Legal Eye: Poland adopts the Euro in...?

"Each of the New Member States shall participate in the Economic and Monetary Union from the date of Accession as a Member State with a derogation..."

EU Accession Treaty

Nearly four years have passed since Poland joined the European Union, but to date our political leadership has yet to set a target date to enter the "euro zone," despite the fact that Poland and all other new member states have already joined the Economic and Monetary Union. Granted, active participation in the euro zone for each of the new member states was "suspended" at the same time Poland signed the Treaty of Accession, but Poland is nevertheless obligated to under take key fiscal and macro-economic reforms necessary to adopt the currency. The question is not if Poland will adopt the euro, but when. Unfortunately, neither the Treaty of Accession nor the underlying Treaty Establishing the European Union provides a precise answer, let alone a target date. No date exists. All new member states, however, with the notable exception of Poland, have announced their respective target dates by which they hope to satisfy all requirements necessary to adopt the euro.

As of today, 15 member countries have adopted the euro as their official currency, with Malta and Cyprus being members of the euro zone since the beginning of the year. Hungary and the Czech Republic have announced their intention to adopt the euro by 2010. Even Romania, which only joined the European Union last year, has announced its intention to adopt the euro by 2014. Two big exceptions exist, of course, the United Kingdom and Denmark, both of which have "opted out" of the euro zone for the time being.

What requirements?

In order to be admitted to the euro zone, a member state must satisfy several fiscal criteria set by the Maastricht Treaty. The treaty requires an entrant to the euro zone to maintain inflation at a level of no more than 2.3 percent, a budget deficit at or below three percent of GDP and the level of government debt to be no more than 60 percent. The most recent numbers for Poland indicate it ended 2007 with an annual inflation rate of 3.5 percent - having dipped to below two percent earlier in the year - and a budget deficit of just below three percent. This marks a significant improvement from just two years ago, when the budget deficit was six percent. The level of government debt has also declined to approximately 40 percent.

Additionally, prior to adoption of the euro, a member state must belong to the Exchange Rate Mechanism for a minimum of two years, where the fluctuation in a member state's exchange rate is maintained within a defined band width, not varying more than 15 percent. Estonia, Latvia and Lithuania are currently participating in the Exchange Rate Mechanism.

What next?

Every two years (or sooner, at the request of a member state) the EU Commission and European Central Bank prepare a progress report to the Council on the degree of success (or failure) by each member state in achieving the key economic thresholds, including inflation (2.3 percent), budgetary deficit (three percent) and government debt (60 percent), in addition to exchange rate stability (fluctuation of less than 15 percent).

The most recent statistics show that Poland currently satisfies two of the three economic thresholds. Joining the euro zone seems more realistic now than ever before - if only our political leadership would take the initiative and set a target date to adopt the euro.

Paul Fogo is a senior attorney with Miller Canfield. fogo@pl.millercanfield.com