Poland ‘can offer economic recipe’ to the EU

Polish, EU and NATO flags. Poland, May 2007. [Pawel Kabanski/Flickr]

This article is part of our special report Poland: Ambitious achievers.

SPECIAL REPORT: Poland has proven it is possible to sustain economic growth without relaxing fiscal discipline, MEP Jacek Saryusz-Wolski told EURACTIV.

2014 is a special year for Poland, as the country marks 10 years of EU accession, 15 years of NATO membership and 25 years since the fall of communism (see background). 

In honor of the occasion, EURACTIV asked Polish commentators to describe the country’s economic and social renaissance .

Asked if Poland, a country with many low points in its history was at its peak today, Saryusz-Wolski, who is also Vice President of the centre-right European Peoples’ Party (EPP), said that his country had rather returned where its place should normally be.

“Poland’s position in Europe and in the wider transatlantic world is consolidating, but I wouldn’t call that a novelty or an extraordinary situation, because we are just coming back to the situation which would be the reality without the tragic decisions from Yalta,” said Saryusz-Wolski, refering to the conference in Crimea of February 1945 where Stalin obtained a free hand in Poland from Roosevelt and Churchill.

The Polish MEP stated that in the 16th century, Poland had already been “a great country in Europe”.

“It was Polish commonwealth in which today’s Lithuania, Ukraine and Belarus were a kind of pioneer of federal Europe. It was a multinational community based on the will of being together, on tolerance and democracy,” he said.

Good practices

EU membership has benefited Poland, and even before the country’s accession, there was a steady flow of economic support from Brussels – not only in terms of money transfers, but also investment and, last but not least, good practices and regulatory requirements.

According to official data, Polish GDP in 2013 was almost twice as big as it was in 2003, at €390 and €201 billion, respectively.

The Polish economy has also grown faster than that of the EU, by 49% since 2003, while the average figure for the rest of the Union is only 11%. The slow growth in the rest of the EU was due, among other things, to the economic crisis – which Poland has successfully managed to avoid.

But even when compared with the other nine countries that joined the Union in 2004 (the Czech Republic, Slovakia, Hungary, Slovenia, Estonia, Latvia, Lithuania, Malta and Cyprus), Poland was still outperforming the EU – their economies grew on average by 27%, twice as good as the EU as a whole, but twice as little as Poland.

According to Saryusz-Wolski, there are two explanations to Poland’s economic miracle, which account for the fact that the country didn’t experience recession during the Eurozone crisis.

First, he said that this was thanks to the “very healthy fundamentals of the economy”.

“We owe it to the very radical and extremely painful ‘shock therapy’ of Leszek Balcerowicz’s economic transformation program in the 1990s. This is something we paid a high price for, but it pays off now,” he said. At that time, Balcerowicz was Deputy Prime Minister in the government of Tadeusz Mazoviecki.

The second reason, Saryusz-Wolski argued, was the principle of fiscal health, of fiscal balance, which in his words was observed, to various degrees, by successive Polish governments over the last two decades.

“Those two factors made it possible to reconcile the two major postulates of the Eurozone recipe against the crisis: how to have both growth and fiscal consolidation. Without being tempted toward fiscal relaxation, and without overplaying fiscal rigour that kills growth. That’s probably what we can try to offer to the EU, as an example. How to combine growth and jobs, versus fiscal rigour, is one of the possible contributions of Poland to the economic philosophy of the Union,” he said.

Communist refrigerator

The wealth gap between Polish citizens and the EU average is closing. While in 2003, GDP in Poland was less than a half the EU average (48.8%, to be exact), 10 years later it was more than two-thirds (68%).

Saryusz-Wolski admits that the benefits of EU integration are visible for Polish citizens, but, inequalities have risen, and the rise of poverty is also a fact.

“Poland had the same level of wealth at the end of WW II as Spain. Now the distance is at least double, so we have a lot of catching up to do. This is the price for having been in the communist refrigerator,” he said.

One of the measurements of improved living condition is life expectancy, which in 1989 was 75.5 years for women and 66.7 years for men, while in 2013 it is 81.1 years for women, and 73.1% for men.

Asked if the reasons of this rise in life expectancy was due to the fact that Poles today drink less vodka, preferring wine or beer, Saryusz-Wolski joked that “possibly they will drink more cider” now, referring to the apple surplus following the self-imposed  Russian ban of imported foods from the West.

Since EU accession, between 2003 and 2013, unemployment in Poland almost halved, from 20% to 13.4%. Not all of that decrease was an effect of the EU membership. But the Polish Ministry of Regional Development in 2010 attributed a 1.5-3.5% rise in employment to funds from the EU. Overall, 800,000 more people are being employed after 10 years in the Union.

Infrastructure investments are also helping improving the quality of life in Poland. New water treatment plants (almost 700 were built, expanded or modernised) allow the water in Polish rivers be cleaner. Poles can now drink tap water in places where it was inadvisable 10 years earlier.

