The Greek drama. Poland as acute spectator

Greece is sinking. The Greek default is usually described in the present, not the past tense. The agreement signed between Greece and its creditors basically boils down to money transfers in exchange for reforms. And Poles, who are observing this process, in comparison seem to be a B student, who is putting in a lot of effort and thinks he is immune to the phenomenon By Sergiusz Prokurat In 1990, Poland was one of the poorest countries in Europe. Per capita GDP was only 31.8 percent of its German equivalent, while Ukraine’s was at 33.4 percent. At the end of communism, Poland was poorer than Spain, which had been a less affluent country after the end of World War II. As was Greece. Nevertheless, Poles are fine with hard work, so it is just a matter of time until these southern nations will look upon Poland as a rich country. Race with the West In the last 25 years, we have seen a faster pace of growth than other countries in our region and our GDP has grown by 100 percent. This year, the Polish GDP per capita at PPP (purchasing power parity) will reach the level or overtake its equivalent in Greece. This is not only the achievement of Poland, which is now over twice as rich as it was at the start of its economic transformation, but also of Greece, whose GDP is 25 percent lower than it was in 2007. We shouldn’t think that anything is possible, because some barriers are just too difficult to overcome. In order to catch up with Germany, provided their economy will grow at an average pace of three percent a year, and ours at four percent, we will need over 60 years. This is an optimistic scenario. And what about the pessimistic outcome? Can Poland end up in a Greek dead end? The Greeks are currently saving funds for subsequent repayments to the IMF and ECB. In 2015, they have to repay €13 billion (7.25 percent of Greece’s GDP).  The situation is serious enough for them to have to sell islands and airports. Poland has to repay €18 billion in 2015, and in 2016 even 30 percent more. Over half of all liabilities are owed to foreign creditors. Loans for various years are also increased by the public sector deficit, which has reached PLN 50-60 billion in recent years. As in Greece, the only way to repay those loans is by taking out new ones. If for some reason foreign banks and funds would not want to buy Polish securities, the government would have to add over PLN 50 billion to its list of expenditures. Such a budget gap would surely cause a significant crisis for Poland. [caption id="attachment_77202" align="alignleft" width="199"] shutterstock[/caption] The difference between Poland and Greece basically boils down to trust, which Greece has now exhausted. “As a member of the euro zone, Greece was trustworthy for many years.  Its membership caused everyone to be caught off guard. However, Poland is at no risk of such a crisis,” said Aleksander Łaszek, an FOR (Forum of Citizens’ Development) economist. And before Greece’s demise, all rating agencies such, as S&P and Moody’s, said that Greece could pay. Now they don’t say that any more. Turns out it is very easy to lose the trust of financial markets. Comparing countries: Poland does win out Comparing basic macroeconomic parameters for both countries shows the success of Polish economic policy and a clear failure of the Greeks. In 2004, PPP GDP per capita was nearly twice as high in Greece than in Poland. Ten years later, in 2014, it was only 6 percent higher. In 2009, after the crisis started, all southern European economies started to tank. For Greece, the trough came in 2011, when it shrank by 7.1 percent. In the same time, Polish GDP kept growing – at its best, in 2007, it grew by 6.8 percent, and in the crisis year 2011 it grew by 1.6 percent. This is not the first case of catching up with old EU countries by their Central European peers. In 2004, per capita GDP of Slovenia and the Czech Republic was at the level of Portugal. Currently, Greek indebtedness is at 170 percent of the GDP, while in Poland, it is over 50 percent. The Greeks have a much higher level of unemployment – over 20 percent of the inhabitants can’t find work. Greece, according to Aleksander Łaszek, is a less globally integrated economy, not much exposed to international competition, as is the case of Poland. But Greece isn’t that bad Living in Greece up to now was a bit like a fairy-tale. Greeks have a life expectancy of 80 years, i.e. four years more than Poles; they enjoy life, so their quality of life is much higher than in Poland. For years, Greeks enjoyed some of the most ridiculous work benefits, including a bonus for showing up to work on time (up to €600 per month). Such benefits were slashed during the 2010 reforms, but they’ve managed to put a strain on Greece’s public finances. But fairy tales come to an end and Greece must now face the music, which the Greeks have yet to accept. Radical pension reforms, taxes, all benefits and removal of mass fraud committed against the state coffers, are only the first step to exiting the cycle of indebtedness. Returning to the drachma would speed up the recovery, but it would be very unpleasant for the population, and also politically it would be difficult for the European Union, so this option should only be treated as a last resort. Watch out for manipulated statistics It is well known that Greek authorities provided false data before entering the euro zone and the crisis in 2009. Inaccuracies were mainly focused on the state of public finance. Reconstructing the Greek statistical system should guarantee more reliable statistics both on current information, and verified historical data. The opposite is true in Poland “There is no problem with statistical data in our country,” says Łaszek. Optimists say that Poland is a green island of economic growth and that since 1990, we have been witnessing an unprecedented economic miracle. Pessimists reply that it is quite the opposite – Greece is quickly approaching Poland in poverty. This is the most common argument against the success of 25 years of a democratic government in Poland. Polish GDP per capita is two-thirds of the EU average. Poland still faces a long road ahead. One thing is sure; we should not base our strategy on Greece. u