The Colour of Money

Whatever its colour, as St. Paul wrote, the love of money is the root of all evil.    Most folk seem to forget that it is the love of money rather than the money itself which is the problem and as we today survey the wreckage of the banking crisis there is no doubt that his words remain as true as ever they did.  But the love of money takes many forms and when it is wrapped up with matters of independence and patriotism the emotional attachment extends beyond mere monetary value.  And for a nation as patriotic as the Poles the surrendering the Polish zloty is not something to be taken lightly (if at all).

Last week Donald Tusk, the Polish prime minister suggested that a referendum would be held to allow the country to vote on whether to adopt the euro and that in any such referendum a simple majority would decide the issue.  All well and good you might think except that it is not that simple. First and foremost, when Poland joined the EU it became obliged by treaty to join the common currency once certain economic criteria are met.  It is not clear, therefore, that a referendum vote against would have any actual effect on the decision to join.  At present it appears that only some 29 per cent of Poles are in favour of swapping the zloty for the euro while 64 per cent are against according to a recent CBOS poll.  This poll of Poles was carried out before the recent events in Cyprus which are hardly likely to have increased enthusiasm for the common currency.

Donald Tusk is confident of winning the argument prior to the referendum and of course even if he doesn’t, ignoring the democratic will is par for the course in all things from the EU, and so that’s all right.  The Polish constitution will also need to be amended which will require a two thirds majority in the Polish parliament.  It is not clear what would happen were such a majority not to be found.

Be that as it may, as I have written here before (please see Other People’s Money; The Fortune Teller) the key issue for Poland is that it fears being on the periphery of European affairs and for Donald Tusk failure to join the common currency would only confirm this marginal status.  For historical, geo-political and economic, reasons Poland wishes to be fully at the heart of the EU, a heart which ironically now beats with an ever more Germanic pulse.

To this end Poland has been working hard to meet the Eurozone convergence criteria which are necessary to enable Poland to be ready to join the common currency and which have stimulated the internal reforms which also benefit the Polish economy.   The Ministry of Finance and the National Bank of Poland are working together on the necessary reforms.  These include establishing effective macro-prudential oversight, increasing competitiveness, and strengthening fiscal consolidation, one of the goals being to keep a low level of unemployment.  The finance minister has even gone so far as to propose that Poland should establish its own criteria of readiness for joining eurozone suggesting that, as with GDP targets, Poland could set an internal target for unemployment at rate, for example, of 2 to 3 per cent below the unemployment rate in the eurozone.  Despite his oft repeated remark that Poland wishes to join the euro “but not this euro” Minister Rostowski appears to be approaching the task of readying Poland for euro adoption with relish.

In a similar vein, the NBP believes that Poland should be more aggressive than the Masstricht convergence criteria of 60 per cent debt to GDP ratio with instead a target of public debt below 40 per cent of GDP (George Osborne please take note).   This would be safer for Poland as a lower level of public debt would allow more room for manoeuvre in fiscal policy to compensate for the lack of an independent monetary policy within the eurozone.   Indeed, so good has been the progress that Poland might well meet the fiscal criteria during 2013 although meeting the inflation and interest rate criteria will be more difficult.

For Poland it seems that the political benefits of being part of the eurozone will outweigh the economic benefits and that the fear of marginalisation within the EU from staying outside the Eurozone is a long term cost too great to contemplate. Thus whatever the Poles decide in the referendum and whenever it comes, it seems that the future colour of money here will be blue (with yellow stars).

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