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1
Economic and Political Challenges of Acceding to the Euro area in a
post-Lehman Brothers World: The case of Poland
Przemysław Woźniak
Center for Social and Economic Research
2
Contents
Brief overview of economic developments Economic aspects – Maastricht criteria Political process
3
Strong growth → real convergence
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
*
in %
38
39
40
41
42
43
44
45
46
47
48
49
50
Eu
ro A
rea
= 1
00
GDP growth in EA (left axis)
GDP growth in PL (left axis)
GDP per capita in PPS (right axis)
4
Nominal convergence alongside real convergence
2008
1995
1996
1997
1998
1999
2000
2001
2002
2003 2004
2005
2006
2007
40
42
44
46
48
50
52
54
56
58
60
62
64
36 37 38 39 40 41 42 43 44 45 46 47 48 49 50
GDP per capita in PPS (in % of EA average)
CP
L o
f G
DP
(in
% o
f E
A a
vera
ge)
Maastricht inflation criterion – mixed performance
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2004
m01
2004
m04
2004
m07
2004
m10
2005
m01
2005
m04
2005
m07
2005
m10
2006
m01
2006
m04
2006
m07
2006
m10
2007
m01
2007
m04
2007
m07
2007
m10
2008
m01
2008
m04
2008
m07
2008
m10
2009
m01
2009
m04
2009
m07
2009
m10
%
PL (12-month moving average of HICP) PL (HICP) Maastricht criterion reference rate
Long term interest rates- below the Maastricht level since 2005
4.5
5.0
5.5
6.0
6.5
7.0
7.5
2004
m01
2004
m05
2004
m09
2005
m01
2005
m05
2005
m09
2006
m01
2006
m05
2006
m09
2007
m01
2007
m05
2007
m09
2008
m01
2008
m05
2008
m09
2009
m01
2009
m05
2009
m09
%
Long-term interest in Poland (10-year government bonds)
Maastricht criterion reference level
Fiscal deficits - the persistent problem & excessive deficit procedure
-5.1 -5.0
-6.3
-5.7
-4.1-3.6
-1.9
-3.6
-5.8-5.5
-7
-6
-5
-4
-3
-2
-1
0
2001 2002 2003 2004 2005 2006 2007 2008 2009* 2010*
% o
f G
DP
Government Deficit
Maastricht reference level
Public debt - rising, but under control
42.245.0
52.0
37.6
47.145.7
47.1 47.7 47.2
54.9
0
10
20
30
40
50
60
70
2001 2002 2003 2004 2005 2006 2007 2008 2009* 2010*
% o
f G
DP
General government debt
Maastricht reference level
The crisis hit Poland hard
Particularly via the exchange rate which lost almost half of its value to the euro between Sep08 and mid Feb09
90
100
110
120
130
140
150
2008
m09
d01
2008
m09
d29
2008
m10
d27
2008
m11
d24
2008
m12
d22
2009
m01
d22
2009
m02
d19
2009
m03
d19
2009
m04
d20
2009
m05
d19
2009
m06
d16
2009
m07
d14
2009
m08
d11
2009
m09
d08
2009
m10
d06
2009
m11
d03
2009
m12
d01
czk Czech Koruna huf Hungarian forint pln New Polish Zloty
… and the stock exchange
Which tumbled by almost 1/2 (Sep 08 - Feb 09) and by 2/3 since the peak in July 07.
25
50
75
100
125
150
175
200
225
250
275
2003
m01
2003
m07
2004
m01
2004
m07
2005
m01
2005
m07
2006
m01
2006
m07
2007
m01
2007
m07
2008
m01
2008
m07
2009
m01
2009
m07
Prague (2004=100)
Budapest (2004=100)
Warsaw (2004=100)
The politics of euro adoption prior to 2008
Before 2007 – not a priority, no formal steps Two left wing-governments (2001-2005) and
two right wing governments (2005-2007) did little to initiate the path to the euro
The left wing coalitions – ideological consent but fear of political risk
The right-wing coalitions (Kaczynski) – ideological objections + political opportunism
Unpopularity of the euro
In the Eurobarometer surveys Poles emerge as one of the most euro-sceptic countries
Eurobarometer (May2008) The lowest awareness of no opt-out (15%). The biggest fear of price rise (83%) and abuses
during changeover (84%) Poles are generally uninterested in the euro
and consider it negative for their country Up to late 2007 politicians decided to give in to
or profit from those fears rather than change them.
Breakthrough in late 2007
The change came in late 2007 with the new centrist liberal government of Donald Tusk
Rostowski, the advocate of unilateral euroization prior to 2004, became the finance minister
The euro adoption emerges as a fully-fledged political plan:
- Roadmap to the euro (Oct 08) –
ERM2 in 2009H1 and EMU entry in 2012
- Nominating the plenipotentiary for the euro
- Convergence programmes
Euro-accession debate in late 2008 and early 2009 Macroeconomic criteria do not considered a
problem (except exchange rate stability) The biggest challenge – constitution
amendments to allow transferring powers to the ECB
Two-thirds majority required – that the coalition does not have (referendum).
Monetary Policy Council – entering ERM2 before the constitutional change unwise
The gridlock puts the roadmap under pressure
The debate shifts back to economics
As the year 2009 progressed, economic situation deteriorates
Euro more popular – according to the polls Fiscal deficit in 2008 revised downwards (to -
3.6%) → EDP Unprecedented fluctuations in the forex
market make it less realistic to enter ERM2 by mid-2009 as planned
Rostowski changes the tone – calls the euro adoption a pragmatic goal, not a dogma
|The deficit becomes the biggest problem
The ultimate blow came with EC Spring forecasts: deficit at 6.6% in 2009 and 7.3% in 2010
Better GDP performance and outlook likely to produce smaller deficits of below 6% in both years.
Bringing the deficit below 3% not likely before 2012. Inflation above the reference level since late 2008
(but expected to return below by mid 2010) Interest rates started to exceed the reference level in
October 2009. EC sees public debt rise to 51.7% and 57.0%
(2009&2010) and 61.3% in 2011 (autumn forecast)
2012 invalid but formal steps continued
In late summer the government officially gave up the plan to enter EMU in 2009 and EMU in 2012
However, administrative processes continue Early December – the first meeting of the
National Coordination Committee, the key body in the euro adoption process
Progress on the National Changeover Plan The median expectation of the euro-day is
2014 (November Reuters poll)
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