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Poland's Reluctance to Join the Eurozone

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Poland's Reluctance to Join the Eurozone 1 % POLICY PAPER Poland’s reluctance to join the Eurozone: why the vision of development matters Sebastian Płóciennik § Among explanations why Poland does not fulfill its obligation to join the eurozone, more attention should be devoted to the orientation of Polish capitalism, which is now in the middle of difficult transition from the model of competitiveness based on low-cost labor to competitiveness based on innovations. In recent years, the very content of this systemic change has been a rising role of the state in the economy and a more ambitious social agenda. They both can be at odds with a fast track towards the euro. 2 % Introduction monetary union might have come from the expert discussion on whether the benefits of monetary integration will be as high as promised and costs lower than feared.3 It Despite the obligation to join the eurozone, expressed is difficult to create a convincing pro-euro political narrative in the 2004 EU accession treaty, Poland remains today quite from the sophisticated exchange of arguments, including far away from adopting the common currency. It is not only the lower risk of speculation, transaction costs, risk of an issue of unfulfilled criteria for joining, but also of the higher inflation, threat of asymmetric shocks, advantages of society that perceives this step of deeper integration with monetary autonomy, etc., when what really breaks through reluctance. The polls conducted in recent years showed a to the audience is the potential problem of higher prices. prevalence of thinking that euro-membership would have more negative than positive consequences for the country This text aims at exploring a less conspicuous, but 1 (Figure 1) , and the political scene reflects this conviction. nonetheless intriguing perspective: that there might be a The government of the United Right (Zjednoczona Prawica, connection between the rejection of the monetary 2 further ZP) rejecting EMU membership and the opposition, integration and the vision of development preferred by the although supporting membership in the EMU, treats the current government. In recent years, Poland has gone issue as a secondary one because it hardly brings new through a vivid discussion on how to move from the post- proponents among voters. transition economic system which has advantages in low costs of production, to a more mature one with the ability There are many reasons which can explain this wide- to produce innovations. The answer of the current spread skepticism. One of them is undoubtedly a bad image government is the “competitive social market economy”4, of the eurozone that emerged from pictures of chaotic with two distinct components of increased state influence circumstances in Greece during the crisis and the continued on the economy and rising social expenditures. I argue here media broadcasting of the weaknesses of the euro. This that adoption of the euro seems to be an institutional perception has also been strengthened by the contrast obstacle for the implementation of this strategy. between the depressing news from the monetary union and the good performance of the Polish economy in the years This text is designed as follows. It starts with after 2009 (see Figure 2). In the face of decreasing rates of introductory remarks on the challenge of competitiveness unemployment and rising incomes, Poles have not yet seen and its connection with forms of capitalist systems. The next evident reasons to join an organization associated with point is devoted to the Polish perspective on these questions. economic stagnation. This factor overlapped with the deeply It explains the logic behind the Polish government’s rooted rejection of the ruling elites towards the ideas of an economic decisions aimed at moving to a more advanced “ever closer union”. For them, a more appropriate way to and competitive form of capitalism. The next part of the strengthen Europe is to roll back competences to member analysis shows how a possible adoption of the euro interacts state level. This sovereignty bias has clearly been at odds with these goals and methods. with the idea of a common currency. The last decisive contribution in favour of the cautious approach towards the 1 “Introduction of the euro in the Member States that have Insight, 2019, not yet adopted the common currency,” Flash Eurobarometer, no. https://www.google.com/search?q=polityka+insight+koszt+polsk 465 (2018). a+bez+euro&oq=polityka+insight+koszt+polska+bez+euro&aqs 2 “Kaczyński: Przyjęcie euro w tej chwili szkodliwe dla =chrome.69i57j33.10213j0j4&sourceid=chrome&ie=UTF-8, polskich kieszeni,” Rzeczpospolita, April 25, 2019. accessed May 2019. 3 Stefan Kawalec and Ernest Pytlarczyk, Paradoks Euro: Jak 4 Piotr Arak and Anna Wójcik, “Polski kapitalizm: Jaki model wyjść z pułapki wspólnej waluty?, 1st ed. (Warszawa: kapitalizmu realizujemy?,” Polityka Insight, 2016, Wydawnictwo Poltext, 2016); Adam Czerniak and Agnieszka https://www.politykainsight.pl/_resource/multimedium/20104895, Smoleńska, “Polska bez euro. Bilans kosztów i korzyści,” Polityka accessed December 2018. 