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Poland Finds It's Not Immune to Euro Crisis Poland Finds It’s Not Immune to Euro Crisis
(about 4 hours later)
WARSAW — The Fiat factory in Tychy, Poland, has long been considered one of the most productive auto plants in Europe, often singled out for praise by the Italian company’s demanding chief executive, Sergio Marchionne.WARSAW — The Fiat factory in Tychy, Poland, has long been considered one of the most productive auto plants in Europe, often singled out for praise by the Italian company’s demanding chief executive, Sergio Marchionne.
Polish workers “always responded whenever I asked,” Mr. Marchionne said at the Paris Motor Show in October. “I feel an exceptional responsibility to the people there.”Polish workers “always responded whenever I asked,” Mr. Marchionne said at the Paris Motor Show in October. “I feel an exceptional responsibility to the people there.”
So when Fiat said recently that it would lay off a third of the work force in Tychy, or about 1,500 people, it was a harsh reminder: Even with the healthiest big economy in Europe, Poland cannot escape the Continent’s economic downturn.So when Fiat said recently that it would lay off a third of the work force in Tychy, or about 1,500 people, it was a harsh reminder: Even with the healthiest big economy in Europe, Poland cannot escape the Continent’s economic downturn.
Polish growth is expected to slow to as little as 1.5 percent next year, according to World Bank estimates, from 2.1 percent this year. That still compares favorably with the neighboring euro zone, where most countries are either in recession or just barely growing. With a gross domestic product of €369.7 billion in 2011, according to the European data agency Eurostat, Poland ranked ninth among the 27 E.U. countries, just below Belgium and a rung above Austria.Polish growth is expected to slow to as little as 1.5 percent next year, according to World Bank estimates, from 2.1 percent this year. That still compares favorably with the neighboring euro zone, where most countries are either in recession or just barely growing. With a gross domestic product of €369.7 billion in 2011, according to the European data agency Eurostat, Poland ranked ninth among the 27 E.U. countries, just below Belgium and a rung above Austria.
During much of the region’s debt crisis so far, Poland has counted itself fortunate that the troubles began before the country had joined the euro currency union. By being part of the E.U.’s common market, but not bound by euro strictures, Poland has been one of the Continent’s rare economic good-news stories. But the deceleration in Polish growth, which has prompted the central bank to begin a series of interest rate cuts to stimulate the economy, has underscored the country’s exposure to slumping euro zone consumer markets.During much of the region’s debt crisis so far, Poland has counted itself fortunate that the troubles began before the country had joined the euro currency union. By being part of the E.U.’s common market, but not bound by euro strictures, Poland has been one of the Continent’s rare economic good-news stories. But the deceleration in Polish growth, which has prompted the central bank to begin a series of interest rate cuts to stimulate the economy, has underscored the country’s exposure to slumping euro zone consumer markets.
The country’s long border with Germany, and its own skilled, low-cost labor force, make Poland an attractive place to make heavy consumer goods like cars and home appliances. General Motors’ Opel unit, suffering from many of the same maladies as Fiat, has a plant in Gliwice, though it has not announced job cuts there. Bosch, Whirlpool and Electrolux all make household appliances in Poland for the European market.The country’s long border with Germany, and its own skilled, low-cost labor force, make Poland an attractive place to make heavy consumer goods like cars and home appliances. General Motors’ Opel unit, suffering from many of the same maladies as Fiat, has a plant in Gliwice, though it has not announced job cuts there. Bosch, Whirlpool and Electrolux all make household appliances in Poland for the European market.
The country’s slowing growth is likely to put pressure on Polish leaders to address some underlying problems, notably an overbearing government bureaucracy.The country’s slowing growth is likely to put pressure on Polish leaders to address some underlying problems, notably an overbearing government bureaucracy.
“Luckily, we are doing quite well so far,” said Jan Krzysztof Bielecki, a former prime minister who now advises the current prime minister, Donald Tusk, on economic issues. Speaking at a recent conference co-convened by the International Herald Tribune in Warsaw, Mr. Bielecki added, “We still have some space for improvement.”“Luckily, we are doing quite well so far,” said Jan Krzysztof Bielecki, a former prime minister who now advises the current prime minister, Donald Tusk, on economic issues. Speaking at a recent conference co-convened by the International Herald Tribune in Warsaw, Mr. Bielecki added, “We still have some space for improvement.”
Yet, despite the economy’s slowing velocity, Warsaw remains a fount of optimism, with ambitions to be a regional financial center. The city somehow manages to seem cheerful, even with its legacy of drab Soviet-era architecture.Yet, despite the economy’s slowing velocity, Warsaw remains a fount of optimism, with ambitions to be a regional financial center. The city somehow manages to seem cheerful, even with its legacy of drab Soviet-era architecture.
