheses, lenses and hearing aids. The Health Insurance Fund purchases these prostheses, lenses and hearing aids, which are free for insured people. But if a person wishes to use another model than the one which is offered, he or she must pay the full price.40 So, overall, the basic drugs and services are covered; additional or above standard treatments and medicines are not covered. Although on the surface it might seem that a great amount of drugs and medical products are reimbursed, more detailed examination shows a lot of exemptions and implicates that a large part of the drugs are partly or fully paid by the patients themselves. Data confirm this. In 2003, the population paid 65 % of the total expenditures for drugs, while the expenditures of the Health Insurance Fund for reimbursed drugs was only 35%.41

36 Esparama, ‘EU Structural Funds for Lithuania, 2007’, http://www.esparama.lt/ES_Parama/angliskas_medis/ spd_for_2004_2006_tree/publicity_measures/publications/files/SF_projects_2_EN.pdf, consulted on 08‐05‐2013. 37 European Commission, ‘Your social security rights in Lithuania’, http://ec.europa.eu/employment_social/empl_portal/SSRinEU/Your%20social%20security%20rights%20in%20Lithuania_en .pdf, consulted on 06‐06‐2013 38 So called group 2 disability persons (see chapter 21 on social policy) 39 Interview 23. 40 Ibidem. 41 I. Jakušovaitė, Z. Darulis and R. Žekas, ‘Lithuanian health care in transitional state: ethical problems’, BMC Public Health, nr. 5, (2005), p. 4. 241

23. Education

During Soviet rule the Lithuanian education system was organised centrally and strictly ideologically controlled by the Soviet government. This all started to change drastically after Lithuania gained independence in 1991. This chapter provides insight in how the Lithuanian education system has transformed from Soviet times up until now. Also, attention is paid to the organisation of the current education system, and to the progression made as well as the issues and challenges that still need to be dealt with.

23.1 Transforming the Lithuanian education system

During the years that Lithuania was ruled by the Soviet Union, Lithuanians had very little say in the organisation of their national education system. Although they were allowed to teach in their own language, matters such as the content of the curriculum, assessment and examination procedures and teacher training, were decided upon by the Soviet government situated in Moscow.1 This strict control over the education system remained until halfway through the 1980s when USSR president Mikhail Gorbachev introduced the concepts Glasnost (transparency) and Perestroika (restructuring). Gorbachev seemed much more lenient and reform‐minded than his predecessors, and the fact that he had attempted to foster (slight) democratisation stimulated the first Lithuanian attempts to renovate the national education system.2 As pointed out by one interviewee, in 1988 a group of reform‐minded Lithuanians, lead by Lithuanian educator Meilė Lukšienė, openly challenged the organisation of the education system for the first time and discussed rearranging the shape and content of this system.3 In the same year, this group issued a policy paper called ´The concept of the Lithuanian National School´, which argued in favour of an independent national curriculum, stronger focus on national culture, and decentralisation of national education systems within the Soviet Union.4 Even though the paper was condemned by Moscow, the spirit of change that was arising throughout Eastern Europe could no longer be contained. Shortly after Lithuania proclaimed independence in 1991, a new Ministry of Education and Science was established. In the years that followed, the ministry introduced significant transformations of the national education system. As stated in ´Development of education policy of Lithuania during the years of transformations´, the transformations of the Lithuanian education system can be dealt up into several phases.5 The first phase of Lithuanian educational transition ran from 1991 until 1997. During this period the Ministry of Education and Science mainly focused on de‐idealising and liberalising the education system and removing the strongest characteristics of Soviet style education.6 In 1991 a new law on Education was adopted, which stipulated these focal points and introduced an element of choice by allowing

1 R. Zelvys, ‘Development of education policy in Lithuania during the years of transformations’, http://www.sciencedirect.com/science/article/pii/S0738059304000549#, consulted on 27‐01‐2013. 2 Ibidem. 3 Interview 20. 4 R. Zelvys, ‘Development of education policy in Lithuania during the years of transformations’, http://www.sciencedirect.com/science/article/pii/S0738059304000549#, consulted on 27‐01‐2013. 5 R. Zelvys, ‘Development of education policy in Lithuania during the years of transformations’, http://www.sciencedirect.com/science/article/pii/S0738059304000549#, consulted on 27‐01‐2013. 6 Interview 20. 242 both public and private educational institutions.7 In 1992 the General Concept of Education in Lithuania was adopted. This concept aimed at creating a modern type of school in a newly independent state and established the main principles of Lithuanian education: humanism, equality, democracy, renewal, and commitment to national culture and identity.8 In 1995 Lithuania was visited by a group of OECD experts on education. These experts conducted an investigation on how the Lithuanian education system had changed since the country became independent from the Soviet Union. They presented their findings in a report issued in 1996 called Secondary Education Systems in PHARE Countries: Survey and Project Proposals. The OECD‐experts concluded that Lithuanian policy makers had succeeded in de‐ idealising the national curriculum in the first phase of educational reform. However, the large‐ scale transformations also created some difficulties, such as the challenge of implementing nation‐wide policies across regions and schools differing in size, economic conditions and availability of qualified teachers.9 Also, the new socio‐economical situation in Lithuania increased the number of school dropouts and strengthened social stratification and differentiation between educational institutions. Social status and economic capabilities became more important in selection for grammar schools and private educational institutions, whereas education in underprivileged areas was of very poor quality.10 Because of such kinds of unwanted consequences, and inaccessibility to education for some layers of society, the Ministry of Education and Science set three new priorities regarding educational reform in 1998. As pointed out by Zelvys (2004), the setting of these three priorities can be seen as the start of the second phase of educational reform.11 The first new priority was modernising and raising the quality of education. This was to be done by creating national education standards, establishing a national examination centre, developing the curriculum and textbooks and introducing computers in education. The second priority was improving social and pedagogical conditions in education, which was to be done by creating better access to education for students with special needs, minorities, and children from vulnerable families. The third priority was harmonising the education system, which was to be done through strengthening the cooperation between regions and educational institutions. Overall, the government succeeded in taking these measures, thereby improving the quality as well as the accessibility of education.12 As mentioned by our interviewees, a third event that played an important role in transforming the national education system was Lithuania’s signing of the Bologna Declaration in June 1999, along with 28 other European states.13 By signing this declaration, the countries committed themselves to setting up a European Higher Education Area (EHEA) through the Bologna process.14 Although this process was a non‐binding inter‐governmental initiative, most participating governments made an effort to, up to a certain extent, internationally harmonise legislation concerning higher education. By doing so, they hoped to come up with an answer to

