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The Warsaw Voice » Business » October 22, 2008
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Keeping a Lid on the Crisis
October 22, 2008 By Andrzej Ratajczyk   
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Polish banks have so far survived the global financial crisis unscathed, but the Warsaw Stock Exchange suffered one of the worst weeks in its history and the zloty has nose-dived.

In spite of the turbulence on international financial markets, the Polish economy is doing well and there are no threats to the country's financial stability, according to government officials here. "Compared with other developed countries in Europe and the world, Poland is an island of stability," said Prime Minister Donald Tusk Oct. 13. He added, however, that "this does not mean there are no reasons to make preparations or take precautions and decisions to protect the country's banking system and all people in Poland from the consequences of a possible crisis."

Finance minister Jacek Rostowski said Poland was one of the countries best prepared for the crisis in Europe. "The Polish economy is doing better than other European economies," Rostowski told the parliament last week during a debate on the budget bill. "The West needs fast economic growth, the new EU members lack macroeconomic stability, and our eastern neighbors lack respect for investors' rights."

Rostowski conceded that, due to turmoil on global markets, Poland's economic growth next year might be below the 4.8-percent target set in the budget bill. As a result, he said, the government may be forced to revise the revenue and expenditure targets.

It is impossible to foresee the exact impact of the global crisis on the Polish economy, Rostowski said, but added that it was still too early for any definite changes to the budget bill.

The latest financial crisis, which originated in the United States, has already hit several banks and financial institutions in Europe. In order to prevent further bankruptcies, EU governments have decided to take joint action, and the euro-zone leaders held a summit in Paris Oct. 12. At the summit they agreed on a joint action plan under which each country is obligated to take shares in troubled banks, guarantee interbank loans in a bid to "unblock the credit market," buy corporate debt, and "do anything it takes" to restore confidence in the financial sector.

The financial crisis was also discussed at an EU summit in Brussels Oct. 15-16. At the close of the first day, French President Nicolas Sarkozy said that the bloc was determined to respond to the global financial crisis not only by taking emergency measures but also by "initiating the reconstruction of the global financial system."

All EU members agreed to hold an international conference by the year's end to work out new rules for the global financial system. "We are determined to go further. The reconstruction effort has to be global in scope," Sarkozy said. "We will present an ambitious, common vision. We want to draw conclusions from the crisis. We do not want it to happen again."

According to Sarkozy, the point is to coordinate activities not only within the euro zone or the EU, but on a global scale, including the United States, from where the crisis spread to Europe. Sarkozy called for measures to strengthen supervision over cross-border financial institutions.

One concrete measure already taken is the European Commission's proposal that all banking deposits of up to 50,000 euros should be guaranteed across the EU. The guaranteed amount would be raised to 100,000 euros by the end of 2009. The European commission also recommended that money should be paid back to clients of insolvent banks within three days, instead of up to nine months as is the case now. Poland has already introduced deposit guarantees of up to 50,000 euros, or zl.175,000.

Sławomir Skrzypek, head of Poland's central bank, said the country's banking system was safe, but confidence on the interbank market needed to be strengthened. "The fundamentals of the Polish economy are very strong, but the National Bank of Poland is monitoring market developments and getting ready to take action if necessary to keep our banking system safe," he said. "This safety depends first of all on confidence, and this is why I want to stress again that the condition of Polish banks is good and stable."

The Polish authorities have approved a confidence package, or a set of measures designed to smooth the operation of the country's banking system.

The package focuses on making sure that banks have access to zloty-denominated loans for periods longer than one day as well as access to loans denominated in foreign currencies. Another goal is to make it easier for banks to increase their liquidity. The measures will help prevent problems that banks could have with access to money, Skrzypek said. He added, however, that no such danger existed for the time being.

Polish banking officials praised the confidence package. Krzysztof Pietraszkiewicz, head of the Association of Polish Banks, said the package was a good move though it was too early to predict just how effective it would be.

The strong foundations of the Polish economy and the stability of the country's banking system have not prevented the local stock market from slumping. Analysts say the second week of October was one of the worst weeks in the 17-year history of the Warsaw Stock Exchange. Its WIG20 blue-chip index lost 15.3 percent over the week in what was the market's sharpest weekly decline since April 1994. The global financial crisis has also affected the zloty, which has lost more than 10 percent to the euro and around 20 percent to the dollar over the past month.
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