Lithuania meets all the criteria for joining the euro, the European Commission said today.
This clears the way for the small Baltic state to become the 19th member of the single currency from the start of next year.
To adopt the euro, a country has to have government debt no higher than 60% of gross domestic product, a budget deficit below 3% of GDP, low inflation and interest rates and its own currency has to be stable against the euro.
Out of the 28 countries in the European Union, only Britain and Denmark do not have to adopt the euro because they have negotiated formal opt-outs.
All the others are obliged to switch to the single currency at some point provided they meet the criteria. The Commission assesses such compliance every two years in what it calls a convergence report.
"The 2014 Convergence Report concludes that Lithuania meets the criteria for adopting the euro. As a consequence, the Commission is proposing that Lithuania adopt the euro on 1 January 2015," the Commission said.
The formal decision to accept Lithuania into the euro zone will be taken by EU finance ministers in the second half of July, at which point the ministers will also agree on a conversion rate of the litas currency into the euro.
The remaining seven countries that still remain outside the euro zone - Bulgaria, the Czech Republic, Croatia, Hungary, Poland, Romania and Sweden - do not meet all of the criteria to adopt the currency.
With the addition of Lithuania's 3.4 million people, the euro zone will have a total population of 336 million people and a GDP of approximately $9.5 trillion. The single currency was launched in 1999 and started trading as notes and coins in Europe January 1, 2002.
Meanwhile, the European Commission has recommended Albania be granted candidate status to the 28-member bloc, recognising its progress and urging it step up its reforms before and after the decision of member states later in June.
"Based on our findings, we confirm without any doubt, with no conditionality or any reservations the recommendation that the member states grant Albania candidate status," Enlargement Commissioner Stephan Fuele said.
Albania applied for candidate status in 2009 but a tense political situation and slack measures against corruption and crime and a weak judiciary have hamstrung its efforts.