7 International Qualifications Database, ‘Lithuania‐ Description of education system’, http://www.qualificationsrecognition.ie/lithuania‐EducationReforms.html, consulted on 09‐05‐2013. 8 Leonardo da Vinci project, ‘National overview of education system and needs for natural sciences’ in Lithuania’,http://www.genexiseducation.com/results/overviews/P5_National_overview_Lithuania.pdf, consulted on 04‐06‐ 2013. 9 Ibidem. 10 R. Zelvys, ‘Development of education policy in Lithuania during the years of transformations’, http://www.sciencedirect.com/science/article/pii/S0738059304000549#, consulted on 27‐01‐2013. 11 Ibidem. 12 R. Zelvys, ‘Development of education policy in Lithuania during the years of transformations’, http://www.sciencedirect.com/science/article/pii/S0738059304000549#, consulted on 27‐01‐2013. 13 Interview 20 and 45. 14 CRE, ‘The Bologna Declaration on the European Space for higher education: an explanation’, http://ec.europa.eu/education/policies/educ/bologna/bologna.pdf, consulted on 09‐05‐2013. 243 common European problems, such as low employability of graduates, the shortage of skills in key areas, and other forms of inefficiency.15 One of our interviewees mentioned that in 1996 Lithuania had already implemented most of the regulation regarding higher education that was agreed on during Bologna, making it relatively easy to sign the declaration.16 Nevertheless, taking part in the process was important in shaping Lithuania’s system of higher education. Amongst other things, there was a change in study duration from 5 years to 6 years and the introduction of an ECTS‐compatible credit system.17 In the years prior to accession, other measures that were taken by Lithuania in accordance with the Bologna process were establishing student exchange programs and participating in scholarship programs.18 Overall, Lithuania has committed itself to harmonizing certain forms of legislation concerning higher education. In return, the country enjoys improved efficiency and possibilities in this field.

23.2 The Lithuanian education system after EU‐accession

In 2004 Lithuania became a member of the European Union. Within the EU, education policy falls under the principle of subsidiarity. This means that Member State governments enjoy a high level of autonomy when it comes to organising the national education system, whereas EU institutions exclusively play a supporting role. As stated in ‘Education in Lithuania’, which was issued by the Lithuanian Ministry of Education and Science in 2010, there are several bodies of interest when it comes to the regulation of the national education system.19 Firstly, the Ministry of Education and Science formulates and executes national policy in the area of education and science, monitors the quality of education, drafts strategic plans, organises and coordinates secondary, vocational and higher educational programs, approves content of teaching and coordinates the activity of counties and municipalities. Next are the municipalities, which implement national education policy on the municipal level. Municipalities enjoy a certain degree of autonomy and are free to form regional networks. However, this autonomy is rather limited and municipalities must answer to the Ministry. Third are the educational institutions, which ensure the proper execution of the national education policy on an institutional level. Usually educational institutions are publicly owned by the municipality, but they can also be owned by confessional organisations or private parties.20

23.3 The European Benchmarks on Training and Education

Although education policy falls under the principle of subsidiarity, the European Commission does try to contribute to the overall quality of education and to set a number of common objectives regarding educational policy. One of the most prevalent ways in which this is done, is through the European Benchmarks on Training and Education. As part of the 2009 Education and Training Strategy, the European Commission set seven benchmarks through which every individual member state’s progress made in the period from 2010 until 2020 can be monitored. Our interviewees had differing opinions about the importance and effectiveness of the European

15 CRE, ‘The Bologna Declaration on the European Space for higher education: an explanation’, http://ec.europa.eu/education/policies/educ/bologna/bologna.pdf, consulted on 09‐05‐2013. 16 Interview 20. 17 Interview 45. 18 Interview 20. 19 Lithuanian Ministry of Education and Science, ‘Education in Lithuania’, http://www.smm.lt/en/docs/Educatiom_2010_taisytas.pdf, consulted on 09‐05‐2013. 20 Ibidem. 244

Benchmarks on Training and Education. One of them stated that the benchmarks are a very important tool for determining educational policy, setting new goals regarding education and gaining information on how well Lithuania performs in comparison to other member states.21 However, another interviewee stated that the effects of the benchmarks on national education and education policy are overestimated.22 Table 23.1 gives an overview of Lithuania’s performance regarding the seven benchmarks in comparison to the other 26 member states in the year 2009 as stated by the European Commission in ‘Education Benchmarks for Europe’. In most areas, Lithuania has performed similar to other EU Member States, while the country slightly lags behind other Member States in the field of lifelong learning.

