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The Warsaw Voice » Business » October 8, 2008
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Not So Fast With Euro, Analyst Warns
October 8, 2008 By A.R.    
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Polish Prime Minister Donald Tusk's recent declaration that Poland would strive to join the 13 nations using the single European currency, the euro, in 2011 may be difficult to carry out and risky, according to Michał Dybuła, chief economist at the Polish branch of international investment bank BNP Paribas.

Adopting the euro before completing structural reforms may drive up inflation, said Dybuła, adding that the Polish economy is not yet ready to enter the euro zone.

Poland's GDP per capita is still too low and the labor market is inflexible, Dybuła said. Moreover, there has been insufficient investment in the energy sector and the country's industrial infrastructure is inefficient.

Joining the euro zone does not guarantee faster economic growth, as exemplified by Portugal and Italy, Dybuła added.

"It would be worthwhile to wait until Poland's GDP per capita, in purchasing power parity terms, and the relative price level account for at least 75-80 percent of the euro zone average," Dybuła said. "With a reasonable economic policy ensuring a situation in which Poland's economy would be growing at a rate 3 percentage points faster than euro-zone economies, Poland might be able to achieve that goal in 10 years, which means in 2018."

According to Dybuła, if Poland adopts the euro too early, its consumer price index may soar. This is because prices in Poland are just 60 percent of the average level in the EU, and wages here only 50 percent of the EU average. While these differences will tend to level out after Poland adopts the euro, Dybuła said, this will likely lead to a major rise in inflation because the country will no longer be able to pursue its own monetary policy.

Regardless of its euro aspirations, Poland is in for an economic slowdown next year, Dybuła says, with its GDP growing no more than 3.7 percent, followed by 4.4 percent growth in 2010.
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