China Research

Poland is the six largest economy in the EU and the second largest EU country outside the monetary union EMU. For this reason, the issue of the future Polish joining of the euro is quite a steady topic in the press and economic analysis. However, the question is rather about the “when” than the “if” of joining (which, of course, is in line with the Maastricht Treaty).

What strikes me a lot in this context – I hope my impression is correct – is the picture that the Poles in a significant number of comments consider the joining of the euro predominantly as a political decision – and not primarily as an economic one. Sure, politicians have the final decision on the EMU entry unless a binding referendum is put into place. After the EMU entry, however, financial markets would take over the judgments on the Polish economy which clearly underlines the permanent need of a structurally strong and resilient economy. In other words: the economy matters a lot.

The view of the prominent political role in the membership process seems also being shared by current Prime Minister Donald Tusk who several times in the past months pointed at mostly political impediments for a euro membership. In reality, the formally delaying factor is indeed the need of a constitutional change before introducing the euro – since constitutional changes need a two-thirds majority in the Polish parliament which is not achievable any time soon. In other words, a broadly changing party composition in parliament is not in the cards. Will this locked situation open the way for a referendum at the end of the day?

In my view, the Poles can be happy about their current political and legal obstacles for joining the euro. I have followed and admired the development of Sweden’s neighbor on the other side of the Baltic Sea since 1990 (which includes dozens of trips to Warsaw and some other places). Sometimes the speed of reforms was quite high, sometimes more dampened. But Poland never really left the way of reforms or took steps back on this bumpy road.

This obvious continuity of economic policy must be seen as the key to the stable international confidence in Polish politics and reform activities in the past two decades.

But despite all these achievements: Poland is still a country that needs structural improvements. Currently, Poland does not suffer from major structural macroeconomic imbalances but the country would currently not really meet the convergence criteria as a whole for joining the euro.  In particular, the budget deficit is too high (which partly is reflected in somewhat excessive deficits in the current account). Improvements in other areas are also needed, for example further reforms of the pension system.

Thus: Why on earth should Poland any time soon destroy the tool of an independent monetary policy and the chance of choosing the interest rates it needs for the economy? Why should Poland in the foreseeable future go for a fixed exchange before really having created strong macroeconomic, microeconomic and institutional conditions? Why should the Polish government act against the will of the people which still clearly opposes to a Polish joining of the euro? Why shouldn’t Poland wait and see how the euro area as such will be developing in the forthcoming years?

And an important additional remark:  The flexible zloty served Poland well during the past years of global/European financial instability. Something to keep in mind! On the other hand, it cannot – and maybe it should not – be ruled that Poland can be ready for joining the euro at a later stage.

The big question is when Poland will be there…

Hubert Fromlet
Visiting Professor of International Economics, Linnaeus University
Editorial board

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