Polish Euro Adoption `Isn't on Agenda' Amid Debt Crisis, Tusk Adviser Says
“Euro adoption isn’t on the agenda at the moment,” Bielecki, a former prime minister and ex-chief executive officer of the country’s second-largest lender Bank Pekao SA, said in an interview on Nov. 29. “It’s unrealistic to talk about euro accession in the current situation in the euro zone anyway.”
Estonia on Jan. 1 will become the third east European country after Slovenia and Slovakia to adopt the euro. The region’s two biggest economies, which also agreed to work toward switching currencies when they joined the European Union in 2004, are growing more reluctant to join the euro area after the 27-nation bloc’s bailouts of Greece and Ireland.
Czech Prime Minister Petr Necas on Dec. 6 said joining the euro region now would be “economic foolishness.” Polish public opposition to euro adoption rose to 47 percent in June from 43 percent a year earlier, while support for the switchover fell to 38 percent from 43 percent, according to a Finance Ministry poll released on Sept. 9.
Poland abandoned its 2012 euro adoption target last year after it became clear it would miss the fiscal conditions for eligibility. Prime Minister Tusk on July 30 said 2015 is a realistic date, without setting an official target.
To drop the zloty, Poland would have to go through at least two years of testing the currency’s stability in a trading band as well as narrowing its budget deficit and curbing public debt.
The fiscal shortfall in Poland, which was the only one of the EU’s 27 member states to avoid a recession in 2009, soared last year to 7.2 percent of gross domestic product. The deficit will widen to 7.9 percent this year, compared with the EU limit of 3 percent, the European Commission said last month. Public debt will rise to 55.4 percent of GDP this year, according to the Finance Ministry.
Poland needs to readjust its pension system to reach the EU’s deficit and debt criteria, Bielecki said. Over the past decade, the country had shifted employee pension contributions to private funds from the state-run system to prevent payout obligations from swelling spending as the population ages.
While these changes cut the demographic risks to Poland’s public finances to the lowest among the EU’s 27 members, according to a report for the European Commission, their immediate impact is to widen the budget deficit by 2.4 percentage points of GDP per year, Finance Minister Jacek Rostowski said on Sept. 30.
EU finance ministers yesterday refused to offer guarantees that the short-term increase in government outlays would be deducted from Poland’s debt. Instead, they pledged a case-by- case assessment of compliance with the debt target of 60 percent of GDP.
The Commission in Brussels in October rejected a request by nine EU member states, including Poland, to take into account the full cost of the private-pension plans when calculating debt and deficit. Hungary in response suspended contributions to the funds and is directing the savings to the budget. Bulgaria may also transfer some private accounts to the state.
Polish Prime Minister Tusk yesterday said the country “doesn’t want to follow” Hungary. The government is considering six scenarios to overhaul pensions, Bielecki said.
“The pension reform is where the big numbers are,” he said, adding that Poland’s borrowing needs could be reduced by almost 30 percent in 2011 by halting some transfers to the funds.
“Since this is uncharted territory, it would be better to reduce the amount that’s paid into the pension funds, see what happens over a number of years, and then gradually increase it,” Bielecki said.
An alternative is to introduce a pension bond that would comprise 4.3 percentage points of the 7.3 percent levy on payrolls sent to private funds, Bielecki said. Funds would continue to get the remaining 3 percentage points in cash.
The non-tradeable pension bonds shouldn’t count as debt, Bielecki said, which would mean the 4.3 percent contribution would not show up on the government’s balance sheet.
Backing a proposal to allow the private pension funds to invest as much as 75 percent of their assets in shares would be like “playing in a casino” and may create an asset bubble, he said.
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