Poland re-launches euro debate as zone tackles crisis

WARSAW (AFP): Poland has reopened debate on a target date for its eurozone entry, after having played wait-and-see since 2009 when crisis struck the European single currency.

While centrist President Bronislaw Komorowski has suggested the country of 38 million – and central Europe’s largest economy – should decide on euro adoption after 2015, his ally Prime Minister Donald Tusk recently insisted a decision on joining should be made “in the coming months.”

The debate comes as surveys suggest under a third of Poles support switching from the zloty to the euro, and as Poland struggles to meet the eurozone’s so-called convergence criteria.

Constitutional changes are also needed to pave the way to euro adoption and the Tusk government is unlikely to muster the required two-thirds majority in a parliament it shares with a deeply euro-sceptic right-wing opposition.

Tusk’s new upbeat approach is intended to “assert Poland’s political position in ongoing talks inside the EU” to face down the debt crisis, said Konrad Soszynski, a BGZ bank analyst in Warsaw.

An EU member since 2004, Poland is worried it could be left behind as the ongoing eurozone debt crisis forces economic and monetary integration of core EU states, Soszynski said. The prime minister simply wanted to “underscore Poland’s willingness for full integration with the eurozone,” he said. “But finance ministry and central bank analysts are convinced a decision won’t come so quickly,” Soszynski added.

An emerging economy, Poland has maintained growth each year since it shed communism two decades ago and is the only member of the 27-state EU to have done so through the global financial crisis.

Nonetheless, an official estimate released this week showed growth last year fell by more than half from the rate of 4.3 per cent in 2011, tallying at 2.0 per cent for 2012. Tusk expects the economy will expand by 2.2 per cent this year, but analysts warn that drag from the eurozone crisis and a slowdown in infrastructure spending after the Euro 2012 football championships could cause it to drop to 1.5 per cent.

During November talks with visiting French President Francois Hollande, Tusk was far more cautious on the eurozone, insisting Poland “intends to enter the eurozone when it will be 100 per cent ready.”

Speaking recently at the annual Davos global economic forum, Finance Minister Jacek Rostowski vowed the government was ready to tackle more structural reforms aimed at consolidating public spending in a bid to bring Warsaw in line with the eurozone’s annual deficit ceiling of 3 per cent this year.

The public finance deficit was forecast to tally at 3.5 per cent of gross domestic product (GDP) in 2012 down from 5.1 per cent in 2011. With eurozone convergence in mind, Poland pushed through a key and very unpopular reform last summer, raising the pension age to 67.

The Tusk government insisted the move was necessary to keep the system solvent given this EU nation’s ageing population. The new law takes effect this year, gradually increasing retirement ages of 60 for women and 65 for men to 67 by 2020 for men and 2040 for women.

Analysts in Warsaw worry about the dangers of losing Poland’s free floating zloty which has helped it survive through times of crisis unscathed.

“There’s no doubt that the floating rate of exchange for the zloty served Poland well during the period of crisis when it’s devaluation allowed exports to thrive,” PricewaterhouseCoopers analyst Witold Orlowski told AFP.

“Before Poland resigns from a currency with a floating rate, it’s vitally important for it to carry out structural reforms on the labour market, and in the public sector for example, that will boost competitiveness,” he observed.