Not so new kid on the bloc
But now that the sheen has worn off, Poland must break down formidable impasses with the old bloc and prepare for two new members that could beat it at its own game of churning out cheap labor and structural-fund fishing.
From a purely macro-economic perspective, Poland's first year in the European club was a smashing success. GDP growth climbed to a robust 5.3 percent in 2004 and is growing this year, though not as vigorously. Unemployment finally flattened out and has now commenced a steady descent - the Economy Ministry estimates the figure at less than 19 percent for April, a one-percent decrease year-on-year. Many sectors were immediately able to take advantage of greater access to the European market. The stock exchange, enjoying the favor of foreign capital and a rush of IPOs, lifted its main index by nearly 27 percent, while western bourses stagnated. The accession even stimulated the creation of entire business sectors: recruitment agencies and EU-fund advisories to name just two.
Go fish
However, the picture isn't entirely rosy. Since the fall of communism Poles have heard that success or failure lies entirely in their own hands - a market economy provides a fishing rod, not a ready-to-eat meal. However, since EU accession, the average Pole has done more casting of lines than reeling in of catches. While inflation here jumped above expectations, to 3.6 percent for the 12 months ending last February, average pay in the industry sector rose by just 1.5 percent in the same period, meaning Polish salaries decreased in real terms. What thinned Poles' wallets the most was the jump in food and drink prices, which rocketed by 5.2 percent from February 2004 to February 2005. Sugar alone rose 45 percent.
Still, public opinion defies the numbers. The Office of the Committee on European Integration (UKIE) underlines that public support for EU membership orbited around 70 percent during the first year of membership. So why are Poles so satisfied?
According to public pollster Ipsos, consumers overcame their grumpiness over higher prices at the beginning of this year, and are now more willing to open their wallets. Also, farmers swung a U-turn, switching from unbending opponents - only 20 percent supported EU membership in January 2004 - to ardent supporters (70 percent) a year later. The fact that they received some zł.6.5 billion in direct funding by March 2005 certainly didn't hurt the Union's case.
Brain-drain debunked
Overall Poles believe EU integration and future eurozone entry will significantly improve their living standards, despite the increase in costs. Some 500,000 of them, however, were not prepared to wait until the good times arrived and went abroad in search of work.
Exact data is hard to come by, but UKIE estimates the rise in legal employment of Poles abroad grew below the malcontents' prognoses. Just upwards of 100,000 of them traveled to the isles, the UK and Ireland splitting the lot 70 to 30 percent respectively. A slight 2,000 Poles migrated to Sweden. The number of legally hired Poles was substantially higher in Germany, where more than 300,000 were employed mostly for seasonal work. Polish workers come cheaper than their local counterparts, and Western employers have begun appreciating the skills of Polish labor, not just the costs.
Getting dumped
"It's the quality and skill, not the money," says Michael Bowe, a human resources manager from Constant Security. His company, based in South Yorkshire, has recruited in Warsaw several times. Bowe explains that they decided to run a recruitment action because of a client's recommendation, who claimed that Polish workers were "the best he ever had." For Constant Security, it is certainly not the lower labor costs that led them to find help in Poland, as it is required that foreigners receive the very same benefits and pay as their English counterparts.
Yet while Poles have proved their worth to their new EU compatriots, the aid they offer isn't always welcomed with open arms. Several old EU members remain suspicious of the impact Polish labor has on their economies. From France to Sweden, worriers have fretted that Polish workers would abuse the countries' straining social systems, and in Denmark a Polish company was convicted of "social dumping" for paying Polish workers less than Danish ones.
Wage worries
Frustration with Germany and France has boiled to the surface due to their unwillingness to accept the Services Directive, which would have allowed Polish businesses to operate in other EU lands on their Polish credentials. The Directive is now languishing in parliamentary limbo. Still, the German government is launching a pre-emptive strike to protect the German economy from a flood of Polish plumbers and barbers. It wants to impose minimum wages for all foreign workers operating in Germany. A strange move, as the German labor market will probably remain closed to the free movement of Polish labor until 2011.
Western Europe's fears are most likely unfounded, since the small scale of Polish labor migration in the past 12 months may be even lower than the above estimates, as some Poles were already working abroad, and only took advantage of the possibility to legalize their stay after enlargement.
