Poland may postpone by at least a year its plans to adopt the euro in 2012 , amid signs of a worsening economy and budget deficit, the country’s finance minister has told the Financial Times.
“The first of January 2012 is still realistic, but it may require some delay,” Jacek Rostowski said. “The world crisis has come along and it would be naive to pretend it has had no effect …If we move it by one year that’s not the end of the world.”
The centre-right government of Donald Tusk, prime minister, has made joining the common currency one of the linchpins of its anti-crisis policy, hoping to send the message that the Polish economy is stable compared with more crisis-ridden countries in the region such as Hungary and Latvia.
But the prospects of joining the euro have dimmed as the recession has begun to bite. Last year, the government was predicting the economy would grow by more than 3 per cent in 2009. Currently it hopes for 1.7 per cent, but a recent prediction by the European Commission said Poland could contract by 1.4 per cent.
While Mr Rostowski has disputed the commission’s numbers, he acknowledges the economy is slowing sharply. “Our forecasts are still that we expect positive growth this year, but obviously given the degree of uncertainty …it may end up that the commission will have been correct.”
Adding complexity to the issue, the government is still at loggerheads with the opposition over amending the constitution, which has to happen if Poland is to adopt the common currency.
In addition, the budget deficit seems certain to increase steeply this year, as expenses increase and tax revenues fall. While Mr Rostowski said he would not increase spending, and predicts the deficit will come to no more than 4.6 per cent of gross domestic product, the commission foresees a deficit of 6.6 per cent this year and 7.3 per cent in 2010.
The criteria for joining the euro call for a deficit of no more than 3 per cent, which would make joining the euro by 2012 unrealistic. In order to meet that date, Poland would have to join the pre-euro ERM-2 trading mechanism this year, which Krzysztof Rybinski, an economist with Ernst & Young, said is unlikely.
Mr Rostowski’s uncertainty over the economy is widely shared, as new data show a confusing picture. Although growth estimates have been slashed, Poland’s domestic market has been resilient. Unemployment appears to have stabilised at 11 per cent. The zloty, which declined sharply earlier this year, has regained some strength, thanks in part to Poland receiving a $20.58bn (€15bn, £13.5bn) flexible credit line from the IMF.
In one example of mixed signals, Fiat’s factory in southern Poland is churning out small cars for the west European market, and is not planning production cuts. Meanwhile in Warsaw, the FSO car factory, a subsidiary of Ukraine’s Avtozaz, has shut until June 22 as production aimed mainly at the Ukrainian market has plummeted owing to the economic collapse there.
Meanwhile, industrial production fell by 2 per cent in March, much less than in the rest of the region.