Table 23.5: Benchmarks of the EU for education Benchmark EU (27 MS) Lithuania 1) Pre‐school participation: At least 95% of children between four years of age and the age for starting compulsory primary education 92,5% 89,6% should participate in early childhood education. 2) Low achievers: By 2020 the share of low achievers in reading, math and science should be less than 15%. 17,7% 14,7% 3) Early school leavers: By 2010/2020 a share of early school leavers of no more than 10% should be reached. 14,1% 13,3% 4) Youth educational attainment: By 2010, at least 85% of 22 year‐ olds in the EU should have completed upper‐secondary education. 79% 79,9% 5) Math, science & technology graduates: By 2010 the total number of ‐2000‐2009 ‐2000‐2009 math, science & technology graduates in the EU should increase by at growth: 41,5% growth: 34,4% least 15%, gender imbalance in these fields should decrease. ‐Share of ‐Share of females: 32,3% females: 31,8% 6) Tertiary attainment: By 2020 tertiary attainment of 30‐34 year olds should at least reach 40%. 33,6% 32,3% 7) Adult lifelong learning participation: The EU average level of participation in lifelong learning of the working age population 9,1% 5,0% should at least reach 12.5% in 2010 and 15% in 2020. Source: European Commission, ‘Education Benchmarks for Europe’.23 23.4 Types of education

The coming paragraph provides an overview of the different types of education that can be followed in Lithuania.

23.4.1 Pre‐school and pre‐primary education Usually, Lithuanians start following education at pre‐school, which is available to children between one and six years old.24 Pre‐school education is provided by public and private nurseries, kindergartens, and schools and is non‐compulsory and free of charge. After children turn six years old, they move up to pre‐primary education, which is intended to prepare them for

21 Interview 20. 22 Interview 45. 23 European Commission, ‘Education Benchmarks for Europe’, http://ec.europa.eu/education/lifelong‐learning‐ policy/doc/benchmarks10_en.pdf, consulted on 09‐05‐2013. 24 Lithuanian Ministry of Education and Science, ‘Education in Lithuania’, http://www.smm.lt/en/docs/Educatiom_2010_taisytas.pdf, consulted on 09‐05‐2013. 245 going to primary school and is also non‐compulsory and free of charge. During their pre‐primary education, children learn to orient themselves in a new environment and are stimulated to develop social skills and world comprehension.25

23.4.2 Primary education Lithuanian pupils from the age of seven to sixteen are legally obligated to follow education. During this period they follow primary education and lower secondary education free of charge. In primary education, classes are mixed and made up of pupils of the same age. Pupils attending minority schools start learning Lithuanian as a foreign language in their first year. Pupils attending regular schools also study Lithuanian, and besides this also start learning a foreign language in their second year. 26

23.4.3 Lower secondary education After completing primary education, usually at the age of ten, pupils move on to lower secondary education. The lower secondary education program takes six years to complete, and is divided up into two parts: the first part lasts four years, during which, amongst other things, pupils spend two years continuing learning a second foreign language. During the second part pupils are free to choose subjects according to their interests and abilities, besides following the general curriculum.27 In the academic year 2009–2010, Lithuanian pupils studied the following foreign languages (as the first, second and third foreign language in total): English: 88.8%, Russian: 40.9%, German: 10.9 %, French: 2.6 %.28 As explained by one of our interviewees, decisions to study these languages are usually based on economic considerations. For example, despite political tensions between Russia and Lithuania, Russian is currently one of the most studied languages in Lithuania because Russia is an important trading partner to many Lithuanian companies.29 For more information on Lithuania’s international trading partners, see the section on Lithuania’s economy.

23.4.4 Special needs education Primary and lower secondary education for pupils with special needs is provided in general education schools. If deemed necessary, pupils and their parents receive free assistance of pedagogues, speech therapists, psychologists or other kinds of specialists. The municipal pedagogical psychological service or the educational institution’s special education commission determines a child’s need for special education.30

23.4.5 Upper secondary education After having finished lower secondary education, pupils can move on to upper secondary education. Upper secondary education is usually provided for two years and it is not compulsory or free of charge to follow this type of education. Nevertheless, most Lithuanians do also follow this type of education, so that they can improve their chances of finding employment, or move

25 Lithuanian Ministry of Education and Science, ‘Education in Lithuania’, http://www.smm.lt/en/docs/Educatiom_2010_taisytas.pdf, consulted on 09‐05‐2013. 26 Ibidem. 27 Ibidem. 28 Ibidem. 29 Interview 47. 30 Lithuanian Ministry of Education and Science, ‘Education in Lithuania’, http://www.smm.lt/en/docs/Educatiom_2010_taisytas.pdf, consulted on 09‐05‐2013. 246 on to college or university later on.31 In 2012 40.337 Lithuanians completed their upper secondary education.32