3 % 1. Do You Think the Introduction of the Euro Would Have Positive or Negative Consequences for Poland? Responses in Percent, in Poland, 2009-2018. 70 59 60 58 58 58 55 55 53 54 54 52 52 52 52 48 49 50 46 47 47 44 45 43 4243 43 41 40 39 38 39 39 40 37 36 37 36 36 37 33 32 29 30 28 20 09/2004 04/2006 04/2007 05/2008 09/2009 09/2010 11/2011 04/2013 04/2015 04/2017 Total positive consequences Total negative consequences Source: Eurobarometer 2. Real GDP – growth and total unemployment rate in percent, Poland and the Euro – Area (changing composition), 2007-2018. 13,5 12, 11,6 11,4 10,9 10,2 10,2 10,3 9,6 9,6 9,7 9,7 10,1 10, 9, 9,1 9, 8,1 8,2 7,5 7,67,1 7,5 6,2 4,9 4,5 3,9 0, -4,5 -9, 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Unemployment (Euro area) Unemployment (Poland) GDP growth (Euro area) GDP growth (Poland) Source: Eurostat 4 % undertake productive actions and avoid the unproductive Model of competitiveness and ones. development “Good” institutions do not mean the same scheme or Competitiveness is – according to the World Economic pattern and they do not also lead to one and the same type Forum - “the set of institutions, policies and factors that of innovations. The literature on varieties of capitalism6 5 determine the level of productivity of a country”. On the distinguishes between radical innovations, which means most general level, these institutions can translate into two disruptive, new technologies, and incremental innovations, methods of “being competitive”. The first one is based on which are based on mature technologies and aim at refining the level of price: the winner is the economy able to produce quality of products. The first, “radical” type works better in goods cheaper than others and can crowd competitors out “liberal market economies” (LME) with institutions forcing of the market. The second method is through the coordination via free market and short-term oriented, uniqueness: the winner produces goods which cannot be dynamic adjustments. For incremental innovations, a more substituted and delivered by others. Among such goods that appropriate solution is non-market coordination through e.g. fall into this category can be rare resources, but the focus communities, organizations, etc. which prop up long-term here is rather on products based on innovations. investment, patient capital, and the formation of narrow, specialized skills. It is called a coordinated market economy Certainly, the most desired and promising way is (CME). There can be obviously mixed approaches of these “uniqueness” through innovations. The success of a low- models, e.g. a state-led market economy (SME), in which cost profile cannot be treated as something sustainable on the government is the force trying to emulate or replace the long term. Market forces usually “punish” winners with market forces and boost innovations. rising prices and wages emerging as the effect of positive trade balance, thus diminishing the advantage towards Poland’s challenge of competitiveness other price-oriented competitors. The only reaction to this process can be slashing costs further through economic The economic development of Poland in recent policies which rarely go hand in hand with better social decades is associated with the low-cost type of standards. In contrast, competitiveness based on competitiveness. Its strength – derived from the neoliberal innovations allows for the rise of costs and to still be transformation - is the manufacturing of semi-advanced competitive in a more restrained market. industrial goods which are exposed to sensitive price The focal question remains, however, how to achieve competition by other actors. The other side of the coin is an economic system that is able to deliver innovations. the low level of innovations highlighted for example by the According to the definition mentioned above, what is recent report of t heWorld Economic Forum.7 needed are proper, “good” institutions (rules of the game) This path has been a matter of discussion for years, and – regarding their effect - incentives for companies to present for example in the discussions on the so-called middle-income trap8: a concept predicting a dire future for 5 Oliver Cann, “What exactly is economic competitiveness?” contradictions, and complementarities in the European economy World Economic Forum, 2017, (Oxford: Oxford Univ. Press, 2010). https://www.weforum.org/agenda/2017/09/what-is-economic- 7 World Economic Forum, “The Global Competitiveness competitiveness/, accessed February 2019. Report 2018: Economy Profiles: Poland,” 2018, 6 Peter A. Hall and David Soskice, eds., Varieties of http://reports.weforum.org/global-competitiveness-report- capitalism. The institutional foundation of comparative advantage 2018/country-economy-profiles/#economy=POL, accessed (Oxford University Press, 2001); Bruno Amable, The diversity of December 2018.
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