In downtown Warsaw recently, as a light snow fell, skaters pirouetted at a temporary ice rink set up in the shadow of the Palace of Culture and Science, a monstrous high-rise building built by order of Josef Stalin in the 1950s.In downtown Warsaw recently, as a light snow fell, skaters pirouetted at a temporary ice rink set up in the shadow of the Palace of Culture and Science, a monstrous high-rise building built by order of Josef Stalin in the 1950s.
“I really believe Warsaw is becoming the capital of Central and Eastern Europe,” said Hanna Gronkiewicz-Waltz, mayor of the city. “In these difficult times Warsaw offers not only dynamics but stability.”“I really believe Warsaw is becoming the capital of Central and Eastern Europe,” said Hanna Gronkiewicz-Waltz, mayor of the city. “In these difficult times Warsaw offers not only dynamics but stability.”
Although Vienna emerged as the gateway to Eastern Europe after the end of the Cold War, Warsaw has since surpassed it by some measures — like trading volume at the stock exchange.Although Vienna emerged as the gateway to Eastern Europe after the end of the Cold War, Warsaw has since surpassed it by some measures — like trading volume at the stock exchange.
And economic success has translated into political prestige. When European leaders accepted the Nobel Peace Prize on Dec. 10, Mr. Tusk, the prime minister, sat next to Chancellor Angela Merkel of Germany, the most powerful leader in Europe.And economic success has translated into political prestige. When European leaders accepted the Nobel Peace Prize on Dec. 10, Mr. Tusk, the prime minister, sat next to Chancellor Angela Merkel of Germany, the most powerful leader in Europe.
Poland remains a source of profit for companies in Western Europe that badly need them. “For us it’s really a bright spot in the European market,” said Anna Wiosna, manager of strategy development for the Polish unit of Hochtief, a German construction company that has upgraded Warsaw Chopin Airport, among other large projects.Poland remains a source of profit for companies in Western Europe that badly need them. “For us it’s really a bright spot in the European market,” said Anna Wiosna, manager of strategy development for the Polish unit of Hochtief, a German construction company that has upgraded Warsaw Chopin Airport, among other large projects.
More than half of the third-quarter profit of Commerzbank, one of the largest German banks, came from BRE Bank, its Polish subsidiary. Because Commerzbank is 25 percent owned by the German government following a bailout, it could be said that Polish depositors are helping to ease the burden on German taxpayers.More than half of the third-quarter profit of Commerzbank, one of the largest German banks, came from BRE Bank, its Polish subsidiary. Because Commerzbank is 25 percent owned by the German government following a bailout, it could be said that Polish depositors are helping to ease the burden on German taxpayers.
The Polish economy may even still be benefiting to some extent from problems to the west, as European companies try to cut costs by moving some of their activities to Poland. The country, and in particular the university city of Krakow, has become a major outsourcing center for companies like I.B.M., Citigroup and Lufthansa. Even Infosys, the Indian company that helped invent the outsourcing industry, has a big presence in Poland, with 1,400 workers in the city of Lodz.The Polish economy may even still be benefiting to some extent from problems to the west, as European companies try to cut costs by moving some of their activities to Poland. The country, and in particular the university city of Krakow, has become a major outsourcing center for companies like I.B.M., Citigroup and Lufthansa. Even Infosys, the Indian company that helped invent the outsourcing industry, has a big presence in Poland, with 1,400 workers in the city of Lodz.
“The more the world and European economy are struggling, the more investment we get,” said Jacek S. Levernes, an executive at Hewlett-Packard who is president of the Association of Business Service Leaders in Poland, an industry group.“The more the world and European economy are struggling, the more investment we get,” said Jacek S. Levernes, an executive at Hewlett-Packard who is president of the Association of Business Service Leaders in Poland, an industry group.
With 38 million people, moreover, Poland’s domestic market is big enough to be at least partly self-sustaining. The economy is not dominated by any one industry. Autos are important, but there is also a thriving food products industry and a growing energy sector focused on shale gas.With 38 million people, moreover, Poland’s domestic market is big enough to be at least partly self-sustaining. The economy is not dominated by any one industry. Autos are important, but there is also a thriving food products industry and a growing energy sector focused on shale gas.
And having its own currency, the zloty, has helped buffer the shock waves emanating from the euro zone. Polish leaders say they are working to fulfill the requirements for joining the euro, which include meeting deficit and inflation targets, but they do not sound like they are in any hurry.And having its own currency, the zloty, has helped buffer the shock waves emanating from the euro zone. Polish leaders say they are working to fulfill the requirements for joining the euro, which include meeting deficit and inflation targets, but they do not sound like they are in any hurry.
“The strategy of Poland is to keep our foot in the door,” said Mr. Bielecki, the former prime minister.“The strategy of Poland is to keep our foot in the door,” said Mr. Bielecki, the former prime minister.