Poland has been more successful in exporting its merchandise than its labor force. The government's report on one year of EU membership spells it out plainly: "The prognosis of a worsening trade balance after the accession to the EU was not fulfilled." In fact, Poland reported a $1 (zł.3.29) billion surplus with the other 24 EU states. Over the last 12 months exports grew by more than one third, while food producers increased their sales to the old EU by 60 percent, selling mostly to Germany, the UK, Netherlands, and Italy.
Export expertise
Despite some turbulence - notably the additional requirements Russian authorities put on imports of Polish milk - the eastbound movement of Polish products benefited from EU accession as well. Russians bought a massive 89 percent more, while exports to Ukraine increased by 30 percent. The success of Polish meat and dairy on foreign tables had unexpected repercussions though. More attractive returns in foreign markets forced prices up at home, contributing to the inflation jump.
While kiełbasa and Polish beef marked their presence in the common market, Poland capitalized on the EU-member prestige and attracted some $11 (zł.36.14) billion in foreign investment capital. Together with almost $8 (zł.26.28) billion in foreign direct investment, this totals a handsome sum to fuel the country's emerging market. Had that not resulted in a 17 percent rise in the złoty to the euro between accession and March 15 this year, exporters argue their products would have enjoyed even more popularity.
Prestige power
The clout that comes with being a member of the EU not only attracted the eye of investors, but also a newfound respect among the community of nations. As President of a fully-fledged EU member, Aleksander Kwaśniewski donned the robe of the West's representative in last December's Ukraine crisis, and took a lead role in the negotiations.
According to Jacek Saryusz-Wolski, a Vice President of the European Parliament and leader of Civic Platform's (PO) delegation in Brussels, Poland was a "key player" in convincing formerly hesitant EU members to strengthen ties with Ukraine. According to him, Poland knows what it's like to be the poor man waiting outside the European door. "We would like to help them," he says.
Now, with a friendly President next door, Poland is poised to reap the benefits. The Odessa-Brody pipeline extension looks set to finally come online within three years, providing Poland with a crucial 15 million tonnes of non-Russian crude oil per annum.
Uncertain future
There are still some clouds on the horizon. To the west, uncertainty over the future of the EU Constitution has nervous politicians wringing their hands. Even if France does the improbable and regains its favor for the document before its referendum on May 29, there is no guarantee that the pact will be approved by all 25 members, which it must do in order to take effect. Several experts have voiced worries about Poland's entry into the eurozone being delayed due to increased currency volatility if the Constitution is rejected.
Less than a week before Poland celebrated one year in the EU, two nations to its southeast signed their own accession treaties. Bulgaria and Romania are now set to become the EU's newest members in 2007, and some worry that their accession may give Poland the same headaches as Poland gave the EU-15 in 2004.
Mouths to feed
If Bulgaria and Romania - whose combined populations total nearly 30 million - joined the bloc tomorrow, they would be by far the two poorest members, with a GDP per capita of less than 30 percent of the EU average. As of 2002, 13.4 percent of Bulgaria's population lived below the poverty line. In Romania, the figure is closer to 30 percent.
Two years down the road these two new members will start calling for their own slice of the pie, meaning badly needed EU structural funds may bypass Poland. Already the six main net contributors to the EU budget are demanding limiting expenditure to one percent of EU GNP between 2007-2013, instead of the 1.14 percent proposed by the EU Commission. Even without Bulgaria and Romania in the picture, that would cost Poland up to zł.12 billion. Poland could lose out on agricultural subsidies too. The 32 percent of Romania's population that works in agriculture accounts for only 13 percent of its GDP.
Shift southeast
Still more worrying is the prospect of investment shifting from Poland to the southeast, in search of ever-cheaper labor. Romania's minimum wage is EUR91 per month, while in Bulgaria it equals EUR61 per month - that's less than one-third of Poland's minimum wage.
Supporters of further EU expansion argue that Polish business too could benefit from the Black Sea nations' cheap labor and that new members mean new markets in which to sell Poland's goods. "Poland would benefit from [Romania's and Bulgaria's] accession," says Rafał Antczak, an economist with Case Advisors. "It would allow Poland to compete with the 'old' EU in these markets."
Whether the candidates' entrance will help or hurt will be debated in the months to come, but when it comes time for politicians to voice their support or opposition to their membership, they would do well to remember how the first year of EU membership benefited Poland - and Europe.
