Going for the Euro Double

May 9, 2007 Ela Pawełek-Lubera

By the time the European soccer championships begin in Poland and Ukraine in 2012, Poles could be carrying euros instead of zlotys in their wallets-just in time to use the single European currency to pay for game tickets.

Deputy Prime Minister and Finance Minister Zyta Gilowska said the euro could be introduced in Poland in 2012. “The adoption of the euro would coincide with the hosting of the Euro 2012 championships by Poland and Ukraine,” Gilowska said at a meeting with students of the Catholic University of Lublin (KUL). “This way, we would get the capital ‘E’ and the lowercase ‘e’ simultaneously.”

Gilowska added, however, that preparations for the 2012 football fest would bring about a lot of changes the effects of which could not be predicted today. “We do not know if the outcome of the preparations will be purely beneficial,” Gilowska said. “There could be some increase in inflation, especially in the final phase of the preparations. For the time being, I can see no solid evidence that this could indeed happen, but I do not know the course of events towards 2012.”

In order to switch to the single European currency, Poland has to meet a series of strict economic criteria, including a low inflation rate and a low budget deficit. According to the finance ministry, Poland should be able to meet the convergence criteria in 2009.

“We are planning to meet the Maastricht criteria, which include a deficit below 3 percent of the GDP, in 2009,” said Katarzyna Zajdel-Kurowska, the deputy finance minister. “That way, in 2010 Poland could start negotiations to join the ERM2-the two-year period during which the zloty exchange rate would have to be kept stable at a specified level,” Zajdel-Kurowska said. “Then, 2012 would be the earliest date for the euro to make it into the wallets of the Polish people.”

Over the past few years, Poland has been one of the fastest growing economies in Europe. The decision to hold Euro 2012 in Poland and Ukraine may help sustain high economic growth, which, in turn, will enable to the government to carry out its plans and attain high budget revenues. Zajdel-Kurowska says the latest economic growth forecasts estimate gross domestic product (GDP) growth at around 7 percent in the first quarter of this year, with an average of 5 percent over the next five years. The actual figure will be influenced by planned fiscal changes as well as domestic demand and investment. According to finance ministry estimates, investment will increase by around 20 percent this year.

Prime Minister Jarosław Kaczyński seems to be more skeptical about the benefits of Poland’s joining the eurozone in the near future. He says that Euro 2012 cannot be the only reason for Poland to adopt the euro. In his opinion, the decision has to be “well-considered,” with a thorough analysis of all the economic aspects of the move. Citing the experience of other countries, Kaczyński says the adoption of the euro is sure to prompt price rises.

Several dozen Polish economists have called on the parliament, the government and the National Bank of Poland (NBP) to adopt the euro as soon as possible. They have signed an appeal written by Janusz Jankowiak, chief economist at the Polish Business Council, and Bogusław Grabowski, president of the Skarbiec AM fund and an ex-member of the rate-setting Monetary Policy Council (RPP).

“Euro 2012 is a great challenge and a great opportunity for Poland,” the appeal reads. “If efficiently prepared and organized, such a weighty event will make it significantly easier to improve and permanently change Poland’s image in the world. The next few years will necessitate tremendous investments in the infrastructure system, which will then benefit the Polish people and economy in years to come. The investment effort linked with Euro 2012 constitutes a vital impulse for the country to make a giant leap in development. The championships should radically accelerate the process of bridging the gap between Poland and old EU member states. Without Euro 2012, raising the standard of living in Poland would most likely take longer and be more difficult.”

Jankowiak said Poland would benefit much more from the euro than from Euro 2012 alone. The adoption of the single EU currency will spur economic growth and make life easier for exporters and Polish tourists abroad.

The authors of the appeal insist Poland needs to take full advantage of the opportunity created by Euro 2012-which means that Poland should join the eurozone at the beginning of 2012 at the latest, they say.

The combination of Euro 2012 and the planned adoption of the single currency has more than just symbolic significance. Above all, it could become a pragmatic expression of the real convergence process, boosted by this exceptional event and resulting in the establishment of permanent ties with other European economies. The resulting benefits would continue for much longer and be much grander than the development impulse triggered by Euro 2012.

“We call on the parliament, government and the NBP management to make sure Poland meets the nominal convergence criteria by 2009 at the latest,” the appeal reads. “During the next parliamentary term, this will enable Poland to adopt the euro by the eve of Euro 2012.”

Experts from the Lewiatan Polish Confederation of Private Employers (PKPP) say Euro 2012 should promote changes in national budget expenditures and encourage the government to adopt the euro prior to the championships.

With Poland and Ukraine selected to co-host Euro 2012, companies are looking forward to high returns on investments and expect changes in the legal system to facilitate business. Entrepreneurs say that preparations for Euro 2012 should start with identifying barriers that hinder infrastructure projects and make them time-consuming and expensive. The next step is to remove these barriers as soon as possible. All changes in regulations should be carried out by the end of this year, experts say.

The Euro: Arguments For and Against
Pluses:
– lower inflation
– stable exchange rates
– elimination of exchange rate risks
– reduced currency exchange costs
– greater efficiency and liquidity of money markets
– leveling of prices in the eurozone
– easier travel
– greater trust for Poland among foreign investors

Minuses:
– giving up an independent monetary policy in a situation in which the monetary policies of the European Central Bank (ECB) are not adapted to Poland’s economic situation;
– facing direct competition from a larger number of companies on both foreign and domestic markets;
– slower GDP growth in the short term due to measures aimed at suppressing inflation;
– possible price hikes.

source: warsawvoice.pl

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