23.4.6 Vocational training The aim of vocational education is to prepare students for specific trades in the labour market. Vocational training lasts two to four years and is divided up into two parts. The first part, primary vocational education is taught in all secondary schools and lasts one to two years. The second part, extended vocational training, is taught at vocational schools and also takes one to two years, depending on the level. This program must include the modules of Entrepreneurship, Civil protection, Ecology, Information technologies and foreign language for specific purposes.33 60‐70% of vocational training is practical training, which is usually conducted at the educational institution or a company. After completing the vocational education program, pupils who have also acquired upper secondary education, can continue their studies at college or university.34

23.4.7 College and University For students who have completed upper secondary education, there are two types of post‐ secondary study programs: college and university. Education in colleges is oriented towards training for professional activities, while university studies are oriented towards academic education and theoretical training.35 College studies usually take three years, university bachelors take four. After receiving a college or university Bachelors degree, students can, depending on the level of their degree, move on to do their Masters, which takes around two years to complete. After completing the Masters, students can pursue a doctoral study, which usually lasts four years.36 In 2012, 18.890 Lithuanian students received a university degree and 12.633 students received a college degree.37

23.4.8 Adult education and lifelong learning Lifelong learning is an ongoing pursuit of knowledge and education for either personal or professional reasons. This type of learning enhances social inclusion, active citizenship and personal development. It also contributes to greater competitiveness and employability. Therefore, the European Commission has recognised the development of lifelong learning strategies as an important goal in European education.38 In 2004 Lithuania’s first targeted policy of lifelong learning, the ‘Strategy of securing lifelong learning’, was adopted. This strategy was aimed at developing a comprehensive quality‐ based system of lifelong education and providing opportunities for all working age individuals.39 In 2008 this strategy was renewed, and renamed into ‘Strategy for assuring lifelong learning’, so

31 Interview 47. 32 Statistics Lithuania, ‘Number of graduates by level of education’, http://db1.stat.gov.lt/statbank/default.asp?w=1280, consulted on 09‐05‐2013. 33 Lithuanian Ministry of Education and Science, ‘Education in Lithuania’, http://www.smm.lt/en/docs/Educatiom_2010_taisytas.pdf, consulted on 09‐05‐2013. 34 Lithuanian Ministry of Education and Science, ‘Education in Lithuania’, http://www.smm.lt/en/docs/Educatiom_2010_taisytas.pdf, consulted on 09‐05‐2013. 35 Ibidem. 36 Ibidem. 37 Statistics Lithuania, ‘Number of graduates by level of education’, http://db1.stat.gov.lt/statbank/default.asp?w=1280, consulted on 09‐05‐2013. 38 European Commission, ‘The Lifelong Learning Programme: education and training opportunities for all’, http://ec.europa.eu/education/lifelong‐learning‐programme/doc78_en.htm, consulted on 09‐05‐2013. 39 GHK and Research voor Beleid, ‘Country Report on the Action Plan on Adult Learning: Lithuania’, http://ec.europa.eu/education/adult/doc/lithuania_en.pdf, consulted on 09‐05‐2013. 247 it would also cover non‐formal and non‐vocational types of adult education.40 As stated in the ‘Country report on the action plan on adult learning: Lithuania’, several measures were taken by the Ministry of Education and Science to increase the number of adults involved in the process of learning and to ensure the availability of education for all groups in society, also those that had fewer learning opportunities due to their personal situation or social exclusion. One of these measures provided a ‘second chance’ of acquiring secondary education for people that had dropped out of school at a young age. With this ‘second chance’, any previously acquired education or incomplete secondary education was acknowledged as primary education, which made it more attractive for some to return to secondary education.41 Another way in which lifelong learning is stimulated in Lithuania, is through the funding of lifelong learning projects. Funding is mainly given to projects aimed at teaching adults skills and professions of which there is a shortage of workers in the labour market.42 Financial support is also given to projects helping convicted persons, elderly women, persons with mental or physical disabilities and drug addicts.43 A third way in which lifelong learning is stimulated in Lithuania is through the spread of information. In recent years the availability of information on lifelong learning opportunities has increased significantly. The Ministry of Education and Science created a new information system on lifelong learning (AIKOS), organised information weeks for adults, and in 2006 a periodical magazine called Suaugusiųjų švietimas (adult education) was first published by the Lithuanian Adult Education and Information Centre. In the same year an information campaign called It’s never too late to learn. Don’t stand still‐ move forward! and a general computer literacy promotion campaign were organised.44 Overall, Lithuania is making an effort to promote lifelong learning participation in all layers of society, which is likely to steer future developments in a positive direction.

23.5 Issues and challenges

Despite the fact that the Lithuanian education system has undergone far‐reaching reforms and made significant progress since Soviet times, Lithuania still faces some unsolved issues and challenges regarding the education system.

