The Eurozone accession dilemma in Poland and other Central European member states: join or not to join?

Author: Elvita Mertins 

Image by Rene Fluger Josef Horazny/Czech News Agency

Poland obliged to adopt the euro when it joined the European Union (EU) in 2004, whereas no
specific deadline was set for its entry into the currency union. Just after the Poland’s accession to the EU there was a strong general support for joining the Eurozone. In fact, the entry to the EU has been an important source of prosperity for Poland. The EU support through European structural and investment funds, free trade and labor mobility, together with security integration, have not only brought positive changes to Poland’s economy but also significantly bettered overall standards of living. However, recent developments within the global financial and the Eurozone crisis in 2008 engendered widespread opposition to the euro among Poland’s political and economic elites but also in the society as a whole. The case of the Greek financial crisis has been recalled as a significant warning, showing the risks and weaknesses of the Eurozone accession. In addition, Brexit, the rise of euroscepticism and various political tensions within the EU, have caused great doubts and hesitations to introduce the euro in the country. In fact, the adoption of the euro became seen as a source of economic instability, and until now Poland has been strongly avoiding any declaration about joining the Eurozone in the foreseeable future, despite fulfilling the Maastricht criteria. The most common position of why Poland should not introduce euro among Poland’s political leaders is the floating exchange rate that helped them in regaining growth during and after the crisis in 2008. Indeed, monetary policy helped the country overcome the financial crisis, as a result Poland is strongly against to enter the fixed exchange rate mechanism. A flexible exchange rate helped Poland avoid a similar build-up of imbalances ahead of the crises, in contrast to the countries in the Eurozone. Poland’s economy has grown during and after the crisis, and there is a general conviction that Poland’s economic growth and competitiveness will slow down inside the Eurozone. Since, the stability of the Eurozone itself was and still is in question, and the country’s flexible exchange rate have proved to be beneficial in its recent economic performance – Poland is determined to stay outside the euro area with no near future obligation to adopt the common currency. In the short-time perspective, the abovementioned arguments against the Eurozone accession, in fact, may have some logic reasoning, but in the long-term perspective it will have the exactly opposite effect. Poland’s decision to stay with its national currency will run the risk of becoming both politically and economically alienated and marginalized within the EU. If the Eurozone’s integration policy fails and the EU splits into the two blocks, namely non-Eurozone member states and the Eurozone countries, there is a great probability that the Eurozone countries will have more political weight and a real impact on the most important economic and political decisions. Therefore, the non-Eurozone countries are at risk of being marginalized and become the periphery of the EU as long they it do not start implementing a viable plan of euro adoption. Poland is not the only the Central European member-state agitating against the accession to the monetary union. Hungary and Czech Republic also have the strong doubts whether to join or not the common currency. All these three post-Soviet countries provide the similar arguments why joining the Eurozone would clearly be not beneficial. One may say, that staying with the national currency is not a catastrophe. For example, Sweden is a member state which enjoys the benefits of its own currency as well as sound economic situation. Nevertheless, the Czech, Poland, and Hungary economies strongly differ from the Swedish economy. Sweden has a well-developed economy, with a low and stable inflation and a healthy banking system. Due to its high political and social standards, the country is considered as one of the greatest place for making business. Countries like Poland, however, have been dealing with a big variety of social and economic problems, political instability and uncertainty are still taking place. Considering all this, if Sweden’s economy can function well staying outside ‘the euro monetary club’, it is highly unlikely (at least in the long-term perspective) Poland and other post-Soviet countries can run their economies with its national currency so effectively and efficiently as Sweden does. In this context, the euro would work as a confidence booster that could help to convince international investors of political and economic stability of the countries. All in all, if Poland and other post-Soviet member states want to ensure their economic and social stability, the adaptation of euro is crucial, since long-term benefits greatly outweigh the short-term risks and costs.

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