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The Warsaw Voice » Business » August 29, 2012
Business & Economy
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The Polish Economy is in Good Hands
August 29, 2012   
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Former Prime Minister Jan Krzysztof Bielecki, now chairman of Prime Minister Donald Tusk’s Economic Council, talks to Andrzej Jonas and Andrzej Ratajczyk.

How do you assess the current situation in Europe? Will the problems besetting the eurozone hit the Polish economy?
If we listened carefully to the ongoing debate on the crisis situation in Europe, we could get the impression that it shows some symptoms of schizophrenia (dissociative identity disorder). People connected with the financial world, or more broadly with business, look at this situation differently than people from the world of politics. For those from the world of finance, the current situation in Europe seems to be very complicated, but they also see specific technical measures that could help solve the economic problems. However, the situation gets complicated when it comes into contact with the world of politics. As we know, political decisions are not made quickly and efficiently. As a result, we are dealing with a situation where, on the one hand, there are obvious economic challenges, but, on the other hand, there is no political will to solve them in a radical way. And the situation is serious. If half the eurozone countries are in recession, if we are dealing with another dangerous slowdown in industry, if Germany and France are strongly limiting lending in the eurozone, then we can talk about a certain economic slump in Western Europe. Considering that this is Poland’s basic market then this situation is bound to have some negative impact on our economy.

The way you see it, what are the causes of the current crisis in the eurozone?
After the eurozone was established, the financial sector discovered that some new opportunities for cooperation and development emerged in Europe. The result was credit expansion, mainly in the German and French financial sectors, targeted at newer member countries: Spain, Portugal, Greece and Italy. The scope of this expansion is illustrated by the fact that lending soared from around 50 billion euros to 500 billion euros just before the crisis. Such a high increase was possible because the general view was that the eurozone was a genuinely common zone free from banking risks. Today we are dealing with a completely different situation. Lending has been reduced by almost half. This is not an easy situation for eurozone countries. On the one hand, they are being encouraged to apply austerity and belt-tightening measures; on the other, no fresh capital is flowing into their economies, and credit is even being withdrawn.

Do you think that Europe’s economic elites know what needs to be done to overcome the crisis?
It seems to me that not only Europe but also the U.S. is having a problem finding a cure for the crisis. You can see that everybody is looking for some method, but it’s not that simple. The root cause of all the misery is a profound imbalance and until a new balance emerges with time, we will continue to deal with various kinds of economic upheavals.

How do you think the economic situation in Poland will evolve over the next year or so?
The economic slowdown in the eurozone, which has also strongly affected the Chinese economy and to a lesser extent the U.S. economy, is the most serious since 2009. And even the German economy, which until recently was the key driving force behind economic growth in Europe, is slowing down (Germany’s GDP growth will probably fall below 1 percent). This is bound to influence Poland, which ships more than 60 percent of its export-oriented production to EU markets. At the same time, we cannot be certain that lending will not be limited on the Polish market in the same way as in some southern European countries. Such a trend already occurred in Poland in 2009, when practically speaking only Bank PKO BP and cooperative banks increased lending. For the time being, a similar trend is not yet visible, but we don’t know what will happen in the future.

I think that in Poland we cannot be guided by only one acceptable scenario. The situation is so complex and the reactions of the eurozone are so difficult to predict that we must be prepared for different variants. And when planning for the future, we should be conservative in our assumptions and we should at the same time be searching for factors to mitigate potential external shocks.

Do you expect that these external shocks may have an impact on the standard of living in Poland?
Naturally. The standard of living and the level of employment would markedly improve for citizens if Poland’s GDP growth ran at 5 percent. But today this is not possible. Therefore we should be working to limit the negative effects. It’s worth remembering that Polish society is currently facing a completely different challenge than the societies of most Western countries. Poland’s problem is that the situation is not improving fast enough, while in Western Europe the main problem is that the standard of living has fallen, in some cases by as much as 20 percent.

As the head of the Prime Minister’s Economic Council, what kind of advice are you giving PM Donald Tusk when it comes to methods of counteracting the effects of the crisis?
For now it’s still too early to go public with the scenarios being developed by our team of advisers.

Without going into detail, can you reveal what kind of measures may be used to mitigate the effects of the crisis?
First of all, these measures must match the scope of the problems. If we are dealing with a slowdown in the economy, different measures are recommended than, for instance, in the case of a recession or a halt to lending. The reaction is different when the zloty becomes stronger and when the exchange rate of the Polish currency drops abruptly. There are really a number of measures whose application will depend on how serious the situation is. It is important for us to have these measures ready to be used and to use them as needed. This can be compared to a medicine cabinet from which you take out various pills depending on what ails you: one for a headache, a different one when your bones are aching.

As citizens, we would probably feel more confident knowing that this medicine cabinet is full.
I think that, in a crisis situation, this proverbial medicine cabinet is not the most important thing, though necessary. The most important thing is to answer this question: is someone in control of the situation? There must be someone in charge who knows what measure should be used at a given time. And I’m convinced that now we have a leader who is able to cope with this task. Actually, we have four people in key positions who know how to work together. I mean the president, the prime minister, the finance minister, and the central bank chief. I think that in the current situation that’s a huge plus for Poland.

But even the best leaders will not be able to deal with a crisis situation unless they manage to rally society as a whole behind them.
That’s a good point. The crew can’t go around rebelling because then the captain will have a problem. I think the crew is demanding, but nevertheless believes that responsible people are in charge. And that the country is in good, safe hands.

And how do you assess the resilience of Polish businessmen to the crisis?
The crisis of 2009 showed that Polish business people know how to move into market niches and how to compete with foreign producers. Many Polish companies have managed to enter the market with products that crowded out foreign competitors, because it turned out that Polish products offer similar quality while being cheaper than their Western counterparts.

Do you think that being outside the eurozone has helped Poland weather the global financial crisis?
It appears so. This is confirmed by what is happening in countries in the region which have been using the single European currency for some time. In particular, the example of Slovenia shows that entering the eurozone without carrying out the necessary structural reforms can result in serious problems. The situation is no better in Slovakia, which has fallen into a recession.

What are the biggest challenges for the Polish economy today?
The first challenge is the continuing crisis and its side effects such as the credit crunch, which keep cropping up every now and then. Another challenge is the lack of clarity about the new EU financial perspective for 2014-2020. This is important because EU structural funds are an important factor accelerating the growth of the Polish economy. A third issue is the ability to carry out structural changes in Poland. Recently we managed to carry out one such change involving the retirement age, but there is still a lot that remains to be reformed.
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