23.5.1 Decentralising the education system Decentralising the national education system seems to have been a challenge for Lithuania ever since it became independent from the Soviet Union.45 Nowadays, the Lithuanian educational system is still organised rather centrally compared to other, especially older, EU Member States. Most decisions regarding education are made by the Ministry of Education and Science, granting relatively little autonomy to institutes of education.46

40 GHK and Research voor Beleid, ‘Country Report on the Action Plan on Adult Learning: Lithuania’, http://ec.europa.eu/education/adult/doc/lithuania_en.pdf, consulted on 09‐05‐2013. 41 Ibidem. 42 Ibidem. 43 European Commission, ´Country report on the action plan on Adult Learning: Lithuania´, http://ec.europa.eu/education/adult/doc/lithuania_en.pdf, consulted on 27‐05‐2012. 44 Ibidem. 45 J. Urbanoviĉ, ‘Aspects of decentralisation in management reforms of the education system in Lithuania’, https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&sqi=2&ved=0CDEQFjAA&url=http%3A%2F%2Fw ww.mruni.eu%2Flt%2Fmokslo_darbai%2Fvpa%2Farchyvas%2Fdwn.php%3Fid%3D239415&ei=TbWMUbjJIqm90QXknoCYBA &usg=AFQjCNFVWf2NVuftylF8Dh9kc54LgZ4OcA&sig2=fttUIK0hSiHGmQFCLMhK_w&bvm=bv.46340616,d.d2k, consulted on 10‐05‐2013. 46 Interview 45. 248

According to Urbanovič, this on‐going high level of centralisation is caused by the divergence between the ‘National Education Strategy 2003‐2012’ and the ‘Law on Education of the Republic of Lithuania’, which was adopted in 2003.47 According to the strategy, the Ministry of Education and Science should only establish key requirements for general education, vocational education and training, and should be responsible for ensuring the quality and accessibility of education. However, the law on Education grants much broader powers to the Ministry, like the formulation and implementation of national education policy, creating educational content, accreditation of school activities, and more. The effectiveness of the ‘National Education Strategy 2003‐2012’ and the attempt to realign the Ministry’s responsibilities are undermined by this divergence.48 An important event regarding the issue of centralised organisation of education was the passing of the new ‘Law on Higher Education and Research’ in 2009. Under this law, the autonomy of institutes of higher education would have been further narrowed down as political parties would be able to assign the majority of the council members that rule an institute of higher education.49 This law received a lot of criticism and opposition and eventually the case went to court. The court ruled that 36 articles of the new law were against the constitution and the law was cancelled.50 According to several interviewees, as a result of the central organisation of education, many Lithuanian institutes of higher education are not operating as effectively or successfully as they possibly could.51 One of the ways in which this becomes apparent is with regards to the implementation of agreements made in the Bologna process. Despite willingness to comply with such agreements, institutes of higher education are at times not in a position to do so because they are blocked by national legislation.52 After all, institutes of higher education can not react directly to Bologna, they are accountable to the state. However, another interviewee stated that, since the new Law on Higher Education and Research was revised, institutes of higher education have a sufficient amount of autonomy.53

23.5.2 Financing tuition fees As mentioned previously, pupils do not have to pay for their pre‐school, pre‐primary, primary and lower secondary education. As stated in ‘Education in Lithuania’, the education of pupils between one and sixteen years old is funded by the government through the Pupil’s Voucher system. This system entails that each municipality receives a sum of money from the government on a yearly base. This sum is based on the amount of school‐going pupils between the age of one and sixteen within the municipality. The municipality then divides the money between its educational institutions, depending on the amount of students they attract. The pupil’s voucher is allocated both for public and private schools and if pupils move to a new

47 J. Urbanoviĉ, ‘Aspects of decentralisation in management reforms of the education system in Lithuania’, https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&sqi=2&ved=0CDEQFjAA&url=http%3A%2F%2Fw ww.mruni.eu%2Flt%2Fmokslo_darbai%2Fvpa%2Farchyvas%2Fdwn.php%3Fid%3D239415&ei=TbWMUbjJIqm90QXknoCYBA &usg=AFQjCNFVWf2NVuftylF8Dh9kc54LgZ4OcA&sig2=fttUIK0hSiHGmQFCLMhK_w&bvm=bv.46340616,d.d2k, consulted on 10‐05‐2013. 48 Ibidem. 49 Interview 45. 50 Interview 20. 51 Interview 45. 52 Ibidem. 53 Interview 20. 249 school, they bring the voucher with them.54 Primary vocational training is also financed through this system. However, when pupils reach the age of 17 and have finished primary and lower secondary education, they are no longer guaranteed further schooling free of charge. Pupils who completed lower secondary education with the highest marks can apply for a Study Voucher. If they are granted this voucher the state covers their tuition fee in upper secondary education, college or university. Other students must pay their own tuition fee. According to our interviewees, this system is problematic for several reasons: first of all, the costs for students that do not receive state financing are very high.55 Most Bachelor studies cost between 4000 and 8000 litas per year, which is currently between 1150 and 2300 euros.56 Master degrees usually cost around 1.5 times more than the Bachelors does.57 Because these fees are so high, some Lithuanians decide to do their further studies abroad, or not to go to upper secondary school, college, or university at all. Because of this, the Ministry is considering to adjust tuition fees to a fixed amount of 2000 litas per year.58 A second aspect of this system that seems problematic is that funding, which is based on school leaving exams, can be withdrawn after two years. If people with state funding receive lower marks than average, their funding can be withdrawn after two years and given to another student. However, some students fully depend on state funding to be able to pay for their studies. Withdrawing their funding would make it impossible for them to continue their studies.59 A third problem is that funding is connected to an average fixed mark, whilst different studies might have varying levels of difficulty.60 In total, around 50% of students receive state funding.61

