Poland surveys the eurozone turmoil: eager to join, but perhaps not yet

http://www.guardian.co.uk/business/2012/feb/19/poland-eurozone-turmoil-join

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The cliched western view of Poland – bogged down by communist inefficiency and rusting tractors – is long gone. This was the only EU economy to avoid contraction in the dark days of 2009, leading the prime minister to describe Polish economic growth (albeit at a modest 1.6%) as a "green island" amid the red sea of recession elsewhere in the union.

Demand at home cushioned the economy when exports declined, and this has helped Poles feel they would succeed in weathering the global crisis where others had so patently failed. But attitudes towards joining the euro, once seen as the badge of a successful economy, are changing as the turmoil in Europe continues.

The Polish economy is still growing. There has been massive public investment due to the European football championship that Poland is co-hosting this year, made possible by the vast amount of funding the country gets from Brussels. And the weakening zloty, which suffered last year when traders became increasingly nervous about the worsening debt situation in Greece and other eurozone members, has helped to keep exports ticking over.

Whether this trend can continue obviously depends a great deal on the ongoing attempts to sew up the hole in Greece's leaky wallet. Most important from Poland's point of view, though, is not whether Greece defaults on its debt or is forced to leave the eurozone, but what effect the whole mess will have on Germany.

More than a quarter of Poland's exports go to its western neighbour, and the two countries are woven together on myriad levels. There are plenty of diehard anti-Germans in Poland, but even more who own small businesses and who know that Poland's economic wellbeing is to a great extent dependent on that of Europe's largest economy – and by extension, of the eurozone as a whole.

As Radek Sikorski, Poland's foreign minister, said in a recent speech in Berlin, the biggest danger for Poland today is "not terrorism, it's not the Taliban, and it's certainly not German tanks. It's not even Russian missiles which President Medvedev has just threatened to deploy on the EU's border. The biggest threat to the security and prosperity of Poland would be the collapse of the eurozone."

Domestic economic policy also plays a role, of course. Here opinions are split into two fiercely opposed camps: those in the government who say Poland is on track for economic nirvana, and those predicting Armageddon.

Krzysztof Rybinski, a former deputy governor of the central bank and one of the government's sharpest critics, has said that 2011 was the last good year for the Polish economy and that things will go downhill from the second half of 2012, for want of decent reforms in the face of an economic slowdown, an ageing population and a looming energy crisis. People should prepare for lean years ahead, he believes.

Poles either seem to be listening to detractors like Rybinski, or not have much respect for the opinions of their political leaders (a phenomenon that has a long history in Poland), or have been watching the riots in Athens and Madrid on TV. A recent study by Polish polling organisation CBOS showed that 81% of Poles think the euro crisis is likely to threaten them and their families personally, which is perhaps not surprising, considering the fact that unemployment is high.

Agricultural workers are particularly nervous because the prime minister has pledged to bring their social security and pensions scheme into line with the national system, thus cutting their already very modest benefits. And popular support for adopting the euro is lower than ever, with another CBOS poll finding that 60% of Poles are opposed to the idea.

Poland, like its fellow post-communist neighbours, agreed in its EU accession treaty to adopt the euro once it meets the conditions for doing so (Britain and Denmark are the only EU states to have an official opt-out clause). There is no deadline for adoption, though, and since the Polish government was forced to drop its previous target of 2011 after the prime minister announced it, with spectacularly bad timing, just days before the Lehman Brothers collapse, it has not set a new date. Now, of course, that seems not to be a sign of laziness in meeting the adoption criteria, but eminently sensible.

The finance minister says primly whenever asked that Poland does want to be in the eurozone, but that it must first put its house in order. The truth is, in fact, that Poland is nowhere near to meeting the conditions for adoption, with its budget deficit way above the 3%-of-GDP limit and inflation too high, not to mention the volatility of its currency. Is the Polish government unhappy about the fact that it cannot currently be pressurised into adopting the euro? Possibly not.

Nonetheless, Poland is very keen to have a say in the future of the euro area. During its presidency of the EU, in the second half of 2011, it was miffed not to have been invited to the Eurogroup meetings of finance ministers, and it fell out with France over the recently signed fiscal compact, which Warsaw said should include prospective euro members in eurozone summits.

Prime minister Donald Tusk was forced to back down, although officials insist that a compromise solution means that Poland will be invited to attend some 90% of the meetings at which the eurozone's future will be decided.

Some of Poland's euro breast-beating may be a ploy to distance itself from Hungary, its fellow ex-communist state whose populist government has got itself into trouble with the EU for supposedly meddling with the independence of its central bank.

However, maybe Poland's coy stance on the question of euro adoption is down to character. The almost Scandinavian seriousness with which the prime minister addressed EU audiences last year certainly impressed the western Eurocrats, and fostered the growing belief that the split in the EU is now no longer between a backward east and developed west but between a thrifty north and a profligate south.

The view from Poland, despite popular fears and the prospective hardship to be caused by the government's fiscal reforms, is still pretty rosy. Perhaps the eurozone should take a leaf out of Poland's book – if it's not too late.