Getting the house of government in order
The EU Economic and Monetary Affairs Commissioner, Joaquin Almunia, has issued Poland with a stark warning over it's euro aspirations.
"The present target is for 2007 but it will require decisions by the new government and Parliament," Almunia said at a conference organized by the central bank.
Answering a question about Poland's euro adoption prospects, Almunia also said he was "concerned about the volatility of the złoty" currency.
Poland's central bank Governor, Leszek Balcerowicz, also present, said public finance reform would boost growth and help stabilise the volatile złoty.
"Public finance reform is fundamentally important for growth prospects but also for reducing ... the złoty volatility," he said. Balcerowicz blamed the recently high exchange-rate volatility in part on investors' concerns over fiscal reforms needed to sustainably lower the deficit below the euro's three percent of gross domestic product ceiling. According to EU-norms, Poland's budget deficit will amount to about 3.4 percent of GDP in 2005 and 3.1 percent in 2006.
The złoty exchange rate is now freely set by financial markets, but before Poland joins the eurozone it must keep its currency in a fixed trading band around a euro parity rate for two years to show it is stable enough to join.
Almunia signaled the Commission could be flexible in allowing Poland to choose an asymmetric trading band in the pre-euro ERM-2 regime, which normally allows a currency to fluctuate in a plus/minus 15-percent band around parity.
He said he had spoken with Balcerowicz this year about the possibility of Poland adopting a trading band which allows the złoty to rise by 15 percent within ERM-2 but weaken by a smaller margin.
Such a band, in theory, would allow the złoty to appreciate gradually as Poland's economy increases efficiency, while limiting unwanted currency volatility. Asked about his view on asymmetric bands, Almunia said: "It's up to the Polish central bank and authorities to decide." (Reuters)
"The present target is for 2007 but it will require decisions by the new government and Parliament," Almunia said at a conference organized by the central bank.
Answering a question about Poland's euro adoption prospects, Almunia also said he was "concerned about the volatility of the złoty" currency.
Poland's central bank Governor, Leszek Balcerowicz, also present, said public finance reform would boost growth and help stabilise the volatile złoty.
"Public finance reform is fundamentally important for growth prospects but also for reducing ... the złoty volatility," he said. Balcerowicz blamed the recently high exchange-rate volatility in part on investors' concerns over fiscal reforms needed to sustainably lower the deficit below the euro's three percent of gross domestic product ceiling. According to EU-norms, Poland's budget deficit will amount to about 3.4 percent of GDP in 2005 and 3.1 percent in 2006.
The złoty exchange rate is now freely set by financial markets, but before Poland joins the eurozone it must keep its currency in a fixed trading band around a euro parity rate for two years to show it is stable enough to join.
Almunia signaled the Commission could be flexible in allowing Poland to choose an asymmetric trading band in the pre-euro ERM-2 regime, which normally allows a currency to fluctuate in a plus/minus 15-percent band around parity.
He said he had spoken with Balcerowicz this year about the possibility of Poland adopting a trading band which allows the złoty to rise by 15 percent within ERM-2 but weaken by a smaller margin.
Such a band, in theory, would allow the złoty to appreciate gradually as Poland's economy increases efficiency, while limiting unwanted currency volatility. Asked about his view on asymmetric bands, Almunia said: "It's up to the Polish central bank and authorities to decide." (Reuters)
