April 2, 2013
| Economics
| Europe
Summary
Polish Prime Minister Donald Tusk’s decision to call for a referendum on adopting the euro could easily backfire and have Poles running further from the embrace of Europe. But can he blame them for their reticence? With every passing day, and every new crisis related to the EU’s debt crisis, more Europeans seem to be questioning the wisdom of the common currency. So why is Tusk so anxious for Poland to be part of something that may be unraveling?
The latest polls show that more than 60 percent of Poles are opposed to abandoning their currency, the zloty, for the euro. But by linking promises for a referendum, which he initially opposed, to making constitutional changes required to transition to the euro, Tusk may have bought enough time to make the case for the euro to the Polish people.
Background
Poland, a former Soviet satellite nation of 38 million people has seen remarkable economic and political development since it threw off the shackles of communism in 1989 and 1990. Its rapid transformation into a democratic, market-oriented country enabled it to join NATO in 1999 and the EU in 2004.
Poland is the only member of the EU to experience continued growth every year and it has managed to avoid falling into a recession since the European sovereign debt crisis began in 2008. Thanks largely to its domestic market, aflexible zloty, and an influx of EU subsidies (it is the largest single recipient of EU subsidies), business activity in Poland has continued to expand.
Tusk, who became prime minister in 2007, has devoted his government to laying the groundwork for Poland to join the eurozone, the 17-member economic and monetary bloc united by its common currency, the euro. Although the country is obligated to join the eurozone as part of its EU membership, its 2004 EU entry agreement did not include any deadlines.
However, because the government lacks the two-thirds parliamentary majority needed to make the constitutional changes required to adopt the euro, Tusk has vowed to delay taking additional steps toward adopting the euro until after the country holds new elections in 2015. As opposition conservatives grew increasingly vocal in calling for a referendum to decide the issue, a proposal Tusk initially rejected, his position changed last week when he offered to trade a euro referendum for a promise from the opposition to help enact the necessary constitutional changes to transition to the euro.
The prime minister explained this turnaround was “for an obvious reason: fewer votes are needed to win a referendum.” This is because a two-thirds majority would be required to make the constitutional changes in parliament, while only a majority of voters would be needed for a popular referendum.
The government has already used this form of vote in its favor. In 2003 it successfully lobbied its euro-skeptic population to join the EU, convincing 78 percent of the electorate to vote in favor after a strong public relations campaign.
Meanwhile, on March 29, Poland’s finance minister, Jacek Rostowski, explained that he thought the referendum was critically important, because he could not “imagine any government [that] would want, or indeed could, steer Poland into the eurozone without Poles accepting the move.” Nevertheless, he cautioned, “It would be unwise to organize a referendum which would require a 50% turnout and 50% approval to allow entry.”
According to a recent opinion poll by the newspaper Rzeczpospolita, 67 percent of Poles now oppose adopting the euro. In addition, a recent survey by polling firm TNS Polska found 53 percent of Poles worried that adopting the euro and giving up the zloty would hurt the country, while 69 percent said the move would have negative repercussions on their households.
Analysis
Although a referendum held today would almost certainly prompt a rejection of the euro, Tusk’s move could be a savvy political decision to obtain the constitutional changes required for any move to adopt the EU’s common currency. Nevertheless, Poland is obligated to eventually adopt the euro as a member of the EU, but it is in no hurry to do so.
The country remains years away from adopting the euro since it does not meet the EU’s criteria for budget deficits, inflation, and interest rates, which are all too high.
Yet as Tusk and his center-right government view adoption of the euro as critical for Poland’s success, his latest concession appears to be a calculated maneuver to wait out the cautious euroskeptic opposition.
Tusk explained last week that despite the offer to exchange the referendum for the constitutional changes, he remains committed to Poland’s adoption of the euro “by the end of the decade.”
However, in light of Poland’s slowing economy, which grew by just 2.4 percent in 2012, down from 4.3 percent the year before, this could prove more difficult than anticipated. The International Monetary Fund estimates Poland’s growth will slow to 2 percent this year.
Meanwhile, with an unemployment rate of 12.6 percent last year, Poland could face considerable strains if it cannot reverse its economic declines.
In addition, a report by the European Commission found Poland’s economy was the fourth least innovative in the EU, despite its impressive streak of economic success.
Nevertheless, with growth driven by the country’s domestic demand, which represents around two thirds of its GDP, and exports, which are heavily reliant upon its trade partners in the EU, Poland’s looming economic troubles could make it more difficult for Tusk to follow through with his plans to implement the euro this decade.
Conclusion:
By subverting the opposition’s calls for a referendum to serve his own ends, Tusk appears to have scored a significant coup in his pursuit of Poland’s ultimate adoption of the euro. However, the country remains unlikely to discard the zloty in favor of the euro in the near future and the government is likely to face an uphill battle to restore the population’s lack of faith in the EU and its common currency.
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