Poland could join the euro zone faster if the requirement for the zloty to be in the ERM-2 exchange rate mechanism were waived, an adviser to Prime Minister Donald Tusk was quoted as saying on Tuesday (13 May).
The debate about the mechanism is theoretical, because other conditions block a Polish entry. But the comments appeared to signal that when Poland – the biggest European Union economy besides Britain and Sweden outside the euro – does eventually join, it wants to do so on its own terms.
ERM-2 is one of five convergence criteria for adopting the euro. A country seeking to join the euro zone must peg its currency to the euro for at least two years and keep it in a narrow range.
“The euro zone must prove its political raison d’être. I can imagine therefore that, within the framework of strengthening political integration, Poland gets a proposal to join the euro zone but without the two-year period in the ERM-2 system,” Tusk adviser Krzysztof Bielecki told Obserwator Finansowy, the news portal of the Polish central bank.
“If we had to enter the euro through ERM-2, the matter would be delayed for years,” Bielecki said. He said the mechanism “did not fit the European reality at all any more”.
Dropping the requirement would require changes in the EU’s 1992 Maastricht Treaty. But the rules do allow ERM-2 to be applied retroactively. Poland could be deemed to have met the criterion if its currency stayed within the prescribed range for two years, even if it had not declared it was entering ERM-2.
Poland has committed to adopting the euro, though without setting a date. Polish economists say it already meets two of the entry criteria. Of the remaining, one relates to the budget deficit, which it is on track to meet by 2015, and the other is the ERM-2 requirement.
There is also a political hurdle, though. Adopting the euro requires a change in Poland’s constitution. This can be enacted by a two-thirds majority in parliament. But supporters cannot muster the votes needed to push the change through.
Opinion polls show the majority of voters do not back euro adoption. The government has signalled it is in no rush to join.
“Unfortunately, the number of supporters of joining the euro is still melting. So even if there was not a general election due in a year’s time, the government cannot ignore public opinion,” Poland’s ambassador to France, Tomasz Orlowski, told the Europresse association in Paris on Tuesday.
Risk of speculation
Policymakers and economists have long said that entering the euro zone’s pre-adoption currency corridor would be risky for Poland because it would encourage speculation in the highly liquid zloty, and could push up prices of consumer goods.
Poland has found that having its own, free-floating currency gave it a strong shield against the global financial crisis.
Polish policymakers say the current criteria for euro entry are flawed and outdated. They point out that Greece, Ireland and Portugal all adopted the euro despite having deep imbalances.
However, the current confrontation between Russia and Ukraine, Poland’s eastern neighbours, has revived the idea of euro adoption among some policymakers.
Central bank governor Marek Belka, who was previously believed to be cool on euro entry, said in March that Warsaw should rethink its plans for political and security reasons.
He said membership of a currency union gave a country additional protection from external threats.
But Orlowski, the Polish ambassador, said the economic impact of membership was paramount for voters. “I think today the average Pole is more worried about price rises than by invasion.”
Poland indicated that the country’s decision to adopt the euro would be taken after the presidential and parliamentary elections due in 2015.
No tentative target dates were set, but economists estimate the country could switch to the common currency in 2016-2017.
All EU countries, except Denmark and the United Kingdom, are required to adopt the euro. To do this they must meet certain conditions known as 'convergence criteria'.
The convergence criteria for joining the eurozone are formally defined as a set of macroeconomic indicators, including:
- Price stability, keeping inflation under control;
- Soundness and sustainability of public finances, through limits on government borrowing and national debt to avoid excessive deficit;
- Exchange-rate stability, through participation in the Exchange Rate Mechanism (ERM II) for at least two years without strong deviations from the ERM II central rate;
- Long-term interest rates, to assess the durability of the convergence achieved by fulfilling the other criteria [more].
- 2015: Presidential and Parliamentary elections in Poland