From a purely macro-economic perspective, Poland's first year in the European club was a smashing success. GDP growth climbed to a robust 5.3 percent in 2004 and is growing this year, though not as vigorously. Unemployment finally flattened out and has now commenced a steady descent - the Economy Ministry estimates the figure at less than 19 percent for April, a one-percent decrease year-on-year. Many sectors were immediately able to take advantage of greater access to the European market. The stock exchange, enjoying the favor of foreign capital and a rush of IPOs, lifted its main index by nearly 27 percent, while western bourses stagnated. The accession even stimulated the creation of entire business sectors: recruitment agencies and EU-fund advisories to name just two.
Go fish
However, the picture isn't entirely rosy. Since the fall of communism Poles have heard that success or failure lies entirely in their own hands - a market economy provides a fishing rod, not a ready-to-eat meal. However, since EU accession, the average Pole has done more casting of lines than reeling in of catches. While inflation here jumped above expectations, to 3.6 percent for the 12 months ending last February, average pay in the industry sector rose by just 1.5 percent in the same period, meaning Polish salaries decreased in real terms. What thinned Poles' wallets the most was the jump in food and drink prices, which rocketed by 5.2 percent from February 2004 to February 2005. Sugar alone rose 45 percent.
Still, public opinion defies the numbers. The Office of the Committee on European Integration (UKIE) underlines that public support for EU membership orbited around 70 percent during the first year of membership. So why are Poles so satisfied?
According to public pollster Ipsos, consumers overcame their grumpiness over higher prices at the beginning of this year, and are now more willing to open their wallets. Also, farmers swung a U-turn, switching from unbending opponents - only 20 percent supported EU membership in January 2004 - to ardent supporters (70 percent) a year later. The fact that they received some zł.6.5 billion in direct funding by March 2005 certainly didn't hurt the Union's case.
Brain-drain debunked
Overall Poles believe EU integration and future eurozone entry will significantly improve their living standards, despite the increase in costs. Some 500,000 of them, however, were not prepared to wait until the good times arrived and went abroad in search of work.
Exact data is hard to come by, but UKIE estimates the rise in legal employment of Poles abroad grew below the malcontents' prognoses. Just upwards of 100,000 of them traveled to the isles, the UK and Ireland splitting the lot 70 to 30 percent respectively. A slight 2,000 Poles migrated to Sweden. The number of legally hired Poles was substantially higher in Germany, where more than 300,000 were employed mostly for seasonal work. Polish workers come cheaper than their local counterparts, and Western employers have begun appreciating the skills of Polish labor, not just the costs.
Getting dumped
"It's the quality and skill, not the money," says Michael Bowe, a human resources manager from Constant Security. His company, based in South Yorkshire, has recruited in Warsaw several times. Bowe explains that they decided to run a recruitment action because of a client's recommendation, who claimed that Polish workers were "the best he ever had." For Constant Security, it is certainly not the lower labor costs that led them to find help in Poland, as it is required that foreigners receive the very same benefits and pay as their English counterparts.
Yet while Poles have proved their worth to their new EU compatriots, the aid they offer isn't always welcomed with open arms. Several old EU members remain suspicious of the impact Polish labor has on their economies. From France to Sweden, worriers have fretted that Polish workers would abuse the countries' straining social systems, and in Denmark a Polish company was convicted of "social dumping" for paying Polish workers less than Danish ones.
Wage worries
Frustration with Germany and France has boiled to the surface due to their unwillingness to accept the Services Directive, which would have allowed Polish businesses to operate in other EU lands on their Polish credentials. The Directive is now languishing in parliamentary limbo. Still, the German government is launching a pre-emptive strike to protect the German economy from a flood of Polish plumbers and barbers. It wants to impose minimum wages for all foreign workers operating in Germany. A strange move, as the German labor market will probably remain closed to the free movement of Polish labor until 2011.
Western Europe's fears are most likely unfounded, since the small scale of Polish labor migration in the past 12 months may be even lower than the above estimates, as some Poles were already working abroad, and only took advantage of the possibility to legalize their stay after enlargement.
