Poland's Continued Hesitation Over Eurozone Entry
2011-05-19 18:15:15
Polish Finance Minister Jan Vincent-Rostowski on May 17 said he was uncertain if his country would enter the eurozone by 2019. The delay is unsurprising, as Poland has been continually skeptical that its national interests would be served by entering the currency bloc — epitomized with the continued fallout from the 2008 financial crisis.
Polish Finance Minister Jan Vincent-Rostowski told journalists May 17 he was uncertain whether Poland would enter the eurozone by 2019, an apparent reversal of Warsaw’s previous plan to join the currency bloc sometime between 2014 and 2016.
Vincent-Rostowski’s statement is unsurprising; Poland has been vacillating on the exact date of its eurozone entry for years. The country’s strong economy since the 2008 financial crisis has made it a prime target for eurozone entry, especially for Germany, which wishes to formally fold Warsaw into its sphere of influence. However, the financial crisis has shown Poland the benefits of controlling its own currency as well as Germany’s intentions to bolster its control of the eurozone. Poland thus remains skeptical that eurozone membership will truly serve its national financial interests.
Poland has managed to avoid a recession since the 2008 financial crisis, with a steady growth in gross domestic product (GDP) of 1.7 percent in 2009, 2.7 percent in 2010 and a projected 3.3 percent in 2011, according to European Commission forecasts. Poland relied on its robust internal demand to stave off the recession, while strong banking oversight and lack of foreign currency denominated lending prevented its consumers and corporations from suffering when the Central European exchange rate against the euro suffered in late 2008. This allowed Poland to push through the initial drop in the zloty’s value against the euro with few negative consequences to its consumers and banking system, unlike its Central European peers — specifically Hungary and Romania, which are far more reliant on foreign currency denominated lending. It also meant that Poland could rely on export-led growth to push through 2009, whereas the rest of Central Europe was stuck between the threat to their banking systems from depreciating currency and the need to spur growth with precisely such depreciation.
Polish success has highlighted it as a destination for foreign direct investment. In 2009, it had a greater ratio of foreign direct investment to GDP than most eurozone heavyweights, including France, Italy, Germany and Spain. Its successful navigation of the sovereign debt crisis has made it appealing to investors, particularly in the United States, looking to avoid investing in the eurozone while the bloc’s troubles continue. Warsaw has initiated an expansive privatization program to address a budget deficit that has been more than 7 percent of its GDP since 2009 because of the crisis. General government debt is also supposed to approach the eurozone limit of 60 percent of GDP in 2011 and is likely to exceed that limit in 2012.
Though Polish public finances do not conform to the Maastricht criteria for eurozone entry, Warsaw has been seen as a prime target for European Monetary Union expansion. It has the largest market in Central Europe by far and has generally been committed to maintaining low budget deficits. German Chancellor Angela Merkel told the Polish and Czech prime ministers in December 2010 that she wanted to see the two countries join the eurozone, amid the negotiations for a new enforcement mechanism for the currency bloc. Merkel wants Prague and Warsaw in the eurozone because she believes they, along with Finland, the Netherlands, Austria and Slovakia, align themselves with the German vision of strict adherence to eurozone rules, which, from Berlin’s view, will provide a fiscally conservative counterbalance to the more profligate Mediterranean countries.
Germany also wants Poland and the Czech Republic to join the eurozone so that it can bring them into its sphere of influence. This in large part explains Warsaw’s hesitancy to enter the eurozone and the constant revision of its ultimate entry date. As Berlin has taken the reins of the eurozone, it has sought to fashion it into its own image, strengthening its hold on the currency union. This only serves to further sour Warsaw’s (and Prague’s) perceptions of the benefits of eurozone entry, particularly after the 2008 recession experience illustrated the benefits of controlling one’s own currency.
Interestingly, Vincent-Rostowski’s statement also comes after the Visegrad Group, a regional alliance comprising Poland, the Czech Republic, Slovakia and Hungary, moved to form a military battlegroup independent of NATO, illustrating Warsaw’s skepticism of NATO’s ability to satisfy its national security interests. Vincent-Rostowski’s statement can be seen as Poland being similarly skeptical of the eurozone’s ability to satisfy its national economic interests.