23.5.3 Emigration The large‐scale emigration of Lithuanians, especially young Lithuanians is putting a strain on the Lithuanian education system. One of the main problems that is caused by the diminishing amount of students, is that some institutes of higher education, especially in the countryside, are struggling to make ends meet.62 One of our interviewees distinguished between Lithuanians that immediately go abroad after finishing secondary education and Lithuanians that go abroad after gaining some form of experience in Lithuanian college or university. The first group of people is much more likely to stay abroad, because these people have no experience in studying within Lithuania. People belonging to the second group are usually more rooted in Lithuania and almost always return after studying abroad.63 Although our interviewees stated that many students do return to Lithuania,64 the outflow of young Lithuanians is predicted to continue in the near future.65 One of

54 Lithuanian Ministry of Education and Science, ‘Education in Lithuania’, http://www.smm.lt/en/docs/Educatiom_2010_taisytas.pdf, consulted on 09‐05‐2013. 55 Interview 20 and Interview 45. 56 Interview 45. 57 Interview 20. 58 Ibidem. 59 Interview 45. 60 Ibidem. 61 Ibidem. 62 Interview 20 and Interview 45. 63 Interview 45. 64 Ibidem. 250 our interviewees stated that student emigration will diminish when there are more jobs with good salaries in Lithuania. Another method to keep the amount of students from declining is by attracting foreign students.66 Other interviewees stated that pupils in secondary school must be better informed on possibilities regarding follow‐up education within Lithuania.67 Also, an interviewee noted that the lack of patriotism makes it easier for young Lithuanians to go and study abroad.68

23.5.4 Teachers Lithuanian education faces several problems regarding teachers and the quality of teaching. Teacher salaries, to begin with, are usually quite low, which has two negative effects: First of all, young people choose not to become a teacher. Because there are few young people that decide to become a teacher, teachers on average are ageing in Lithuania.69 Young people’s hesitance to become a teacher is fuelled further by the fact that teachers generally speaking do not enjoy a high status in Lithuania.70 Secondly, educated people choose other professions than teaching, so that they can earn a higher salary, which has negative effects on the quality of education. A possible solution to these problems is the introduction of a system where teacher salary levels depend on and are aligned with the teachers’ personal achievements.71

23.5.5 The amount of institutes of higher education There are 43 colleges and universities in Lithuania.72 In comparison to other member states, this is a very high amount. Nowadays, partially because of youth emigration, many institutes of higher education are struggling to make ends meet. Especially the smaller regional colleges and universities face financial problems.73 Besides the fact that some institutes of higher education are struggling financially, the quality and effectiveness of education might also be undermined due to an excessive amount of institutes of higher education.74

23.6 Conclusion

Generally speaking, Lithuania has come a very long way in restructuring the national education system. Soon after Lithuania gained independence from the Soviet Union, the new main principles of education; humanism, equality, democracy, renewal, and commitment to national culture and identity were established. These principles still play an important role in Lithuanian education today. Besides positive developments, there are still some problems that need to be resolved, such as fact that, according to some, education is organised rather centrally, students have

65 G.Rakauskiené and O.Ranceva, ‘Strengths of Emigration from Lithuania: Democraphic, Social and Economic Consequences’, https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0CDkQFjAB&url=https%3A%2F%2Fwww.mr uni.eu%2Fen%2Fmokslo_darbai%2Fie%2Farchyvas%2Fdwn.php%3Fid%3D326590&ei=rCyNUYPrCKam0AWhnoDICQ&usg=A FQjCNF‐VN2gaVgBPzYyWaIdPnJygrVQAA&sig2=z7hVZ1yaFtbdPXTsXKhrLA&bvm=bv.46340616,d.d2k&cad=rja, consulted on 10‐05‐2013. 66 Interview 20. 67 Interview 45 and Interview 47. 68 Interview 47. 69 Interview 20 and Interview 47. 70 R. Zelvys, ´Development of education policy in Lithuania during the years of transformations´, http://www.sciencedirect.com/science/article/pii/S0738059304000549#, consulted on 27‐01‐2013. 71 Interview 20. 72 4ICU, ‘Universities in Lithuania’, http://www.4icu.org/lt/, consulted on 10‐05‐2013. 73 Interview 45. 74 Ibidem. 251 trouble financing their studies, in some areas there is a shortage of qualified teachers, and the number of students in Lithuania is decreasing while there is a high amount of educational institutions. Nevertheless, Lithuania has shown a lot of goodwill and readiness to keep developing the national education system, which is likely to steer future developments in a positive direction.

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Conclusion

The research for this report has foremost been conducted as a timely prelude to Lithuania’s upcoming presidency of the Council of the European Union. Naturally, the accession to the EU in 2004 has been of great significance to the country, affecting it in many ways. During our research, therefore, we focused on Lithuania’s relation to the EU, amongst others examining the extent to which Lithuania adheres to EU standards. Apart from this, our purpose was to get a most complete picture of Lithuania. This picture includes different influences the many years of Soviet oppression, the EU accession, and the related current economic crisis have had on Lithuanian society. Lithuania has done its best to transpose European Union legislation into national law and comply with the acquis communautaire. During this process it received (financial) support from the EU to assist in this process. As this country report shows, many positive developments have taken place, something that is reflected in the relatively low amount of infringement procedures Lithuania has received from the European Commission. However, a number of challenges remain, some of which have emerged only recently. Our main conclusion is that Lithuania is a country with considerable strengths, but that it will need more time to fully achieve its potential. Firstly, this overall concluding chapter outlines the main findings of this report, including some recommendations. Secondly, it categorises these related observations and challenges, divided into effects of the Soviet oppression and that of the EU accession, which both offer an explanation for the current state of affairs. Thirdly, we take a look at the issue of overall mentality in society, in our view highly influential and important in order to understand Lithuania’s current challenges and prospects.

