Poland's finance minister says that a "No" vote in the French referendum on the EU constitution on May 29 will not delay the east European nation's adoption of the euro. Some concern has arisen that a negative vote in France could derail further European integration.
But Miroslaw Gronicki told Emerging Markets that while it could have an impact on those second-wave countries seeking to join the EU, the only hurdle Poland needs to overcome in adopting the euro is fulfilling the Maastricht Treaty criteria.
"If we fulfill the Maastricht Treaty criteria, there is no political will to prevent us from joining the eurozone – it's simply unthinkable," says Gronicki. While the minister says there is no exact date on which Poland will achieve this goal, he reckons that 2009 is the earliest. This means Poland has to enter the Exchange Rate Mechanism 2 by 2007. Membership of the system for two years is prerequisite to adopting the euro.
Poland's biggest challenge is its fiscal deficit, which is forecast to be 5.8% of GDP (including pension costs) this year, according to Fitch Ratings. Gronicki is confident that Poland can meet its targets. The most important reform is pensions. State contributions account for about 1.9% of GDP, according to Fitch, the highest among new EU accession countries.
But the EU's decision to relax its Stability and Growth Pact provides Poland with greater flexibility as it reforms its publicly managed pay-as-you-go system to a mandatory private sector fully funded one.
The EU has decided to allow the net cost of that reform to be taken into account in all budgetary assessments in the framework of its "excessive deficit procedures."
This means that Poland can exceed the reference 3% deficit target when it wants to join the ERM2 as long as the EU Council is convinced that any overshoot is because of the costs of pension reform. Poland, therefore, would need to reach a deficit of only 3.8% of GDP in 2007, according to Fitch, to meet the Maastricht criteria.
Fitch reckons that means that "Poland's target date of 2009 [for joining the euro] now looks more attainable than previously." Much, though, depends on political will. Poland has suffered from political instability with caretaker prime minister Marek Belka's recent resignation offer being rejected by the president. National elections are due in the autumn.
Gronicki says the political environment has not undermined the economic situation. Nor is he overly concerned about a probable fall in EU output this year. "We may be affected by a slowdown in Europe but only if Germany is in recession and if there is a significant cut in domestic demand. So far we don't see that," says the minister. Germany is Poland's biggest partner in terms of investment.
Gronicki expects Polish GDP growth to hit 4.5% this year and thinks "a similar rate is achievable" in 2006. Exports are booming, he adds. "Last year Polish exports grew at the fastest rate among EU accession countries," he says. "Of course the dynamic may change this year but we don't expect export growth to fall below double digits."