Lithuania faces possible insolvency: EU budget chief

(VILNIUS) - Social unrest prompted by budget cuts due to the economic crisis could push Lithuania towards insolvency despite government stabilisation measures, EU budget chief Dalia Grybauskaite warned on Wednesday.

"All the stabilisation measures taken by the government in January have enabled it to stabilise the situation and to borrow both domestically and abroad," Grybauskaite said.

"However, I would like to say that any further escalation of social tension or destabilisation of the country's political situation may drive the country into an insolvency phase," she added.

Grybauskaite, who is from Lithuania and is responsible for budget affairs at the European Commission in Brussels, said she nonetheless saw no current need for her homeland to seek a bailout from the International Monetary Fund.

"Lithuania is coping at the moment. The measures adopted by the government have helped to shore up the country's financial situation until now," she said.

Mounting anger over the centre-right government's economic policy -- including deep budget cuts -- fuelled clashes between protesters and police during a trade union demonstration two weeks ago.

Grybauskaite criticised the authorities to failing to sell the belt-tightening package to the public.

She declined to forecast how the situation could develop, but warned that "the financial crisis has not reached the bottom yet."

Lithuania, which declared independence from the Soviet Union in 1990, has enjoyed a reputation as an economic tiger, notably since joining the EU in 2004, growing by a record 8.9 percent in 2007 after 7.8 percent in 2006.

But growth stalled to an estimated 3.2 percent in 2008, and the economy is expected to contract by around 5.0 percent this year.