Since Croatia joined the eurozone in January, Poland is reconsidering the benefits and risks of adopting the euro, with economists estimating when the move would be possible.
Poland is one of seven EU countries that have retained their own currency, along with Bulgaria, Czechia, Denmark, Hungary, Romania, and Sweden. The Polish government and opposition have been arguing for years about whether the country should give up its national currency of the złoty to adopt the euro. The discussion has only intensified after Croatia joined the eurozone at the beginning of 2023.
Prime Minister Mateusz Morawiecki is firmly in the "no" camp, arguing that switching to the euro would fuel inflation that has already reached a 26-year high last year. "Choosing the euro at a moment when we have such high inflation is a bit like adding fuel to the fire," he said. Morawiecki also referred to "inflation chaos" in Croatia.
"Prices in Croatia are getting higher; they have increased by 70% to 80% within one week," Morawiecki said. However, the Polish fact-checking organization Demagog claimed that the statement was misleading, arguing that according to the Croatian official statistics, prices for groceries increased by an average of 13%. In addition, the organization explained that while increases of up to 80% did occur for some services, it was only in a few particular cases.
In addition, research published by a senior advisor at the Croatian National Bank, Andreja Pufnik, showed that the country's conversion to the euro generally has a mild and one-off effect on the growth of consumer prices. "A slightly more pronounced increase in prices due to conversion was registered for a small number of products, mostly in the services sector, such as services in restaurants and cafés," the report noted.
The Polish Economic Freedom Foundation pointed out that the first twelve countries circulated euro banknotes and coins in 2002. In the first month after the adoption of the euro, the prices in the euro area increased by 0.5 percentage points. However, inflation later decreased, and throughout 2002 it remained at the same level as in 2001. Poland committed to adopting the euro in 2004 when it decided to join the European Union. But after the eurosceptic PiS party was elected in 2015, its leader Jarosław Kaczyński stated that Poland should only switch to the euro when the national economy reaches 85% of Germany's GDP per capita.
The central bank head warns against the euro
Apart from inflation, arguments against the euro include the impact on economic growth, already hindered by the war in Ukraine, and rising energy prices. Adam Glapiński, the head of the central bank, warned against the euro adoption, saying it would cause a "radical slowdown in the economy." He argued that keeping the zloty contributed to "Poland's economic miracle," helping the country to become one of the fastest-growing economies in Europe in the past few decades and to recover relatively quickly after the coronavirus pandemic.
The slowdown, however, appears inevitable, regardless of the debate regarding the euro. In 2023, the World Bank expects Poland's economy to expand by a modest 0.7% after a growth of 4.4% in 2022 due to the weaker purchasing power of consumers and falling demand from Poland's largest trade partners.
Jakub Karnowski, a board member of the Economic Freedom Foundation, believes Glapiński's warning is unfounded. "Wherever we look at the data for those countries that already entered the eurozone, there is no proof that growth will decline because the single currency is introduced," he told the Warsaw Business Journal.
Karnowski argues that the Polish economy is primarily hurt by inflation, which is well above the EU average. In December, it stood at 15.3% compared to the average inflation rate of 10.4% in the European Union. Blaming the central bank's policy, he says inflation would decrease in the long run if Poland joined the eurozone.
Another major argument against the euro adoption is less freedom in setting and implementing the country's monetary policy. The Economic Freedom Foundation, however, argues that if Poland adopts the euro, its central bank head will become a member of the Governing Council, the main decision-making body of the ECB. Thus, they would also be able to take part in shaping the joint monetary policy.
Still, most Poles are reluctant to give up the national currency. A recent survey by the IBRiS research center for Radio ZET showed that almost half of Poles are firmly against adopting the euro, 15.2% are against it, and only 14.7% support the move. On the other hand, business representatives are more inclined towards the euro. Consulting company Grant Thornton reported that about 54% of the heads of medium and large companies would like Poland to replace the złoty with the euro.
What are the benefits?
Adopting the euro has several clear benefits for the economy. It would eliminate risks related to fluctuations in the foreign exchange rate and simplify trade with other eurozone members. Karnowski underscores that about 80% of Poland's foreign trade is with the eurozone countries, and the single currency would lower the transaction costs. For regular citizens, switching to the euro would simplify international trips and make price comparison easier.
From a broader perspective, eliminating exchange rate risks also enhances the prospects for investment and trade. In addition, the single currency leads to greater macroeconomic stability and resilience, which is particularly important in light of uncertainty related to the war in Ukraine. Although złoty has partially recovered after dropping against major currencies in the first months of the war, Commerzbank expects the euro to appreciate further through the rest of 2023 and to rise towards PLN 4.85 in 2024. Finally, supporters of adopting the euro say that the move would increase Poland's influence within the EU, stressing that the country should not overlook the political aspect.
More than half of the economists surveyed by Rzeczpospolita believe that Poland should set a specific date for adopting the single currency - by 2030 at the latest and start the preparations. However, joining the euro is a lengthy procedure, and Poland is yet to meet convergence criteria, including joining the ERM II, the EU's system for transitioning countries to the euro. Therefore, even if this year's parliamentary election becomes a game-changer, years will pass before Poland enters the eurozone.
1999: The Euro is introduced as an accounting currency in 11 countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain.
2001: Greece adopts the Euro.
2002: The Euro becomes the official currency of the participating countries and replaces their former national currencies. Banknotes and coins are issued and become legal tender.
2007: Slovenia joins the Eurozone.
2008: Cyprus and Malta adopt the Euro.
2009: Slovakia becomes the 16th country to join the Eurozone.
2011: Estonia adopts the Euro, becoming the first former Soviet state to do so.
2014: Latvia joins the Eurozone, becoming the second former Soviet state to do so.
2015: Lithuania adopts the Euro, becoming the third and final former Soviet state to do so.
The remaining eight EU countries that have not yet adopted the Euro are:
Bulgaria
Croatia
Czech Republic
Denmark
Hungary
Poland
Romania
Sweden