Despite such investment, there are claims that Polish economy lacks innovative capacity. Asked what is the biggest economic challenge that Poland will have to face in the near future, Professor Witold Or?owski, the director of Warsaw Technical University’s School of Business, acknowledged that if Poland wants to catch up with the West, it should also invest in knowledge-based growth.

“Low innovation is actually understandable in a country that still has a lot of room to grow thanks to the ‘standard’ methods: investments, technology imports, better organisation of labour, more efficiency on the world markets. But in the long term, if Poland wants to catch up with the West and not just shorten the distance, it has to focus on three aspects: cooperation, entrepreneurial skills in the population, and the knowledge-based growth. The ‘standard’ reserves will not be enough,” Or?owski argued.

Regional improvements

Reality speaks stronger than statistics. By walking around any city, town, or even a small village in Poland, one will encounter something funded, at least partially, with EU funds: be it a new water treatment plant, a new road or a renovated historical monument.

These improvements are part of the excellent record Poland has in efficient use of the EU resources. And it will have an opportunity to prove it once more. Poland has managed to secure €82 billion in the EU budget for the years 2014-2020, a quarter of all the funds the EU has earmarked for the convergence policy.

Or?owski pointed out the many changes brought by the EU. “Legal harmonisation with the EU has allowed Poland to become more attractive for the investors” is one of the examples quoted by him. Indeed, while in 2003 foreign direct investment (FDI) barely reached €50 billion, it has grown steadily ever since, reaching €152 billion in 2013.

But, as Or?owski emphasised, “there were many cases of synergy between aspects of the EU membership. For example, improvements in infrastructure have made Poland more attractive to the investors”. And that, in turn, has resulted in even higher investment.

The negatives

Yet despite all these positive changes, Poland still has a lot of catching-up to do. Certain regions in Poland are among the poorest in the EU, with only parts of Bulgaria and Romania scoring lower.

Furthermore, not all changes brought by EU membership are necessarily positive for the Polish economy. The last year has witnessed a significant campaign in the Polish media criticizing the new Tobacco Directive. Its introduction threatens the strong tobacco industry in Poland – a sector that employs 50,000 people, and contributes billions of euros to the state budget.

Even more controversial are regulations regarding energy and environment. Coal is – and will be for the foreseeable future – the primary source of energy in Poland. While successive Polish governments do not actively want the climate to change, they nevertheless have to oppose more ambitious climate regulations, as a rapid departure from coal would destabilize the country: almost 90% of power generated in Poland comes from coal sources.

Moreover, coal power plants and mining provide numerous employment opportunities. In some regions, they are the only major employer in town. That is why any departure from the coal-based energy generation requires a slow evolution, rather than a revolution.

Having said that, Poland is not unaware of the benefits of alternative energy sources. The renewable energy share in the Polish energy mix has been growing steadily over the years. Currently, 12% of the energy sold on the Polish market is from renewable sources.

Past and future

Despite the issues created by EU regulations, the balance of the past 10 years (or 25, if one includes the pre-accession period), is overall very positive. Without the EU, and the perspective of membership, Poland would not be able to complete its economic transformation.

As Or?owski noticed, the promise of membership “was a key motivating factor during the post-communist transition period. This goal had provided the direction for transformation. It was a great help during the times of economic difficulties in the 1990s, when the temptation of alternative, superficially ‘easier’ solutions was there”, he stresses.

Without the EU, Poland would not be where it is now – a strong regional player with a potential to achieve even more. As long as it keeps working as hard, the future for this European state will be very bright, Or?owski said.

According to the European Commission, in 2014 the Polish economy is expected to pick up noticeably. Inflation will remain subdued, and the rate of unemployment will go on falling. As a result, confidence is set to strengthen, improving the environment for further expansion of economic activity.

The EU executive encourages Poland to pursue further fiscal consolidation to correct the excessive deficit. The country’s objective is to bring the deficit below the 3% of GDP treaty reference by 2015. Low tax compliance remains an issue, and the incoherent use of reduced rate of VAT leads to losses of budget revenue.

The Commission also stresses that in spite of sizeable investments in the road sector, the country’s infrastructure in the railway system and the energy network creates bottlenecks for growth.

Poland’s export capacities are concentrated at the lower end of the value chain, and the country needs to boost innovation and research and development. The country is encouraged to do more to reduce youth unemployment and women unemployment [more]. 

2014 is a special year for Poland. The country marks the 10th anniversary of EU accession (1 May 2004), 15 years of NATO membership (12 March 1999), and 25 years since the fall of communism (on 6 February 1989 representatives of the Solidarno?? opposition movement sat with representatives of the communist regime at a Round Table for the first time to hold talks, a milestone symbolising the peaceful transition in the country).

The past 25 years have changed Poland. The economy is flourishing, and the country has affirmed itself as a major player in the EU, this fact being illustrated with the election of Jerzy Buzek as President of the European Parliament (2009-2012) and the more recent election of Polish Prime Minister Donald Tusk to be the next Council President. Investors are constantly flowing to Poland, where not only major infrastructure is being constructed, but also where the innovation and research sectors are booming.

Overall, Poland is seen as an „euro-enthusaist” and wants to use its own example to boost euro-optimism across the EU. 

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