As Budapest passes the baton of the European Presidency to Warsaw, problems within the European Union and the eurozone continue to mount. Yet as Poland embarks on this historic task, it should be pointing out the relative success of its own economic policy, in contrast to that being purveyed from Brussels.
With PM Donald Tusk facing parliamentary elections later this year, he never passes the opportunity to remind how Poland has been the only EU country to have avoided falling into an economic recession since the outbreak of the global financial crisis. Whilst some neighbouring countries suffered catastrophic declines, Poland was able to remain the island of green in a sea of red.
After being elected in 2007, Tusk announced that he wished to repeat the Irish ‘economic miracle’. Yet his government has managed to maintain positive economic growth through pursuing policies that are diametrically opposed to those that have led Ireland to the verge of collapse.
The reasons for this are more down to chance than design. Prior to joining the EU interest rates remained in double figures, dampening the credit and housing bubbles that inflated in other countries. As the largest of all the new EU states, Poland could not rely on foreign direct investment for its growth. It therefore did not experience the Asian style financial booms experienced in the smaller ‘financialised’ economies in the Baltics; and also therefore avoided the inevitable collapse once this speculative capital flowed away again. Also – although not for want of trying – the Polish zloty was not pegged to the euro and therefore could devalue by around 25% following the outbreak of the crisis.
The other slice of good fortune for Poland is that as private capital was drying up new sources of public capital were being made available. This came in the form of the large amount of EU money – up to €67bn in structural and cohesion funds – designated to Poland in the EU’s 2007-13 budget. Added to this has been the impetus to begin a large construction programme in the country’s neglected infrastructure, in preparation for the Euro2012 football championships that Poland will jointly host with Ukraine.
This does not mean that all is rosy in the Polish economy. As well as economic growth slowing, unemployment has once again risen well into double figures, with youth unemployment particularly high and Inflation edging above 5%. Most worryingly is that the Polish government is now complying with pressures from the EU to bring down its budget deficit from nearly 8% to 2% by next year.
The Polish government plans to cut public spending, including forcing local governments to reduce their deficits. This could have a catastrophic effect on the Polish economy, as a large proportion of the partly EU funded investment projects have come through local governments. The tightening of the government’s purse strings has begun to have its effect, with a recent audit report showing that there are serious delays in Poland’s preparations for Euro2012.
The European Presidency gives the Polish government the perfect opportunity to promote its own economic model for the whole of the EU. Poland’s relative success shows that the best remedy for Europe’s economic uncertainty is to instigate a programme of public investment. Immediately the Polish Presidency could support a proposal to use the money designated to protecting the European banks exposed to the Greek crisis, into a programme of investment in the Greek economy itself. Also, negotiations are due to start over the next EU budget – which will run from 2014 to 2020. Already some of the EU’s richest states – most notably the UK – are seeking to reduce the size of this budget and impose more austerity throughout the EU. Poland should use its own example of growth to convince the EU that a programme of investment would boost the European economy and promote cohesion between the member states. Unfortunately, it seems that the Polish government is beginning to listen more to the advice of Brussels rather than learning the lessons from its own success.