EU accession won't attack Big Mac

Poles will not suffer from sticker shock from higher prices for basic goods and services after Poland joins the European Union, economists said. "During the last 10 years, prices have been on a steady upward slope, (so) the moment of accession should not bring dramatic changes," said Maciej Grabowski, an economist at the Gdańsk Institute for Market Economics. The current price disparities for basic goods and services in EU member states compared with Poland will never even out, economic experts said, although EU membership would slowly reduce the differences over time. Poland expects to join the EU in 2004 and to adopt the euro as its currency in 2007. After the euro's introduction six months ago, the price disparities between EU member countries and Poland are still considerable. Today, for example, a Big Mac costs about €2.65 in Germany and €1.62 in Poland. The average price of a liter of gas is €1.04 in Germany vs. €0.82 in Poland. And a movie ticket costs Germans €5.62, but Poles €3.65. "The differences are bigger than could be expected," Grabowski said. But as Polish firms trading with EU companies become more efficient after accession, they will be able to pay higher salaries. Employees, in turn, will have more money to purchase domestic goods. The flow of additional cash in the currency market would lead either to an appreciation of the złoty or to higher inflation, according to Jacek Wiśniewski, the head of Bank Pekao's economic analysis team.

But Wiśniewski warned that pegging the złoty to the euro at a low level without reining in public finances would mean following the disastrous case of Argentina, which pegged its currency to the U.S. dollar for 11 years. Argentina's loose spending policy caused a severe devaluation of its peso and subsequent economic chaos last year. "At first, favorable conditions for low inflation should be created," Wiśniewqski said. "The best instrument to regulate the exchange rate is the market." Some economists pointed out that while prices for locally manufactured but standardized goods sold across Europe vary between the current EU member states according to each country's general cost of living, different tax levels also affect price disparities. "We have different levels of taxation and some non-tariff barriers between countries that are still present in the (EU's) common market," Grabowski said. Poland, he added, would not likely see any rapid increases in the prices of basic goods and services after it joins the EU since local distributors of goods would continue to dictate prices. However, economists cautioned that regardless of Poland's EU membership, the złoty's purchasing power would continue to be affected by the government's unpredictable fiscal policies. "Every intervention of either the government or the central bank (in the currency market) has proven ineffective and costly so far, and we have no reasons to suspect that the next (one) would be different," said Andrzej Sadowski, an economist at Warsaw's Adam Smith Institute. "There is no place for manual steering as only the market is able to evaluate the currency."