Download case of Poland

Center for Social and Economic Research
Economic and Political Challenges
of Acceding to the Euro area in a
post-Lehman Brothers World:
The case of Poland
Przemysław Woźniak
1
Contents
 Brief overview of economic developments
 Economic aspects – Maastricht criteria
 Political process
2
50
6
49
5
48
4
47
3
46
2
45
1
44
0
43
-1
42
in %
7
-2
GDP growth in EA (left axis)
41
-3
GDP growth in PL (left axis)
40
-4
GDP per capita in PPS (right axis)
39
2009*
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
38
1996
-5
3
Euro Area = 100
Strong growth → real convergence
Nominal convergence alongside
real convergence
64
2008
CPL of GDP (in % of EA average)
62
60
2001
2007
58
2006
56
2002
54
52
50
1998
48
1999 2003
46
2004
1997
44
1996
42
40
2005
2000
1995
36
37
38
39
40
41
42
43
44
45
46
47
48
49
4
GDP per capita in PPS (in % of EA average)
50
PL (12-month moving average of HICP)
PL (HICP)
2009m10
2009m07
2009m04
2009m01
2008m10
2008m07
2008m04
2008m01
2007m10
2007m07
2007m04
2007m01
2006m10
2006m07
2006m04
2006m01
2005m10
2005m07
2005m04
2005m01
2004m10
2004m07
2004m04
2004m01
%
Maastricht inflation criterion
– mixed performance
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
Maastricht criterion reference rate
Long term interest rates
- below the Maastricht level since 2005
7.5
Long-term interest in Poland (10-year government bonds)
7.0
Maastricht criterion reference level
6.0
5.5
5.0
2009m09
2009m05
2009m01
2008m09
2008m05
2008m01
2007m09
2007m05
2007m01
2006m09
2006m05
2006m01
2005m09
2005m05
2005m01
2004m09
2004m05
4.5
2004m01
%
6.5
Fiscal deficits - the persistent problem
& excessive deficit procedure
2001
2002
2003
2004
2005
2006
2007
2008
2009*
2010*
0
-1
% of GDP
-2
-1.9
-3
-3.6
-4
-3.6
-4.1
-5
-5.1
-5.0
Government Deficit
-6
-5.7
-6.3
-7
Maastricht reference level
-5.8
-5.5
Public debt - rising, but under control
70
60
47.1
% of GDP
50
40
37.6
47.1
54.9
45.0
45.7
42.2
47.2
47.7
52.0
30
20
General government debt
10
Maastricht reference level
0
2001
2002
2003
2004
2005
2006
2007
2008
2009*
2010*
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
150
140
130
120
110
100
czk Czech Koruna
huf Hungarian forint
pln New Polish Zloty
2009m12d01
2009m11d03
2009m10d06
2009m09d08
2009m08d11
2009m07d14
2009m06d16
2009m05d19
2009m04d20
2009m03d19
2009m02d19
2009m01d22
2008m12d22
2008m11d24
2008m10d27
2008m09d29
2008m09d01
90
… and the stock exchange
 Which tumbled by almost 1/2 (Sep 08 - Feb
09) and by 2/3 since the peak in July 07.
275
250
Prague (2004=100)
225
Budapest (2004=100)
200
Warsaw (2004=100)
175
150
125
100
75
50
2009m07
2009m01
2008m07
2008m01
2007m07
2007m01
2006m07
2006m01
2005m07
2005m01
2004m07
2004m01
2003m07
2003m01
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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)
Thank you !
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