Since January, when Croatia joined the eurozone, Poland has been reevaluating the benefits as well as risks of adopting the euro

April 19, 2023

Is Poland Ready For The Euro?

Poland is one of seven EU nations, including Bulgaria, Czechia, Denmark, Hungary, Romania, and Sweden, that have kept their own currencies. Years of debate between the Polish government and opposition have focused on whether or not the nation should abandon the zoty in favor of the euro. The debate has only grown more heated since the beginning of 2023, when Croatia joined the eurozone.

Mateusz Morawiecki, the prime minister, is solidly in the “no” side, claiming that adopting the euro would only serve to increase inflation, which already hit a 26-year high last year. He claimed that adopting the euro at this time of extreme inflation was similar to putting gasoline to the fire. In addition, Morawiecki mentioned “inflation chaos” in Croatia.

In just one week, prices in Croatia have soared by 70% to 80%, according to Morawiecki. Demagog, a Polish fact-checking organization, argued that the allegation was false and that the official statistics from Croatia showed an average increase in grocery costs of 13%. The agency also added that while price rises of up to 80% did happen for some services, they only did so in a select few instances.

Additionally, analysis conducted by Andreja Pufnik, a senior advisor at the Croatian National Bank, revealed that the country’s switch to the euro normally had a minor, one-time impact on the rise in consumer prices. The survey stated that a small number of products, particularly in the services sector, such as services in restaurants and cafés, had a little more pronounced increase in pricing owing to conversion.

The first twelve nations to circulate euro currency were noted by the Polish Economic Freedom Foundation in 2002. Prices in the euro region rose by 0.5 percentage points in the first month following the adoption of the euro. Inflation did, however, eventually start to decline and throughout 2002 it stayed at the same rate as in 2001.

When Poland opted to join the European Union in 2004, it pledged to using the euro. However, after the anti-euro PiS party won the 2015 election, its leader Jaroslaw Kaczyski declared that Poland should only adopt the euro when its GDP per capita reaches 85% of Germany’s.

The impact of the euro on economic growth, which is already constrained by the conflict in Ukraine, as well as rising oil prices, are additional arguments against it. The central bank’s president, Adam Glapiski, issued a warning against the adoption of the euro, claiming that it would result in a “radical slowdown in the economy.”

He claimed that maintaining the zloty was a key factor in “Poland’s economic miracle,” which helped the nation’s economy become one of the fastest-growing in Europe in recent years and recover from the coronavirus pandemic relatively swiftly.

Despite the controversy surrounding the euro, the slowdown yet seems unavoidable. The World Bank predicts that Poland’s economy would grow by a moderate 0.7% in 2023, down from a rise of 4.4% in 2022, as a result of consumers’ declining purchasing power and a decline in demand from Poland’s main trading partners.

What advantages are there?

The economy will clearly benefit from adopting the euro in a number of ways. It would make trade with other eurozone members simpler and minimize risks associated with exchange rate volatility. Karnowski emphasizes that the eurozone accounts for around 80% of Poland’s international trade, and that the single currency would reduce transaction costs. The adoption of the euro would facilitate international travel for common people and ease price comparison.

Eliminating exchange rate risks, in a larger sense, also improves trade and investment prospects. Additionally, the single currency promotes greater macroeconomic resilience and stability, which is crucial in light of the unpredictability caused by the conflict in Ukraine. Commerzbank anticipates that the euro will appreciate during the remainder of 2023 and rise near PLN 4.85 in 2024, despite the fact that the zoty has somewhat recovered after falling against major currencies in the early months of the war. Last but not least, proponents of the move assert that it would strengthen Poland’s power within the EU and emphasize that the nation shouldn’t ignore the political aspect.

By 2030 at the latest, according to more than half of the economists polled by Rzeczpospolita, Poland should select a date for joining the euro and begin the necessary preparations. Poland still needs to achieve the convergence requirements, which include entering the ERM II, the EU’s scheme for helping nations make the switch to the euro, as joining the euro is a drawn-out process. So even if this year’s legislative elections have a major impact, it will be some time before Poland joins the eurozone.

Source: Warsaw Business Journal
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