Euro: A strategic choice

©Reuters/François Lenoir

Poland is not yet a member of the euro area, though is watching the euro situation with close interest. 

From Poland’s perspective, there are two major issues: first, the crisis in the euro area, its causes, effects and implications for sustainable growth; and second, the impact of the euro crisis for Poland and for the prospects of euro adoption.

While the global economy shows signs of gradual improvement, the recovery remains fragile and exposed to risks related to the euro crisis. The roots of the euro’s problems are both policy-related and more fundamental, related to the architecture of the monetary union.

An expansionary fiscal policy, mispriced risk, weak prudential policies and frameworks were instrumental in the accumulation of excessive private and public sector debt in several euro area countries before 2008. These economies now exhibit substantial fiscal weakness in the form of large fiscal deficits and/or of debt burdens or both. Fiscal weakness has contributed to the spread of stress across European banking systems due to their high exposure to sovereign default risk. There are also fundamental, structural and institutional weaknesses. A number of countries–mainly the so-called “peripherial” economies–are structurally exposed to external deficits due to persistent deterioration of their relative competitiveness. The feasibility of goods and factor markets remains problematic, and therefore necessary reallocation of resources–with more emphasis on exportoriented industries–is hampered.

Policymakers have already made progress in addressing the crisis, at both national and euro area level. Countries receiving financial assistance are implementing macroeconomic adjustment programmes, in particular fiscal consolidation. The financial capacity of the EFSF (European Financial Stability Facility) has been expanded and the implementation of the ESM (European Stability Mechanism) has been advanced. Generally, the lending capacity of the IMF has been increased. Crucial steps have also been made to improve the EU-wide financial supervision and ensure the capital strength of banks. The bold reaction of the ECB, particularly the LTRO (long-term refinancing operations), including non-standard measures, has been vital for containing the crisis and preventing further contagion.

Timing issue
However, a number of underlying fundamental problems remain to be addressed. The major challenge for the euro area is twofold. First, ensuring the integrity of the euro area is vital. The risk of a catastrophic disintegration of the euro must be taken off the table. Until it is, we cannot expect the private sector to invest and unless the private sector invests growth will not recover. Second, economic growth, which is the only long-term solution to overcome excessive indebtedness, must be restored. Euro adoption is a strategic choice for Poland. However, before we define the timeframe for euro adoption, the situation in the euro area must stabilise. We are well aware that the euro has the potential to bring significant gains in terms of growth, trade, investment and, ultimately, standards of living to Poland. Such gains, however, require both adequate preparation for the changeover and an active use of economic policy to minimise the risk of increased volatility that may result from the loss of an independent monetary policy. The crisis and the new economic governance framework (“six-pack” and “twin-pack”) imply serious shifts in the relative importance of costs and benefits for future euro area entrants.

Due to sound macroeconomic policy, as well as a sound financial sector, Poland has avoided a boom based upon excessive indebtedness. Poland has been the only EU economy to avoid recession during the crisis. Well-tuned fiscal policy responses and early structural adjustment, together with an independent monetary policy and a floating exchange rate regime, have been instrumental in Poland’s weathering the crisis without recession. It is at present one of the first countries in the EU to experience a decline in its debt/GDP ratio, from an already relatively low level. Domestic policy and structural measures have been well assisted by the Flexible Credit Line from the IMF, and keep Poland’s economy resilient to external shocks.

Poland contributes to strengthening of global financial safety nets through a bilateral loan to the IMF and considerable participation in the New Arrangements to Borrow. Domestically, the major challenge for policymakers remains further improvement of public finances, including reduction the general government deficit to below zero in 2016.

Visit www.mf.gov.pl

©OECD Observer No 290-291, Q1-Q2 2012




Economic data

GDP growth: +0.6% Q3 2017 year-on-year
Consumer price inflation: 2.3% Sept 2017 annual
Trade: +1.4% exp, +1.7% imp, Q2 2017
Unemployment: 5.7% Sept 2017
Last update: 14 Nov 2017

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly


Online edition
Previous editions

Don't miss

  • Papers show “past coming back to haunt us”: OECD Secretary-General Angel Gurria tells Sky News that the so-called "Paradise Papers" show a past coming back to haunt us, but one which is now being dismantled. Please watch the video.
  • The annual OECD Eurasia Week takes place in Almaty, Kazakhstan 23-25 October. Writing in The Astana Times, OECD Secretary-General Angel Gurría urges Eurasia countries to stay the course on openness and international integration, which has brought prosperity but also disillusionment, notably regarding inequality. The OECD is working with this key region, and Mr Gurría urges Eurasia to focus on human capital and innovation to enhance productivity and people’s well-being. Read more.
  • When someone asks me to describe an ideal girl, in my head, she is a person who is physically and mentally independent, brave to speak her mind, treated with respect just like she treats others, and inspiring to herself and others. But I know that the reality is still so much different. By Alda, 18, on International Day of the Girl. Read more.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Read some of the insightful remarks made at OECD Forum 2017, held on 6-7 June. OECD Forum kick-started events with a focus on inclusive growth, digitalisation, and trust, under the overall theme of Bridging Divides.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • How do the largest community of British expats living in Spain feel about Brexit? Britons living in Orihuela Costa, Alicante give their views.
  • Brexit is taking up Europe's energy and focus, according to OECD Secretary-General Angel Gurría. Watch video.
  • OECD Chief Economist Catherine Mann and former Bank of England Governor Mervyn King discuss the economic merits of a US border adjustment tax and the outlook for US economic growth.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2017