Passions flare but facts remain thin in Polish eurozone debate

Date: 02/12/04

By Wieslaw Horabik

A debate in the Polish parliament about the possibility of Poland joining the eurozone was passionate, but proved thin on actual facts.

Parties with nationalistic and populist leanings proclaimed that the end of the zloty - the current national currency - would signify the final loss of Polish sovereignty and herald the country's total impotence. They called for “fierce and imminent action against yet another element of the international, anti-Polish conspiracy”.

More surprisingly, even a large number of Liberals and Social Democrats advocated caution against trying to speed up the whole process. Some were quoting China as an example of a successful economy outside the eurozone. The belief that it is still in the hands of the Poles to decide whether they accept the euro or not was also dominant.

But Poland - and the nine other new EU member states - will eventually have to adopt the common currency (as a condition of joining the EU). Unlike for the UK and Denmark, it is not open to these countries to opt out of this area of the European project. The only open issue remains the date of accession to the currency union. It is no longer 'if' but 'when'. But public awareness of this is very low in Poland. As much as 63% of the population shares the views of its representatives in the Sejm that the final decision is to be taken on a national level and will probably be settled in a referendum.

Poland is among the most reluctant of countries when it comes to abandoning the national currency. Half of the country's population suspect that such a decision would have negative effects on their family and public budgets. Only 34% express optimism. There are even those who argue that the national currency should be preserved because its very name ('zloty' means 'golden coin') refers directly to the long-forgotten gold parity. 83% of Poles think that the adoption of the euro will lead to financial scams and will cause a rapid increase in inflation.

This though, has not prevented most Polish export companies from settling their accounts in euro, nor stopped commercial facilities situated near the Polish-German border accepting both the zloty and the euro. Nor has it prevented banks from granting Polish citizens credit in euro. The common European currency is not some Jack-in-the-box surprise for Poles. 72% of them have seen euro banknotes and coins and 43% have already used them.

Susan Schadler, director of the International Monetary Fund's mission in Poland, encourages the people to adopt the euro “in the shortest possible time”, yet warns that conducting rational financial policy in the future may prove as difficult as fulfilment of the initial requirements for entering the eurozone.

She condemns the attempts of various parliamentary factions and some government circles to reduce the powers of Poland's central bank to regulate long-term interest rates and to subordinate its role to the current demands of short-term economic strategies. Independence of the central bank is an absolute necessity in ensuring the country's economic stability and in executing effective control over public expenditure.

Meeting the criteria for euro membership

• Public sector deficit has to be less than 3% of the gross domestic product (GDP);
• Poland's deficit in 2005 is forecast to drop from 5.7% to 3.9% of the GDP but in 2006 it may increase because of the indexation of social security benefits;
• Poland is seeking approval from the European Commission (so far without success) for its Open Pension Funds to be included in calculating the deficit;
• The debt cannot exceed 60% of GDP. The ministry of finances predicts debt will reach 52.2% of GDP in 2004 and will grow in the coming years;
• Poland does not meet the criteria for long-term interest rates or inflation.
• Wieslaw Horabik is a freelance journalist based in Poland.

Author says that there was widespread ignorance in Poland about the fact that the country does not have an opt-out clause regarding the adoption of the European single currency. While the country did not meet the criteria for eurozone membership in 2004 and was not likely to do so in the near future, it is obliged to adopt the euro as soon as it does like the other nine countries that entered the EU in 2004.