Poland has been more successful in exporting its merchandise than its labor force. The government's report on one year of EU membership spells it out plainly: "The prognosis of a worsening trade balance after the accession to the EU was not fulfilled." In fact, Poland reported a $1 (zł.3.29) billion surplus with the other 24 EU states. Over the last 12 months exports grew by more than one third, while food producers increased their sales to the old EU by 60 percent, selling mostly to Germany, the UK, Netherlands, and Italy.
Export expertise
Despite some turbulence - notably the additional requirements Russian authorities put on imports of Polish milk - the eastbound movement of Polish products benefited from EU accession as well. Russians bought a massive 89 percent more, while exports to Ukraine increased by 30 percent. The success of Polish meat and dairy on foreign tables had unexpected repercussions though. More attractive returns in foreign markets forced prices up at home, contributing to the inflation jump.
While kiełbasa and Polish beef marked their presence in the common market, Poland capitalized on the EU-member prestige and attracted some $11 (zł.36.14) billion in foreign investment capital. Together with almost $8 (zł.26.28) billion in foreign direct investment, this totals a handsome sum to fuel the country's emerging market. Had that not resulted in a 17 percent rise in the złoty to the euro between accession and March 15 this year, exporters argue their products would have enjoyed even more popularity.
Prestige power
The clout that comes with being a member of the EU not only attracted the eye of investors, but also a newfound respect among the community of nations. As President of a fully-fledged EU member, Aleksander Kwaśniewski donned the robe of the West's representative in last December's Ukraine crisis, and took a lead role in the negotiations.
According to Jacek Saryusz-Wolski, a Vice President of the European Parliament and leader of Civic Platform's (PO) delegation in Brussels, Poland was a "key player" in convincing formerly hesitant EU members to strengthen ties with Ukraine. According to him, Poland knows what it's like to be the poor man waiting outside the European door. "We would like to help them," he says.
Now, with a friendly President next door, Poland is poised to reap the benefits. The Odessa-Brody pipeline extension looks set to finally come online within three years, providing Poland with a crucial 15 million tonnes of non-Russian crude oil per annum.
Uncertain future
There are still some clouds on the horizon. To the west, uncertainty over the future of the EU Constitution has nervous politicians wringing their hands. Even if France does the improbable and regains its favor for the document before its referendum on May 29, there is no guarantee that the pact will be approved by all 25 members, which it must do in order to take effect. Several experts have voiced worries about Poland's entry into the eurozone being delayed due to increased currency volatility if the Constitution is rejected.
Less than a week before Poland celebrated one year in the EU, two nations to its southeast signed their own accession treaties. Bulgaria and Romania are now set to become the EU's newest members in 2007, and some worry that their accession may give Poland the same headaches as Poland gave the EU-15 in 2004.
Mouths to feed
If Bulgaria and Romania - whose combined populations total nearly 30 million - joined the bloc tomorrow, they would be by far the two poorest members, with a GDP per capita of less than 30 percent of the EU average. As of 2002, 13.4 percent of Bulgaria's population lived below the poverty line. In Romania, the figure is closer to 30 percent.
Two years down the road these two new members will start calling for their own slice of the pie, meaning badly needed EU structural funds may bypass Poland. Already the six main net contributors to the EU budget are demanding limiting expenditure to one percent of EU GNP between 2007-2013, instead of the 1.14 percent proposed by the EU Commission. Even without Bulgaria and Romania in the picture, that would cost Poland up to zł.12 billion. Poland could lose out on agricultural subsidies too. The 32 percent of Romania's population that works in agriculture accounts for only 13 percent of its GDP.
Shift southeast
Still more worrying is the prospect of investment shifting from Poland to the southeast, in search of ever-cheaper labor. Romania's minimum wage is EUR91 per month, while in Bulgaria it equals EUR61 per month - that's less than one-third of Poland's minimum wage.
Supporters of further EU expansion argue that Polish business too could benefit from the Black Sea nations' cheap labor and that new members mean new markets in which to sell Poland's goods. "Poland would benefit from [Romania's and Bulgaria's] accession," says Rafał Antczak, an economist with Case Advisors. "It would allow Poland to compete with the 'old' EU in these markets."
Whether the candidates' entrance will help or hurt will be debated in the months to come, but when it comes time for politicians to voice their support or opposition to their membership, they would do well to remember how the first year of EU membership benefited Poland - and Europe.
