Bloomberg News

Poland’s Euro Bid Requires Revamp Not Deadline: Rostowski

February 18, 2013

Poland won’t set a deadline to join the euro because the European Union’s biggest eastern economy first needs revamping to avoid “unpleasant consequences” from adopting the currency, Finance Minister Jacek Rostowski said.

Euro-entry preparations, revived amid a lull in the currency region’s debt crisis, will be the focus of talks today between central bank Governor Marek Belka and Prime Minister Donald Tusk’s economic advisory council that begin at 4 p.m. in Warsaw, said three government officials, who asked not to be named as the information isn’t yet public.

The government doesn’t want to “give a time frame, but to point out that the debate we’re having about joining the euro is first and foremost a debate about what we need to do as a country,” Rostowski said in a Feb. 15 interview in London. “The point is to get away from the idea that this is some kind of a race, whereby we set a date and we have to be ready by that date.”

Poland is providing evidence that reports of the possible demise of the euro are exaggerated. Former International Monetary Fund Chief Economist Kenneth Rogoff, hedge-fund manager John Paulson, Goldman Sachs Group Inc. President Gary Cohn and Nouriel Roubini, dubbed Dr. Doom for predicting hard times before the global financial crisis began in 2008, all expressed views that the currency would break up.

‘Effectively Over’

While the EU’s largest eastern members slowed their euro preparations since 2009 as the debt crisis forced governments in Greece, Ireland and Portugal to seek bailouts, the risk of a euro-area collapse now “is effectively over,” Rostowski said. Adopting the currency would give Poland more political sway in the 27-nation EU, he said.

The zloty traded at 4.1892 per euro at 2:04 p.m. in Warsaw, having weakened about 0.8 percent in the past three months. Poland’s 10-year government bond yield fell four basis points to 4.014 percent. Italy’s 10-year yield was at 4.422 and Spain’s was at 5.231 percent.

European Central Bank President Mario Draghi’s pledge in July to do all it takes to save the euro has helped bring down bond yields from Italy to Spain, easing concern the currency union could break up.

“There’s nothing like the feeling of being told you are not about to be hanged,” Rostowski said in a Bloomberg interview last month in Davos, Switzerland, where he publicly revived Poland’s euro bid.

Stronger Position

The debate starting now about the merits of Poland joining the euro should focus on what the nation still must do so that the currency switch “increases its economic growth rate and strengthens its political position in Europe,” Rostowski said in London last week.

A survey conducted by the Warsaw-based CBOS research institute between July 5 and July 12 last year showed 68 percent of Poles opposed adopting the single currency, up from 60 percent at the beginning of last year.

Unlike the U.K. and Denmark, Poland and other former communist nations that have joined the EU since 2004 must eventually adopt the euro when they are ready. Only three of the bloc’s eastern members, Slovenia, Slovakia and Estonia, are already using the euro.

Latvia plans to join next year, becoming the euro’s 18th member. Lithuania’s new government on Jan. 25 pledged to seek entry in 2015.

‘Unpleasant Circumstances’

Candidates must meet the conditions laid out in the EU’s Maastricht Treaty, such as bringing budget deficits to within 3 percent of gross domestic product, debt below 60 percent of GDP and the inflation rate to within 1.5 percentage points of the average of the three EU states with the slowest price growth.

“We know very well that countries that have joined the euro well prepared benefited economically and politically, whereas those countries that joined not fully prepared have actually suffered unpleasant consequences,” Rostowski said.

Poland needs to do more than simply meet formal entry requirements, which even nations such as Greece and Portugal fulfilled before adopting the currency, even though that didn’t prevent them from “having problems subsequently,” he said.

An independent currency helped Poland shield its economy as the 2008 financial crisis spread across the globe, Belka and other officials have argued. Poland was the only EU member to avert a recession the next year, in part helped by a 53 percent depreciation of the zloty against the euro in the six months to February 2009.

To ensure Poland can withstand economic troughs without its own monetary policy will first require “a significant liberalization of the labor market,” Rostowski said. “It could be made more flexible and more efficient.”

Deficit Cuts

Tusk’s government cut the budget gap to 3.5 percent of GDP last year from a record 7.9 percent in 2010, the third biggest austerity adjustment in the world behind Greece and Portugal, according to data from the IMF examined by Bloomberg Rankings. Last year’s figure compares with an estimated 3.3 percent on average in the euro area, according to the European Commission.

The Polish Cabinet has passed bills to raise the retirement age and curb pensions for uniformed services to lower public debt. Poland’s debt totaled 55.5 percent of GDP, compared with 92.9 percent on average in the euro region, the commission said.

“Our fiscal position has improved dramatically,” Rostowski said. “We also improved the long-term position very significantly by a series of pension reforms in 2009 and the other one last year.”

Still, the euro region’s recession is taking its toll on Poland’s $515 billion economy, which grew 2 percent last year, the slowest pace since 2009 and down from 4.3 percent in 2011.

While the central bank forecasts this year’s growth at 1.6 percent, the government is sticking to its estimate of 2.2 percent, Rostowski said.

“We expect a slowdown to be concentrated in the first half of the year and then we expect improvement in the second half as the euro-zone economy stabilizes,” he said.

To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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