Lithuania’s Elections: Protest but No Earthquakeby Anders Aslund | October 18th, 2012 | 09:58 am
Lithuania held the first round of its parliamentary elections on October 14, setting in motion the likely ouster of the center-right government of Prime Minister Andrius Kubilius by a center-left government. The left won heavily, with a combined total of 46 percent of the proportional vote against 23 percent. The voting was generally seen as a protest against austerity, but the most likely outcome is for policies in Lithuania to continue no matter who becomes the next prime minister.
A second round of balloting will be held October 28, which leaves the final results inconclusive. Of the 141 members of the Lithuanian Seimas (Parliament), 71 are elected in single-member constituencies and 70 in proportional elections with a hurdle of 5 percent for representation.
The big winner was the populist Labor Party headed by the Russian-born businessman Viktor Uspaskich with 20.2 percent of the vote (up from 9.0 percent in 2008), followed by the Social Democratic Party, the former Communist Party, led by Algirdas Butkevicius with 18.6 percent (up from 11.7 percent in 2008). They are set to form a government with the Order and Justice Party (7.4 percent of the vote, compared with 12.7percent in 2008) of Rolandas Paksas, who was impeached and ousted as president for having received illicit campaign financing from Russian business in 2004. These three parties should be sufficient to form a government because many small parties fell below the 5 percent hurdle for representation.
Given the opinion polls ahead of the election, the surprise was that the government parties were not routed altogether. The conservative Homeland Union of Prime Minister Kubilius received 14.8 percent of the votes, down from 19.7 percent in 2008. His partner, the Liberal Movement, actually increased its shares to 8.3 percent from 5.7 percent in 2008. But two other government parties had imploded long ago, one in a corruption scandal.
The vote against austerity policies in Lithuania was similar to the results in recent elections in Hungary, Slovakia, and Serbia. Like its northern neighbors, Estonia and Latvia, Lithuania was hit hard by the global liquidity freeze in 2008, and faced an output fall of no less than 14.8 percent in 2009. Even so, Lithuania managed to get out of the crisis without international emergency aid. It returned to growth in 2010, and achieved a sound growth rate of 5.9 percent in 2011. The forecast growth this year is 3.4 percent, which might become the second highest in the European Union. The yield on its ten-year bonds has fallen to 3.54 percent, reflecting the international confidence in Lithuania’s economy.
However, the fiscal adjustment was severe, no less than 12 percent of GDP in 2009–10. Kubilius, who was prime minister also in 1999–2000 after the Russian financial crash, is used to handling crises. He cut public expenditures and wages, while he essentially only raised indirect taxes. Lithuania has a flat personal income tax and corporate profit tax of only 15 percent, but a value-added tax of 21 percent. The main public concerns have been low incomes, unemployment, and emigration. Unemployment peaked at 18.3 percent in the second quarter of 2010, and it has now fallen to 13.3 percent. Lithuania’s population has shrunk from 3.7 million in 1990 to 3.0 million at present because of low birth rates and Lithuanians leaving their country to seek employment or education elsewhere, as in most of the eastern part of Europe. In particular, the winner Uspaskich has made unaffordable populist promises like raising the minimum wage by 78 percent, but Lithuania has no means to carry out such a commitment, and the more fiscally responsible social democrats are not likely to accept such proposals.
Second, this was also a vote against nuclear power. Lithuania was forced by the European Union to close down its old Chernobyl-style nuclear power station in Ignalina, resulting in increased energy costs and dependence on Russia. The center-right government wanted to build a new nuclear power station and had negotiated a contract with the Japanese company Hitachi to do so. On election day, a non-binding referendum on the nuclear power plant was also held. The referendum had been requested by the left, and 62.7 percent of the voters rejected the project, while only 34.1 percent approved of it. Lithuania’s tough stand against Russia’s energy policies might soften, but only somewhat.
Third, it was a vote against early accession to the euro. Until recently, Kubilius has—like Latvian Prime Minister Valdis Dombrovskis—insisted on his country joining the euro area in 2014. Its low budget deficit, inflation, and public debt should make that possible. Its public debt is only 39 percent of GDP. The left is not against adopting the euro, but it would prefer to wait until the euro crisis is over—that is, until 2015 or 2016.
So why did Kubilius lose, when his center-right colleagues in Estonia and Latvia both won parliamentary elections last year? They have all pursued similar policies and they have achieved equally good results. One difference lies in personality. Kubilius is perceived as honest and responsible but dour, and he has been less successful in selling his policies. Yet, this election result follows the historic electoral pattern in Lithuania: Incumbent governments always lose elections and the swings are usually big. Kubilius is the country’s 15th prime minister since its renewed independence in 1991, and his government is actually the first one in Lithuania to have stayed for a full electoral term of four years.
The key difference is that unlike Estonia and Latvia, Lithuania has a credible social democratic alternative, because the Lithuanian Communist Party has reformed credibly since the Soviet era. Therefore, Lithuanian politics are organized around the Social Democratic Party, once led by old communist leader Algirdas Brazauskas, and the conservative party, once led by Lithuania’s independence leader Vytautas Landsbergis. Now Butkevicius and Kubilius have taken over their alternating anchor roles.
The likely rise of Uspaskich to the post of prime minister raises some questions about whether Lithuania can embrace financial discipline. But with its multi-party system, the Lithuanian parliament is used to ousting governments that underperform. The consensus is that little of Kubilius’ fiscal policies will change, because they do follow the Lithuanian tradition. The euro accession will probably be delayed by one or two years, and the biggest change might lie in energy policy. Lithuania will remain a loyal member of the European Union and the North Atlantic Treaty Organization (NATO).