Euro or not, though, the fate of Poland is inescapably intertwined with that of its troubled neighbors. About 55 percent of Polish exports go to the euro area, especially to Germany, where growth has slowed to nearly zero. Although Polish banks dodged the worst of the global financial crisis, most depend on their western parent companies for the funds they use for lending.Euro or not, though, the fate of Poland is inescapably intertwined with that of its troubled neighbors. About 55 percent of Polish exports go to the euro area, especially to Germany, where growth has slowed to nearly zero. Although Polish banks dodged the worst of the global financial crisis, most depend on their western parent companies for the funds they use for lending.
The economic pressure could require Polish leaders to deal with underlying weaknesses in the economy. The government has little room to attempt stimulus programs, because the country’s finances were stretched to the limit by the global financial crisis of 2008 and 2009, said Xavier Devictor, the country manager for Poland and the Baltic countries at the World Bank.The economic pressure could require Polish leaders to deal with underlying weaknesses in the economy. The government has little room to attempt stimulus programs, because the country’s finances were stretched to the limit by the global financial crisis of 2008 and 2009, said Xavier Devictor, the country manager for Poland and the Baltic countries at the World Bank.
“There is very little, if no scope for the fiscal policy to support Poland’s growth,” Mr. Devictor said by e-mail.“There is very little, if no scope for the fiscal policy to support Poland’s growth,” Mr. Devictor said by e-mail.
At the recent conference convened by the IHT in conjunction with the Warsaw Stock Exchange and The Warsaw Voice newspaper, government bureaucracy was easily the No.1 complaint by business people.At the recent conference convened by the IHT in conjunction with the Warsaw Stock Exchange and The Warsaw Voice newspaper, government bureaucracy was easily the No.1 complaint by business people.
Mr. Devictor generally gives Polish policy makers good marks, but he added, “The structural reform agenda in Poland is still far from finished.”Mr. Devictor generally gives Polish policy makers good marks, but he added, “The structural reform agenda in Poland is still far from finished.”
Business leaders including Antoni F. Reczek, chairman of the British Polish Chamber of Commerce, told of arbitrary decisions by midlevel government officials that cost foreign companies millions. Administrative hurdles have prevented smaller and midsize foreign companies from investing in Poland, Mr. Reczek said.Business leaders including Antoni F. Reczek, chairman of the British Polish Chamber of Commerce, told of arbitrary decisions by midlevel government officials that cost foreign companies millions. Administrative hurdles have prevented smaller and midsize foreign companies from investing in Poland, Mr. Reczek said.
As a result, Poland is all the more dependent on major employers like Fiat, which is why its layoff announcement was such a psychological blow.As a result, Poland is all the more dependent on major employers like Fiat, which is why its layoff announcement was such a psychological blow.
Few foreign manufacturers have roots in Poland as deep as Fiat’s. The Italian auto company made cars in Poland as early as 1922. And even during Communist times a state-owned plant in Tychy built Fiat copies under license. Fiat later acquired the plant, which it uses to build the 500, one of the company’s most popular models.Few foreign manufacturers have roots in Poland as deep as Fiat’s. The Italian auto company made cars in Poland as early as 1922. And even during Communist times a state-owned plant in Tychy built Fiat copies under license. Fiat later acquired the plant, which it uses to build the 500, one of the company’s most popular models.
But Fiat has been hit especially hard by the slump in European auto sales, because of its dependence on countries like Italy and Spain that are deep in recession. The company expects this year’s production at Tychy to be only 350,000 vehicles, down sharply from 600,000 in 2009. Next year, Fiat says, production will fall below 300,000 vehicles.But Fiat has been hit especially hard by the slump in European auto sales, because of its dependence on countries like Italy and Spain that are deep in recession. The company expects this year’s production at Tychy to be only 350,000 vehicles, down sharply from 600,000 in 2009. Next year, Fiat says, production will fall below 300,000 vehicles.
But it is not only the fault of the euro zone. Within Poland itself, car sales by all makers have fallen 20 percent since 2008, the company said.But it is not only the fault of the euro zone. Within Poland itself, car sales by all makers have fallen 20 percent since 2008, the company said.
Such signals are all the more reason that officials like Ms. Gronkiewicz-Waltz, the Warsaw mayor, said that Poles must not simply wait for the euro zone to get its act together.Such signals are all the more reason that officials like Ms. Gronkiewicz-Waltz, the Warsaw mayor, said that Poles must not simply wait for the euro zone to get its act together.
“Historically, the times when we counted on others was when we were not successful,” she said. “Whenever we were successful, it was because we counted on ourselves.”“Historically, the times when we counted on others was when we were not successful,” she said. “Whenever we were successful, it was because we counted on ourselves.”