Lithuania’s main challenges From its 1991 independence until now, Lithuania has developed on practically all areas. Firstly, with regard to the acquis communautaire, Lithuania’s environmental policies are well developed, complying with EU standards to a large extent. Furthermore, the country has developed its infrastructure while creating a material and legislative bridge with the rest of the EU; a very important development since its geographical location is rather isolated. However, Lithuania is still facing some challenges regarding the implementation and the functioning of EU legislation, which asks for more cooperation, trust and time. There are many positive developments in the politico‐judicial domain, such as the introduction of a broader scale of human rights through a new Civil Code, and the introduction of a well‐functioning multi‐party system and liberal media system. With regard to the economic domain a liberal market economy was developed, and in the social domain convergence towards EU standards can be noticed, more aptly summarised in the next section. However, within each domain, improvements are still warranted. This research revealed some issues that may obstruct further development within multiple policy areas. Concerning politics, popular passivity can be considered to be one of such obstructions. Lithuanians generally consider the EU as the main legislator on all fields, including the areas on which the EU does not wield any real influence. As a consequence, this view dominates and is reflected in Lithuania’s everyday politics, creating a lack of trust from citizens as to the representation of their interests in the political arena, which undermines political stability. It is important for the Lithuanian government to assume responsibility within these policy areas.

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In order to emerge from political instability, first of all, it is important to realise that with regard to social policy, in terms of employment conditions, pension legislation and education policy, there is to a large extent room to manoeuvre. Furthermore, with regard to political topics such as human rights and civil society, a lack of political will and trust leads to problems implementing legislation. This may be considered a form of passivity, since more initiatives could be taken. In order to attack this specific problem, more information should be provided about the importance of human rights and participation in civil society and democracy, gaining trust in and awareness of these political themes. On top of this, Lithuania is in need of a clear and, above all, uniform political direction. Only one government has completed its term of four years since the independence of 1991, with each government seemingly bound on a different political course, which leads to policy inconsistency. This policy inconsistency has clear effects. For example, inconsistent policy leads to an unstable tax system and therefore creates uncertainty for investors. As a consequence, notwithstanding its advantageous business environment, Lithuania attracts a relatively low number of Foreign Direct Investments (FDI), which is of great importance to the country. Although at the moment higher taxes on property and lower social contributions and VAT may be desirable, businesses and investors also need stability and certainty. Consequently, a uniform political direction will not only most likely lead to a higher level of trust among the Lithuanians, which will affect the participation in politics in a positive way, but may also lead to positive economic developments. More readiness to compromise in the political arena and thus allow for more stability should be a political goal for the long‐term. Concerning economic policy making, the EU exerts more influence. This has led to a policy framework in which Lithuania has for many years been allowed only limited freedom to set its own ground rules, as full adoption of the acquis communautaire has also entailed the establishment of a truly liberal market economy. The challenge for Lithuania to compete in this EU economy seemed for many years to lead to automatic convergence towards broader EU standards on production, wealth creation and standards of living. These past years, however, the problems of high unemployment, lowered wages, coupled with large emigration, have shown that such convergence is by no means automatic, and that Lithuania itself needs to pursue politics that help alleviate these problems, both in the short and the long run. Taken together, the most significant observation that has become apparent is that there is a lack of coherence between politics and economics. While adoption of EU legislation has helped the country establish a strong democratic framework, the lack of perceived political leeway has minimised political participation, fuelling instability and distrust among the general population, while serious social problems persist that need to be resolved.

The Soviet inheritance today The most significant footprints left by the Soviet oppression can be found in the overall mentality of much of Lithuanian society, both explicitly and implicitly. That is, many interviewees have pointed out that the fear of Russia as Lithuania’s largest neighbouring country is still present in everyday society. In addition, reflections of the oppression can be implicitly found in, for example, the attitude towards politics, which can be considered as passive. This is amongst others exemplified by the lack of trust from citizens in the political institutions of the country. Furthermore, influences of the Soviet period are especially visible within the social domain. For example, although many positive developments have taken place, such as reforms of the pension system in order to guarantee a sustainable pension system in the future, broader

254 access to health care services, and convergence towards Bologna standards in the education field, these policy areas are still mainly based on centralist principles inherited from the Soviet period. The level of benefits is low, while the difference between incomes of employees that receive the minimum wage and those receiving benefits is small, which encourages work in the shadow economy. This problem could be addressed by creating better incentives to work in the real economy through for example a further raise of the minimum wage, which is at the moment amongst the lowest of the EU. Apart from this, the Soviet legacy is clearly present in the area of infrastructure. As mentioned before, Lithuania finds itself in an isolated position, since interconnectivity with Poland and Scandinavian countries is insufficient or lacking. It appears that the infrastructural networks are mainly integrated into the former Soviet Union framework rather than in the European system. Overall, in order to improve the aforementioned situation, trust, confidence and awareness should be fuelled, which may require a mentality‐switch that we will return to later in this final chapter.

