Poland and Its Contribution to Eu

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  • Topic: European Union, Foreign exchange market, Monetary policy
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  • Published : February 21, 2013
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Should Poland adopt the Euro?|
Eunice Deeptha Mudialba|
MBA 1st year, SIBM-PUNE|

EXECUTIVE SUMMARY
The euro is like an old Catholic wedding: like it or not, happy or not, you are married forever. But fortunately, you know the bride in advance. You know what it takes and what it needs to live with her and make sure your union is a happy one“, said Mr. Joaquin Almunia, EU monetary affairs commissioner, at the Vilnius conference in October 2006. Although Poland has one of the strongest economies in the EU – the country’s central bank predicts growth of 3.2 per cent in 2012, faster than just about everywhere else in the EU, its long term goal should be to join the common currency. The European Union is faced with growing doubts over the ability of the political process to achieve a necessary consensus regarding medium-term fiscal adjustment, which is critically important for global stability. As political leaders in these advanced economies have not yet commanded broad political support for sufficiently strengthening macro-financial stability and for implementing growth-enhancing reforms, markets have begun to question their ability to take much needed action.

As an Emerging market Poland must limit the buildup of financial imbalances while laying the foundations of a more robust financial framework .Eurozone incumbents know very well that if countries embrace the common currency too early they are a potential source of instability. Poland is often compared to a small boat on a large ocean. In the event of a large storm, quick maneuvers thanks to a floating exchange rate will mean little. In contrast to the UK, Poland is not proud of not being a member of the Eurozone. The success of the euro project and the strengthening of economic governance in the common currency lies in Poland’s historical interest. In the end, Poland wants to swiftly join a strengthened Eurozone so as not to be left alone on the ocean.

INTRODUCTION
Although Poland's economy is considerably smaller than those of EU powerhouse , Germany and France, what it lacks in size, it makes up in growth. This year Warsaw expects to see output expand by 3.8 percent compared to the 1.6 percent average for the mostly richer 17-member Eurozone, according to International Monetary Fund (IMF) estimates. The largest of 10 ex-communist states to have joined the EU, 38-million strong Poland distinguished itself by scoring 1.7 percent output growth in 2009, and so become the only member of the 27-state bloc to avoid sliding into recession amid the global crisis. Although Poland does not have the euro, its economic future is closely tied to the success of the common currency. Sixty per cent of Polish exports go to the Eurozone. Let us explore how the relationship between Poland and the Eurozone is on the Economic, political, legal and social levels.

ECONOMIC APPROACHES

Economists have approached the question of currency unification largely through the lens of economic costs and benefits. The benefits are intuitive: if there is substantial trade and investment activity across an area, a single currency should ease economic interactions by eliminating the transaction costs of doing business in many currencies and eliminating the risks associated with fluctuating currencies

So, What are Potential costs of joining the euro zone ?
The risk of a procyclical influence of the EBC monetary policy

The possible costs of joining the euro zone are related mainly to the risk that the ECB monetary policy may exert a pro-cyclical influence on the economies of the EMU member countries. If business cycles within a monetary union are not sufficiently synchronized, the differences in expected rates of inflation may produce differences in the real level of interest rates. This may, in turn, produce a pro-cyclical influence of the common monetary policy on the economies of the monetary union.

The ECB monetary policy turned out to be pro-cyclical in some member...
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