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Poland’s EMU debate is worth following

Poland’s EMU debate is worth following

Dismay in Warsaw over ‘two-speed Europe’
National Bank president Belka sums up Polish dilemma

by David Marsh

Mon 22 Oct 2012

Some of the most complex and worthwhile discussions on the future shape of economic and monetary union (EMU) take place these days in Warsaw. Poland has turned itself into one of Europe’s economic out-performers.

The country’s history and geography make it eager to swim with the tide of European integration. But the setbacks affecting the single currency imbue Poland’s European stance with a large dose of caution.

Warsaw policy-makers have viewed with something approaching dismay the latest German government proposals for pressing ahead with deeper political integration for EMU countries – a step towards a ‘two-speed Europe’ that would leave the Poles outside.

One of the most authoritative interpreters of Poland’s soul-searching on EMU is Marek Belka, the National Bank of Poland president and a former prime minister and finance minister. He is in London on Tuesday 23 October to give a lecture as part of OMFIF’s ‘Golden Series’. Belka articulates the difficulty of Poland’s position caught between overwhelming desire for integration with the European mainstream and the fear that entry into EMU at the wrong time or under the wrong conditions could fatally constrain Poland’s dynamism and growth.

He sums up the dilemma: the alternative to EMU’s collapse is that it survives as a strong politically integrated union. ‘For Poland to join such a union would be politically very difficult, but to be outside would be even more difficult.’

Poland is uneasy about the discord between France and Germany — exposed by the latest Brussels summit — on the path to European banking union.

This is seen by many as EMU’s salvation. But, in a rerun of disputes that dogged 1970s and 1980 moves toward monetary union, the French wish to enact banking union first and let full-scale fiscal union follow. The Germans say deep-seated political integration and renunciation of national fiscal sovereignty must be the condition for banking union.

Belka’s comments at the National Bank of Poland’s annual Europe conference last week represent an acutely realistic assessment of the euro’s state of play. ‘We believed European integration would protect members from the effects of hyper-globalisation and would uphold regional or local democracy. This worked for a while, until we appeared to go a bridge too far with the common currency. The financial crisis nullified the shield against hyper-globalisation. For some countries it amplified the effect. For Spain, it is a curse, not a shield.… The euro has amplified different weaknesses of the EU economy.’

Belka forecasts EMU will survive because it must, but his assertion is devoid of false certainty. ‘You cannot turn back time. Even if you thought EMU was a mistake — which I don’t dare to say — to unwind it is impossible. EMU can dissolve, but its collapse would be a disaster of an unknown magnitude. We are afraid of the unknown, so we don’t want to take the risk. So we will work hard at it.’

Belka says EMU’s problems reflect institutional weakness, cultural differences and, above all, economic imbalances. ‘So what should we do? Shall we join the monetary union as the Latvians want to do? Shall we say never, never? Or shall we use our time efficiently, say we are not going to join now, but not exclude joining EMU as an option? Poland is in the third group. Poland sees itself as a future member of monetary union but we’re not rushing, for many reasons.’

‘We don’t think we’re well-prepared. We thought we were quite well-prepared five years ago, seven years ago. We have now learned our lesson. We are looking at countries which we thought were quite fit and which felt fit, and which turned out not to be. And we have to be certain that this is a sustainable construct. We would not join something which we are not 100% certain would survive.’

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