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This debate was realised in partnership with Duel Amical, a student organisation from Sciences Po, organising debates on European affairs.
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The Eurozone – undisputed opportunity or the Big Unknown
The integration itself is not a bad thing. Considering all its aspects, from the economic point of view the European Union is one of the strongest organisations in the world. It is worth being part of the countries forming this group, integrated as well economically as financially.
During the last few years, the idea of a two-speed Europe appeared from a dissymmetrical development of the EU countries and their structural and institutional dissolution. We can observe now a serious economic imbalance and a political fight in Europe. Is there something we can do to break this deadlock? Does it still make sense for Poland to join the Eurozone?
From our point of view, more integration is not a bad thing itself. Considering all its aspects, from the economic point of view the European Union is one of the strongest organisations in the world. In order to avoid as fast as possible market turbulences linked to the monetary crises, being a member of the Eurozone can be worth the effort.
A reintroduction of national currencies?
The indifference in which the EU has found itself now can be a starting point of a serious crisis, leading to a dissolution of the community and a reintroduction of national currencies. Central Europe countries are regularly in conflict with European institutions to defend their vital interests. This might end by making the EU, and by consequence, the Eurozone, implode.
What about Poland then?
The Polish economy got out safe and sound during the financial crisis in 2008. At first sight we might think that adopting the common currency is advantageous and is in everyone’s best interest, as it minimises risks linked with currencies exchanges and as it improves image and credibility of a country. But fulfilling these necessary criteria and managing to implement the euro is something that works only in theory. In practice, governments have their own agendas: they need to answer expectations of their electorates, which does not necessarily match with a sustainable and stable development. The current government by Law & Justice party increases social expenses, which increases consumption. But on the other hand these policies affect the public debt and deepen the budgetary deficit. The pressure put on trying to always fulfill the Eurozone criteria can be a demotivating factor for different governments. In the current economic environment it might be impossible to meet economic and legal conditions.
Let’s think about perspective
The strategic vision, the one where we all want to be in a few years, is very important. We must have a long term development policy. A strong Poland, being an innovative, regional leader and developing services with its industry, can be a valuable partner for the EU. Poland has the possibility to become a development driver and a guarantee of stabilisation of the Eurozone, without which there is no unique currency zone.
We know that Poland is not alone in the globalised world, and for that we implement good solutions creating space for investment. We also need to focus on creating a socio-economic identity based on Stated cooperation, trade and research. This protects our vision of development model inside the EU. A further integration, which will in the end lead to an integration with a common currency, cannot result in a loss of national sovereignty. Loss of sovereignty would be a violation of the international law and would be contrary to the ideas on witch the EU was founded.
The strength is in the group
In conclusion, it would be best to join the Eurozone. The potential benefits prevail on the costs. The risk of fluctuations of currency exchange rates would disappear for the growing Polish economy. Polish firms would develop faster and the economy would stabilise. Moreover, we would become a member of an elitist club of nations, integrated as well financially as economically.
Joining the Euro: not until we know what we are getting into
The benefits of joining the Eurozone are in the best case hypothetical and ambiguous. Its dangers are real and well-known. It would be wise not to jump in a train before being certain that not only it goes in the good direction, but it will reach its destination.
For now, Poland profits from the best of the two possibilities: as member of the EU’s single market, Poland enjoys the benefits of the European economy, and avoids the risk of being drawn downwards in case the Eurozone becomes subject of new shocks. Being a part of the Eurozone is an investment – we would sacrifice a part of our economic strength in exchange of a vague promise of a little bit more political power. This would have been a risky bet even if the Eurozone foundations were completely healthy. Unfortunately, we have no reason to think that they are.
Inappropriate economic conditions
Robert Alexander Mundell, known as “the euro’s father”, was a pioneer of the “Optimum currency area” theory, which is the founding idea of the Eurozone. According to this theory, if a region has certain characteristics, a unique currency would maximize its economic efficiency. There are four main criteria to create a successful monetary union: (1) labour mobility across the region, (2) capital mobility and price and wage flexibility across the region, (3) A risk sharing system such as an automatic fiscal transfer mechanism to redistribute money to areas/sectors which have been adversely affected by the first two characteristics, (4) Participant countries have similar business cycles.
Undesirable political conditions
Of course, everyone does not agree with Mundell’s theory implications. Some state that problems of certain nations are only a by-product of their own inability, dissipation or even laziness. They claim that as long as the budgetary discipline is maintained and inflation is harnessed, we will have nothing to worry about, and that everything will be fine. Let’s suppose it’s true and that Germany owe their growth in the EU only to their national virtues, and if we imitate them, we would have nothing to worry about after joining the Eurozone. This would mean that when a new crisis would arrive, we would have to pay the debts of these careless southerners, alongside with the other thrifty nations, which are the Northern countries. The only problem then is that the northern nations tend to be the owners of the banks towards which southern countries are indebted, so they pay themselves and have little motivation to change this pathological situation.
The Eurozone politicians are not unaware of these traps. More and more of them share their critiques, particularly pointing that austerity policies, forced on countries like Greece, are rather harmful than beneficial and aggravate economic imbalances between the North and the South. They support the idea that fiscal transfers between the Eurozone members with strong economies and the members facing serious problems would help stabilizing the situation. Will they? We would have to wait for some time to find out. Germany has the most to say regarding a reform of the Eurozone, and is notably skeptical to fiscal transfers. German politicians would be in trouble while explaining this new direction to their voters, who are still convinced that they should not subsidize “less industrious and frugal” southerners. If the last elections to Bundestag are an indicator, euroscepticism is not ready to lose its grip over the Rhine soon.