October 29, 2012 / 8:01 AM / 7 years ago

Lithuania opposition scents power after backlash vote

VILNIUS (Reuters) - Lithuanian opposition parties began talks on Monday on forming a government that will determine the country’s path into the euro zone, having won an election marked by a backlash against years of austerity.

Social-democratic party leader Algirdas Butkevicius poses for the media as he casts his vote in Vilnius October 14, 2012. REUTERS/Ints Kalnins

In a warning for other European governments pushing through tough budgets, voters ditched Prime Minister Andrius Kubilius’ administration on Sunday in favour of an alliance of the Social Democratic Party, the Labour Party and the party of an impeached former president.

Kubilius won praise abroad for slashing the budget deficit after a brutal economic crisis four years ago, but saw his popularity slide at home as wages fell, unemployment rose and tens of thousands of people left the small Baltic country in search of work.

“They (voters) are angry because this government has not stopped emigration from Lithuania,” said Social Democratic Party leader Algirdas Butkevicius, 54, a former finance minister and the top candidate for prime minister from the three-party alliance.

He was due to meet President Dalia Grybauskaite, who nominates the prime minister, at 10 a.m. (0800 GMT).

Speaking to reporters, Butkevicius said he wanted to name the finance minister and foreign minister in the new government.

The parties have said they would aim to increase the minimum wage, make the tax system fairer and boost investment.

But economists say the new government will have little room to ease back on the austerity as Lithuania needs to retain the confidence of debt markets.

The country needs to raise 7.6 billion litas ($2.85 billion) in 2013, about 6.5 percent of projected gross domestic product.

Butkevicius has said he would be fiscally responsible and stick to the outgoing government’s 2013 budget deficit target.

He told Reuters in an interview he hoped to seek entry to the euro zone for Lithuania in 2015 - a year later than Kubilius had planned.

Butkevicius said his would-be coalition partners backed his timetable, even if during campaigning they said the country should not rush to adopt the common crisis during the sovereign debt crisis.

“I think we will have the euro in 2015 ... I am optimistic,” Butkevicius said.

In two rounds of elections, the first two weeks ago and the second on Sunday, the opposition won a combined 78 seats in the 141-seat parliament.

The Social Democrats won 38 seats and the Labour Party 29, while 11 went to the party of former president Rolandas Paksas. Kubilius’s Homeland Union came second with 33 seats, but was isolated in parliament and has little hope of retaining power.

TIES WITH RUSSIA

Lithuania quit the former Soviet Union in 1991 and built ties with the West by entering the European Union and NATO in 2004.

With a 13 percent jobless rate, the Baltic state is one of the EU’s poorest and the population has fallen below 3 million for the first time in more than two decades as thousands leave to find work abroad.

The government’s drubbing at the ballot box contrasts with warm words abroad for having steered a more radical fiscal course than Greece and other euro zone states struggling with debt.

After a economic output collapsed by 15 percent in 2009 - the second-biggest decline in the EU after northern neighbour Latvia - Lithuania’s gross domestic product rose 6 percent in 2011 and is expected to increase by about 3 percent this year.

Over the same period, the budget deficit fell to 5.5 percent of GDP in 2011 from 9.4 percent. The Kubilius government has drafted a 2013 budget with a 2.5 percent fiscal gap.

Butkevicius has said he backs better relations with Russia, which soured under the outgoing government in arguments over efforts to boost independence from gas from the Baltic state’s former imperial master.

While backing the drive to boost energy independence, he wanted talks with Russia. “I think that relations between Lithuania and Russia will be better,” he said.

On the budget front, Lithuania’s politicians were aware pressure from the markets would not allow them to be too generous, said Lars Christensen, chief emerging markets analyst at Danish bank Danske Bank.

“I’m quite happy that this election, no matter the outcome, will not lead to crazy economic policies,” Christensen said.

Lithuania takes the EU’s rotating presidency in the second half of 2013 and must repay a 1 billion euro bond in March.

Reporting by Patrick Lannin; Editing by John Stonestreet

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