Portfolio: Poland Stalls on Eurozone Entry
Video Transcript:
Analyst Marko Papic discusses Poland's reluctance to enter the Eurozone and Warsaw's skepticism that the European Monetary Union fulfills its national economic interests.
Editor’s Note: Transcripts are generated using speech-recognition technology. Therefore, STRATFOR cannot guarantee their complete accuracy.
With the ongoing concern in Europe about the potential Greek default and the incident regarding the IMF managing director Dominique Strauss-Kahn still dominating Europe's financial use, it is perhaps surprising to concentrate on Polish thoughts about eurozone entry as the most geopolitical significant, economic and financial event in Europe of this week. However, the Polish finance minister Jan Vincent-Rostowski on Tuesday illustrated some skepticism about Polish entry into the eurozone before 2019. Vincent-Rostowski was asked what he thought about the potential future ECB President Mario Draghi and whether Poland would enter the eurozone before Draghi's term expired in 2019. Vincent-Rostowski's answer showed a considerable amount of skepticism on Warsaw's part to join the eurozone by that date. This is not really surprising because Poland has flip-flopped on the issue over the past couple of years.
Polish skepticism is grounded in several realities. First Poland has managed to weather the recession in Europe quite well. Poland is the only EU economy that did not have negative GDP growth in 2009. It was buoyed by a strong internal consumption and a strong internal market. It was also helped by the fact that its financial system had pretty conservative regulations and did not become over-reliant on foreign currency denominated lending like its peers in central Europe. This meant that when the zloty depreciated against the euro, there was no fear that the consumers and corporates indebted in euros and Swiss francs would suffer and therefore lead to a financial collapse in the country. In 2010, Poland has seen a considerable rise in foreign direct investment, because it is undergoing a privatization effort but also because there are considerable concerns about the ongoing eurozone sovereign debt crisis.
The second factor that leads to Warsaw skepticism on the eurozone is the fact that Germany has essentially used the financial crisis in Europe to reshape the eurozone in its own image. This is not so much a problem for Warsaw because amongst the Central European countries, and in reality amongst all of Europe, Poland and Czech Republic probably have the most German view of public finance and fiscal prudence. The more important issue is that Warsaw does not feel comfortable becoming officially part of Germany's sphere of influence. This is what the eurozone is more and more looking like it is becoming. From Berlin's perspective, Poland and Czech Republic are exactly the kind of candidates eurozone needs. In fact, Angela Merkel, amidst negotiations for a new eurozone enforcement mechanism at the end of 2010, in December, specifically talked to the prime ministers of both Poland and Czech Republic and encouraged them to apply for the eurozone as soon as possible. We now have essentially a response from Poland to that Merkel invitation to the eurozone.
It's interesting also the timing of Vincent-Rostowski's comments. It comes a few days after the defense ministers of the Visegrad group, a regional alliance of Poland, Slovakia, Czech Republic and Hungary, agreed to create a Visegrad battle group, which would be independent of NATO. The reason this is interesting is because the formation of the Visegrad battle group illustrates that Poland is skeptical that NATO can provide for its defense and is also skeptical that it can provide for its national security interests. On the other hand, the skepticism towards the eurozone also illustrates that Poland has considerable skepticism that the European Monetary Union can fully satisfy its economic national interests. In other words, Poland is becoming quite uncomfortable with the current institutional set up in Europe, both financial and security.
