EU Must Stop ‘Theatrics’ to Forge Fiscal Union, Polish Economy Chief Says
European leaders must cease their “theatrics” and avoid curbing economic growth in forging a closer fiscal union to overcome the region’s debt crisis, Polish Deputy Prime Minister Waldemar Pawlak said.
The European Union shouldn’t apply “brute force” as it implements new budgetary rules aimed at strengthening fiscal discipline among member, said Pawlak, who is also the economy minister. He blamed ratings companies for the debt crisis.
“Theatrics won’t help us, and EU summits won’t save the euro,” Pawlak said in a Dec. 12 interview in Warsaw. “The mechanisms of closer fiscal integration need to be applied with imagination and not brute force.”
EU leaders reached an agreement to bolster fiscal cooperation and strengthen deficit rules after all-night talks on Dec. 9 amid growing concern that Italy and Spain would succumb to a debt crisis that’s brought Greece to the brink of bankruptcy. All but one of the EU’s member states may sign up to the accord, with the U.K. staying out for fear it may harm the City of London financial district.
Efforts toward a new fiscal accord lack a “comprehensive solution,” increasing pressure on sovereign-debt grades, Fitch Ratings said this week. The yield on Spain’s 10-year benchmark bond rose above the 6 percent level that prompted the European Central Bank to start buying Spanish debt in August. Moody’s Investors Service plans to review all its European ratings.
Rating Company ‘Transparency’
“The euro zone’s problem isn’t the debt of its member states, but the rating companies’ assessments of those countries’ government bonds,” said Pawlak.
Creating a European rating company may be a good idea, Pawlak said, echoing remarks by European Commission President Jose Barroso after Standard & Poor’s, Moody’s and Fitch downgraded euro-area nations including Greece and Portugal.
“If we want to find a solution to the crisis, there’s one vital word we have to use: transparency,” Pawlak added. “This is true of the rating companies as well -- we need to be able to see the reasons for a rating decision, the analysis behind it.”
Yields on Greece’s 10-year bonds have soared to 31.9 percent from 15.7 percent half a year ago, while Italy’s same- maturity papers breached 7 percent this year for the first time since the introduction of the euro.
‘Heads Would Roll’
“There’s too little competition between the rating companies, and what’s more, they aren’t forced to take responsibility for their mistakes,” Pawlak said. “If a company made a mistake like one of the rating agencies did lately in saying that France had lost its AAA rating, heads would roll.”
S&P roiled markets in November by sending out an erroneous message suggesting it had downgraded France’s rating.
The European Union’s largest eastern economy will expand 4 percent next year, Pawlak said, above the 2.5 percent estimate in next year’s draft budget, as a weaker currency fuels exports. The largest of the EU’s eastern states was the only member of the 27-nation bloc to dodge a recession in 2009.
Poland’s central government budget deficit was 53 percent of this year’s limit at the end of November and totaled 21.6 billion zloty ($6.18 billion), Deputy Finance Minister Hanna Majszczyk told reporters today in Warsaw.
“People are always talking about forecasts of future performance,” Pawlak said. “But we should be looking at the state of the economy here and now. It’s very good.”
The advantages of having a free-floating currency mean Poland shouldn’t rush to adopt the euro, according to Pawlak. The Polish currency has lost 13 percent against the euro this year, the fourth-worst performer among more than 20 emerging- market currencies tracked by Bloomberg.
“The weak zloty has been a blessing, it has improved competitiveness, particularly in trade with the euro area, and it also means that the balance of exports to imports has improved,” said Pawlak. “Having our own currency has provided a buffer during the economic slowdown that we’re observing on our own doorstep.”
The central bank has been right to keep the main interest rate unchanged at 4.5 percent in recent months, Pawlak said.
“Current interest-rate levels are pretty much as they should be taking into account the inflation we have, as well as maintaining the currency’s real strength,” he said. “If inflation slows, a change in monetary policy could be considered as an additional tool to support our companies.”
Polish consumer price growth rose 4.8 percent in November, the central statistical office reported yesterday, the fastest rate since May and well above the central bank’s target rate of 2.5 percent.
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