Effects of the EU accession As any other EU Member State, the accession to the EU has had large effects on Lithuania. One of the primary effects regards the future introduction of the euro. As a result of the economic crisis and Lithuania’s commitment to this introduction, a number of developments have taken place, not all of which have been positive. For example, while GDP growth has stagnated, EMU guidelines stipulate that the public deficit needs to be decreased, even though this constituted pro‐cyclical economic policy. The commitment to the currency peg, another prerequisite for adoption of the euro, has furthermore made any form of monetary policy measures to stimulate demand and encourage growth impossible, while an external devaluation to empower the export sector is also off the table. It seems, however, that Lithuania’s currency peg has placed the country at a point of no return, in which accession to the EMU seems the only feasible option forward. Adhering to the official criteria for accession to the Eurozone alone may not suffice to develop a stable, growing, and competitive economy. In order to maintain and perhaps even stimulate overall consumption, a raise of the wages and, in particular, of the minimum wage, seems inevitable, as mentioned before. Yet an increase of the minimum wage would interfere with Lithuania’s competitiveness, which could be considered a far‐reaching problem, since export is and will be of great significance for Lithuania’s economy. As a consequence, the level of the social contributions the companies and employers have to pay could be decreased. This would result in higher net wages received by employees, but not significantly higher overall labour costs for employers. Apart from this, economic growth could be enhanced by valuing the trade opportunities with Russia and Belarus. Lithuania could exploit its favourable geographical position, for example by increasing its exports to through Klaipeda as a regional port for Latvia, Russia and Belarus. These countries will be of great importance within the future focus on transport and export. Improving the infrastructural network is therefore also desirable. In order to make use of these opportunities, general opinion on these countries may also need to undergo an adjustment. With regards to the specific economic opportunities for Lithuania, the country should shift reliance on the export of raw materials to a focus on the export of processed materials instead. Additionally, in order to strengthen economic growth, international marketing could have a role to play. For example, more could be done in order to attract tourists to Lithuania,

255 requiring more efforts in the direction of marketing. Moreover, such marketing can also result in the attraction of more FDI in Lithuania. Overall, the pursuit of these opportunities could substantially enhance economic growth in Lithuania. Another consequence of the EU accession is the redistribution of wealth. Those with lower incomes have seen their relative income decrease, which is especially visible in the rural regions due to the negative consequences of the EU agricultural policy and competition. For example, due to relatively low agricultural subsidies in accordance with EU legislation, a large number of small farmers have had give up their farms while being unable to find other work. In addition, Lithuania is currently facing a significant problem with regard to emigration. There has been a negative emigration balance since the independence of 1991, which means that the number of emigrants has consistently been higher than that of immigrants. The EU accession has only made it easier to leave the country and thus resulted in an increasing number of emigrants, further fuelled by the economic crisis of 2009. The outflow of Lithuanians, especially young ones, negatively affects the economic situation in multiple ways, as productive forces leave the country, while the ageing population needs to be financed by a continuously shrinking work force. Although the annual number of emigrants is currently decreasing somewhat, net negative migration is expected to continue in the foreseeable future. The problem is clearly difficult to solve. Social policy and education could be among the instruments to fight emigration. That is, for instance teacher salaries could be increased and other financial measures, such as the funding of life‐long learning projects and the lowering of tuition fees, could be taken in order to create more perspectives in Lithuania and reduce incentives to leave in search of work or education elsewhere.

The no‐choice mentality: an explanation Perhaps the most important issue that addresses all of the discussed issues above is that of the mentality of many Lithuanians; a problem that we denominated the ‘no‐choice mentality’. This regards the feeling of many Lithuanians that joining the EU was not a choice but a necessity. This mentality is related to the aforementioned passivity and the lack of trust and political vision. Consequently, the question is whether the no‐choice mentality is the reason for Lithuania’s compliance to the EU rules or whether the reason for these positive developments is actually based on a true belief in the economic ideals and opportunities of the EU. Of course, in the economic domain EU accession has entailed little room for manoeuvre for Lithuanian politics. On the one hand, EU policy limitations currently appear to lead to unfavourable economic circumstances in Lithuania, while on the other hand, the EU framework is believed to lead to substantially more political and policy stability. On the whole, therefore, we would argue that the basis of EU membership can be considered beneficial to Lithuania. A mentality adjustment towards the political domain in which debate over legislation, including EU legislation, is encouraged, may however offer solutions to many of the aforementioned problems Lithuania is currently facing. Providing the general public with a sense of influence on actual policy could increase political participation, a sense of belonging, and perhaps even divert the political agenda to focus more on the social challenges the country still faces. Overall, the issue of an overall passive mentality is inherited to a large extent from Soviet times, now little more than twenty years ago. The country may therefore simply need more time to shake off this legacy.

On the whole, we can conclude that Lithuania still finds itself at a crossroads. Whilst the country has demonstrated eagerness to exchange its ties with the Soviet Union for ties with the

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European Union by successfully integrating into the EU framework on many areas, traces of former communist times are still present. Nevertheless, since the 1991 independence Lithuania and its inhabitants have shown strong willingness to develop an institutional democracy, liberal market economy, and to become a member of the European Union. Despite setbacks such as the economic crisis, that determination still seems to be strong throughout the country today. The most significant problems with which Lithuania currently has to deal with are emigration and unemployment, which necessitate different policy measures. In addition, a main factor that obstructs more developments towards full convergence with the EU may be an overall no‐choice mentality, which holds back political participation, trust in political institutions and social inclusion. As this seems to be a product of the long period of Soviet oppression, this may simply need more time to be resolved.

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