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The Warsaw Voice » Special Sections » August 2, 2010
Education: MBA Studies
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Fiscal Policy Must be Tightered
August 2, 2010   
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The economic situation in Europe and across the world is changing rapidly. It seems that the world is slowly coming out of the crisis, but the process is not taking place evenly.

n Economic conditions are improving in the United States and Japan. China is growing at a very fast rate of close to 12 percent. The eurozone is also showing some signs of recovery, as indicated by recent GDP growth, although growth is slow, at around 0.2 percent.

On the other hand, eurozone countries are facing mounting problems associated with significant public finance imbalances in the PIIGS countries – Portugal, Ireland, Italy, Greece and Spain. Recently, Portugal became the second country after Greece to have its ratings cut by rating agencies.

In this situation, the European Financial Stability Facility adopted in the eurozone and to be launched in late July should be seen in a positive light. The facility is worth 750 billion euros, of which 60 billion is guaranteed by the EU, 440 billion euros has been committed by eurozone members, including voluntary contributions from Poland and Sweden, with the remaining 250 billion euros coming from the International Monetary Fund (IMF). It is not easy to launch this program, as indicated by resistance from Slovakia, which is supposed to contribute around 4.5 billion euros to support richer countries—for example, per-capita income in Slovakia is 25 percent lower than in Greece.

The IMF is also putting strong pressure on Hungary to tighten its fiscal policy and reduce its deficit to 3.8 percent this year and below 3 percent next year, which is very difficult. Otherwise, Hungary will not gain access to an assistance package of 20 billion euros. Romania and Ukraine have also asked for IMF assistance.

Compared with Central and Eastern European countries, the situation in Poland looks very good because of the country’s economic growth prospects. It is estimated in some forecasts that Poland’s economic growth rate will reach around 3.5 percent this year. And the central bank’s June projection puts next year’s economic growth rate at over 4 percent, with internal demand expected to be the main driving force behind the economy. The contribution of exports to GDP growth will diminish because of uncertainty in the eurozone. This, however, may be offset by a rise in investment spending on projects associated with the UEFA Euro 2012 soccer tournament and projects which have to be carried out to remove damage to infrastructure caused by this year’s floods.

In order to sustain Poland’s growth prospects, it is important that government plans to tighten fiscal policy are carried out. An important part is the reform of the old-age and disability pension system. Proposals to extend the retirement age, either for women or for all working people, should be welcomed on condition that such measures are voluntary. Changes to the social model, with elderly people taking an active part in working life, are conducive to this, as is a lifelong learning system. An important part of this system are so-called universities of the third age. The University of Economics in Katowice also provides university-of-third-age courses.

Prof. Eugeniusz Gatnar, Department of Statistics, University of Economics in Katowice;Member of the Board, National Bank of Poland
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