Prof. Adam Glapiński, president of the National Bank of Poland, in his latest article published in the diary Bank and Credit clearly warns against the premature adoption of the euro by Poland. In his opinion, specified a step could exposure the country to serious macroeconomic risks, including the failure of control of monetary policy and the destabilisation of the economy.
Why can the euro be dangerous for Poland?
Glapiński indicates that the euro area is not the optimal currency area for Poland due to crucial structural differences between our economy and Western European countries. In his opinion, the adoption of the single currency would pose 2 main risks:
- Loss of independency in interest rate formation – Poland could no longer adapt them to its own economical needs.
- Non-liquid exchange rate – which presently acts as a shock absorber.
"The euro area is not an optimal currency area. At the same time, the Polish economy differs importantly from the economies of the euro area. As a result, the adoption of the euro by Poland would present crucial macroeconomic risks" – emphasizes Glapiński.
Polish economy vs. euro area – key differences
The president of the NBP points out the crucial differences between Poland and the euro area countries, which make the common monetary policy possible for us adverse:
- Labour market – in Poland it is more flexible than in the euro area.
- Real property market – the underdeveloped rental marketplace compared to the West.
- Private sector debt – in Poland is 58.5% of GDPwhile in the euro area 157.6% of GDP.
- Openness to global trade – Poland is more dependent on exports.
"The Polish economy differs from the euro area economy besides from the private debt of the non-financial sector, which is clearly lower in our country" – reads the article.
Is Poland ready for the euro?
Glapinski emphasizes that Polish economy is increasing faster than the euro area economies. Between 2004 and 2024, the average GDP growth in Poland was 3.8%whereas in the euro area only 1.2%. In addition, natural interest rate in Poland 2-3 percent points higher than in the countries of Euroland.
"Poland's economy needs another (generally higher) interest rates than the euro area" – writes the president of NBP.
Boom-bust cycle hazard and failure of competitiveness
According to Glapinski, adopting the euro could lead to boom-bust cycle – the fast growth of loans and investments, followed by a deep crisis. In addition, loss of a liquid exchange rate would weaken the competitiveness of Polish exports, leading to industrial degradation.
"Reestablishing balance in the economy – in a situation where there is no anticipation of depreciation – would be long-term, socially costly and would affect a strong increase in unemployment and emigration" – warns the NBP chief.
When should Poland adopt the euro?
Glapinski thinks the current balance of benefits and costs of adopting the euro is negative. But in the future, erstwhile the Polish economy will be closer to the level of improvement of Western European countriesThe situation could change.
"In the following decades, with the increase in the wealth of the Polish economy and its convergence towards the most prosperous economies of Western Europe, the assessment of the economical benefits and costs of adopting the euro may change. However, the current balance sheet is definitely negative" He concludes.
More here:
Poland's adoption of the euro? Shocking informing to the president of the NBP!
