Poland’s dilemma

Avoid­ing the fate of Greece means re­ject­ing the euro

The Washington Times Daily - - Opinion -

Well into the sec­ond year of the Euro­pean debt cri­sis, Greece is still strug­gling with 20 per­cent un­em­ploy­ment. The rest of the Euro­pean Union is in re­ces­sion, and mon­e­tary union is look­ing less at­trac­tive than ever be­fore. Poland faces a dif­fi­cult choice. It can break its le­gal obli­ga­tion and keep its cur­rency, the zloty, or adopt the euro and go the way of Greece.

Poland joined the EU in 2004. Un­der the terms of the Treaty of Ac­ces­sion, the coun­try has to adopt the euro by 2019. Be­fore the cur­rency in­te­gra­tion can pro­ceed, four things must hap­pen: The in­fla­tion rate must be less than 1 per­cent; Poland’s an­nual gov­ern­ment deficit as a per­cent of gross do­mes­tic prod­uct must be less than 3 per­cent; it must join the Euro­pean Ex­change Rate Mech­a­nism; and the Pol­ish con­sti­tu­tion must be amended.

Early on, Poland was ea­ger to meet the tar­gets by 2012 so it could make the switch. Now that 2012 is here, en­thu­si­asm for in­te­gra­tion has waned. In 2002, a bare 1 in 5 Poles op­posed the euro. In Jan­uary of this year, 60 per­cent of Poles wanted to keep their zlotys.

Mon­e­tary in­te­gra­tion, par­tic­u­larly with­out fis­cal in­te­gra­tion, is al­ways an ex­er­cise fraught with risk. The dan­ger in­creases dra­mat­i­cally when coun­tries thrown to­gether have sub­stan­tially dif­fer­ent in­come lev­els, fis­cal out­lays and out­put. Poland, like the other East­ern Euro­pean na­tions, has a lower in­come than the west and is more fis­cally re­spon­si­ble than the south. Poland’s debt is a mere 60 per­cent of GDP, com­pared to Greece’s 160 per­cent or Italy’s 116 per­cent.

Like many of the for­mer East­ern bloc coun­tries, Poland lib­er­al­ized its mar­kets and ranks high in the world in terms of in­vest­ment at­trac­tive­ness. It has weath­ered the debt cri­sis well, and its econ­omy has grown at 2.5 per­cent this year while most of the EU has slid into re­ces­sion. One rea­son might well be that the zloty has been able to ad­just to main­tain the com­pet­i­tive­ness of Pol­ish ex­ports. Mon­e­tary in­te­gra­tion, fol­low­ing the adop­tion of the euro, would take that away.

What Poland ex­ports is dif­fer­ent from what Ger­many ex­ports, which is dif­fer­ent from what Greece ex­ports. Lock­ing all these widely dif­fer­ing coun­tries into a sin­gle cur­rency in­evitably means that at least one na­tion is go­ing to hurt at some point. In the re­cent debt cri­sis, that hurt fell on Greece, which saw its ex­change rate ap­pre­ci­ate steadily, adding to the al­ready crush­ing bur­dens of its debt.

Poles have watched the fall of Greece. They wisely have not spent prof­li­gately and do not have ei­ther the wel­fare state or the debt that Greece has. Now, they don’t want the euro. Luck­ily, Poles still have a few years to find a way out of their dilemma. In the in­terim, they should ig­nore all claims that the Euro­pean cri­sis is un­der con­trol be­cause it isn’t just the debt that’s the prob­lem. It’s also the euro cur­rency.

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