Since joining the European Union, both public and government support for adopting the euro in Poland has varied with most of the support traditionally being higher in larger cities and lower in rural areas. The previous government, the Law and Justice (PIS) party, led by the Kaczyński brothers was (and is) skeptical about rushing into joining, and wanted to have a referendum on the issue. Meanwhile, the current ruling party, Civic Platform (PO), led by Prime Minister Donald Tusk, has been intent on joining the euro zone by 2012. In fact, Donald Tusk and his government had hoped to join sooner; however, due in large part to the current fi nancial crisis, it is unlikely that Poland will even be able to hit the 2012 target. The governor of the National Bank is of the opinion that Poland should join in, although he believes that haste could be harmful to the country’s economy. In order to join the euro zone, Poland will have to meet two main conditions in fulfi lling the requirements of the Maastricht Treaty and in taking part in the European exchange rate mechanism (ERM II) under the European Monetary System (EMS) for a period of two consecutive years, which means that Poland’s exchange rate cannot fl uctuate more than 15% against the euro during that time. Other specifi c criteria include an infl ation rate of no more than 1.5 percentage points above that of the three lowest infl ation members in the European Union. The ratio of the annual government defi cit to gross domestic product (GDP) must not exceed 3% (or at least be at a level close to 3%) at the end of the fi scal year before joining. Government debt ratio to GDP should not exceed more than 60% at the end of the fi scal year before joining, or should be approaching this fi gure at a ‘satisfactory rate’. Finally, nominal long-term interest rates cannot be more than two percentage points above the three member states with the lowest infl ation. By most accounts, these are very diffi cult targets to meet especially during the global economic downturn, and many current members of the euro zone would have diffi culty fulfi lling them, most notably countries such as Ireland and Greece. Still, despite suggestions by the International Monetary Fund (IMF) earlier in the year to relax the rules for joining the euro zone, which would make it easier for Poland and other new EU members (most notably Hungary) to adopt the euro, the European Central Bank remains resolute in sticking to the original requirements. Poland, on its part, has made it clear that it would not necessarily support any changes in the entry rules, partly to differentiate itself from other Central European countries, which are in worse shape. Still, since the existing criteria will almost certainly not change, Poland, which would have had a much easier time of joining during the booming year 2007 than during today’s recession, will now have to postpone its planned entry to the euro zone. Proponents of Poland’s adopting the euro point to the many potential benefi ts that a common currency will bring, not least of which would be the expected increase in trade and growth resulting from monetary integration with the rest of Europe. Costs related to złoty / euro exchange rate transactions would be eliminated along with the exchange rate risk in the trade between Poland and the euro zone. The elimination of the exchange rate risk would not only have a positive and direct effect on business, but would also eliminate this type of risk for Poles who borrow in foreigncurrencies to finance large ticketitems such as houses and apartments.Since the financial crisis began, the Polish złoty experienced a dramatic fall while losing approximately a third of its valuein relation to Europe’s more stablecurrencies and to the dollar. Thishad a particularly adverse affecton the many Poles who took out mortgage loans in Swiss francs in order to purchase homes and who, as a result, in many cases ended up having to pay hundreds of thousands złoty more for their new purchases in real terms.

Comments