When I lived in Poland in the mid-1980s, I was once given a one-zloty coin for Christmas. This was no ordinary one-zloty coin, however. It was stamped on one side with an image of the Lenin shipyard in Gdansk, the birthplace of the Solidarity independent trade union. Poland’s Communist authorities had suppressed Solidarity under martial law in December 1981. Underground Solidarity activists used to take away the coins, stamp them with the shipyard’s image and then put them back into circulation as a way of reminding Poles that the movement had not disappeared altogether.
Today Poland’s government is keen to switch from the zloty to the euro. Like other governments in the region, it sees early eurozone entry as a way of protecting its economy against the world financial crisis. Poland envies Slovenia and Slovakia, which qualified for eurozone membership ahead of other new European Union member-states. They are now reaping the rewards of belonging to a large and – whatever the tensions generated by the financial crisis – broadly stable single currency bloc.
The question is whether Poland would be taking too big a gamble by aiming for quick eurozone entry. Under EU rules, a candidate member must spend at least two years in the so-called ERM-2 exchange rate mechanism, ensuring the stability of its currency, before it can adopt the euro. At their summit in Brussels on Sunday, some EU leaders indicated they were open to the idea of shortening the two-year preparation period. But they took no decision, and it is far from clear that the European Central Bank would favour such a step.
The zloty has lost about a third of its value against the euro since last July, part of a much wider picture of exchange rate turbulence in central and eastern Europe in recent months. Perhaps joining the ERM-2 would deter speculators from betting against the zloty. Or perhaps Poland would suffer the fate of Britain in 1992, when the pound was ejected from the first ERM. With so many Polish companies and households having borrowed in euros, another run on the zloty could trigger a disastrous debt emergency.
In the end, Poland would survive in the ERM-2 if financial markets judged that its economy was fundamentally healthy and competitive. But a lot would depend on what band was set for the euro-zloty exchange rate. Part of Britain’s problem in the early 1990s was that the pound’s rate against the German mark was unrealistically high. In any case, the words of Miroslaw Gronicki, a former Polish finance minister, are worth bearing in mind: ”It’s an axiom that you don’t switch to a less flexible currency regime in a crisis.”
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