Does Poland really avoid the eurozone?

More than ten years after formal establishment of the euro area, the monetary union is forming again, but it seems that without Polish participation. If we do not react appropriately we can lose the opportunity to  adopt common currency for many years.

It is widely known that the euro area is currently in trouble. The other thing is that weak zloty (Polish currency) was not only once beneficial for Polish exporters during current crisis. But to be honest we also all know that the eurozone will be reformed and will survive, or even will be stronger. If Poland miss a chance of participation in this transformation there is possibility that in the future Poland will join euro area but on less favorable terms. So maybe it is worth to try to enter the eurozone when Poland is seen as a “green island” and when other countries of this area are in crisis.

Poland committed to adopt the euro more than eight years ago, when it joined the European Union. Four years later the Prime Minister Donald Tusk announced the adoption of common currency by 2012. But a few days after that Lehman Brothers fell and financial crisis began. On the one hand, it caused that Poland no longer fulfill the convergence criteria related to deficit of public finances: level of public debt, inflation and interest rates. On the other hand, crisis exposed weakness of the monetary union and led to loss of financial liquidity in three countries: Greece, Ireland and Portugal. The result of that was creating the banking union which should form a common fiscal policy for all membership of the eurozone in the future. For all that facts Poland reacted skeptical.

Among all countries which joined the European Union together with Poland, nine have already joined the monetary union (Cyprus, Estonia, Malta, Slovakia and Slovenia). From 1 January 2014, common currency will also be used by Latvia.  So the question is why Poland is still not sure if it is good or not to join this group.

 According to some economists, if Poland were a member of the euro area, situation in country would be much harder. They say that Poland cannot afford to resign from zloty which 

(owing to floating exchange rate) allows depreciating external shocks. In crisis, decrease in exchange rate causes better position of exporters.  It means that their income in zloty is higher, so that they are encouraged to extend employment and production, what has impact on an increase in GDP. In fact, this process allowed Poland to avoid recession in 2009.

The second argument for not entering the euro area is that the European Central Bank is trying to keep short-term interest rates near to zero what, in Poland case, might mean serious troubles with inflation, which is still alt 3.4 percent and for last five years was almost always above inflation target.

On the other hand we have economists who are supporting idea of common currency. For them, both, the fiscal pact and the banking union are in theory beneficial for the eurozone, but we cannot be sure now if it will be also effective in practice. The fiscal pact gives the European Commission right to interfere in the national budgets and force strict fiscal discipline on all members (countries which do not respect this rules will be punished automatically).  Meanwhile, it seems that strict fiscal policy would be profitable for Poland because it has not got balanced budget since transformation. Moreover, Polish structural deficit at level of 5.5 percent of GDP is among the highest in Europe. Since Poland has entered the European Union, it is the second time when Poland is subject of the excessive deficit procedure. At first it was said that public finance deficit should return below 3 percent of GDP during this year, but today it is hard to believe that it will happen even in next year. Despite that, the European Commission may remove from Polish the excessive deficit procedure in next year,  what formally will give possibility for admission to the eurozone.

Regardless when Poland plans to adopt common currency, taking part in the fiscal pact seems to be profitable for Polish economy. More questions appear according to the banking union, which moves supervision of banking sector from national level to the European Central Bank. It is still unknown which rights will this supervision has and which exactly institution will be covered by that. But it is sure that countries which are not a member of the eurozone will not take part in creating regulation connected with the banking union. And in Poland interest is having some influence on them.

 To summarize entering the eurozone by Poland, I can say  that this is topic according to which many questions and concerns appear.  Today we are not able to say if regulations inside the euro area will go in a profitable direction for our country. But, in my opinion, even if Poland will be postponing this process, purposeful rejection of integration with European Union seems to be ineffective strategy. Poland is a member of the European Union since 2004 and maybe now is a time for the next step – taking part in the fiscal pact and then adapting the euro as a polish currency. Polish government notes the importance of this integration process and it is considering it on session of the parliament. We might be sure that final government’s decision will determine the economic reality in Poland for many years.

Katarzyna Sejda

[artigo de opinião desenvolvido no âmbito da unidade curricular “Economia Portuguesa e Europeia” do 3º ano do curso de Economia (1º ciclo) da EEG/UMinho]