Poland will never join a 'burning' eurozone, says central bank governor

Marek Belka says country remains reluctant to join the euro, as he warns that world is running out of ammunition to fight the next financial crisis
         
By Szu Ping Chan,the telegraph
8:00PM BST 25 Jul 2015

Poland will not join the euro while the bloc remains in danger of “burning”, its central bank governor said.

Marek Belka, who has also served as the country’s prime minister, said the turmoil in Greece had weakened confidence in the single currency.

“You shouldn’t rush when there is still smoke coming from a house that was burning. It is simply not safe to do so. As long as the eurozone has problems with some of its own members, don’t expect us to be enthusiastic about joining,” he said.

In a stark warning, Mr Belka also said the world was running out of ammunition to fight the next financial crisis.

“We don’t have the option of decreasing interest rates. Much fewer countries have fiscal space to intervene so we are less prepared,” he said.

The governor suggested that Poland, which is obliged to join the euro as part of its EU membership, would not become a member for many years. He said interest would wane further if the political environment continued to shift to the Right.


Marek Belka

Mr Belka, a former head of the International Monetary Fund’s European division, said the eurozone was at risk of becoming trapped in a “vicious circle” where closer fiscal integration became more difficult because of splits over structural reforms and austerity.

“As long as there is divergence or as long as we have problems in some countries, it’s more difficult to build up a solid foundation for the real fiscal union in the eurozone. So this is a little bit of a vicious circle,” he said.

He said closer union was needed within “a generation” to prevent the bloc from lurching from crisis to crisis.

Mr Belka also said it was crucial that Greece, like Poland in the Nineties, received debt relief from its creditors, as he appeared to urge the bloc to do more to boost growth in the country.

“I think that what has been achieved [with the debt deal] provides temporary respite but not a solution. The real problem for Greece is how to reinvigorate sustainable growth. Without sustainable growth Greece will periodically fall into problems,” he said.

The full interview

What do you think about the situation in Greece?

I think that what has been achieved provides temporary respite but not a solution. The real problem for Greece is how to reinvigorate sustainable growth. Without sustainable growth Greece will periodically fall into problems. But of course we expect that the reforms are going in a good direction. The problem is that normally it takes a lot of time for these reforms to have positive consequences.

Do you believe that Greece needs debt relief?

I would call it a debt reprofiling, rather than debt relief which is the same but sounds better and politically more acceptable. Either way, I think at one point sooner or later Greece needs it.

What are the chances of Poland joining the euro?

You shouldn’t rush when there is still smoke coming from a house that was burning. It is simply not safe to do so. As long as the eurozone has problems with some of its own members, don’t expect us to be enthusiastic about joining.

Does the eurozone need fiscal union to ensure it survives?

I think it does. I don’t think the euro area is solid enough without some elements of fiscal union. The only problem is, the more divergent the euro members are, the more difficult it is politically and economically to build such a union. I’m sure there will be no problem in setting up a fiscal union of some sort between countries of the north, so as long as there is divergence or as long as we have problems in some countries, it's more difficult to build up a solid foundation for the real fiscal union in the eurozone. So this is a little bit of a vicious circle, but this is how we see it from our side.

What needs to happen in the eurozone to make it attractive for Poland to join?

The eurozone needs to grow solidly and build up a solid foundation for its currency, including elements of fiscal union and common economic policy. This is something that we cannot say fully determine upfront. It’s more of a moving target.

What is the mood music like in Poland for joining the euro?

The situation around Greece does not increase confidence in the euro, that’s for sure, and if we have a political change more into the right, then the enthusiasm to join the euro is going to be even weaker.

How long will it take for the eurozone to fix its problems. Can it be done within a generation?

We don’t have as much time as a generation. But it will take a while.

What does your time working at the IMF tell you about its role in the debt crisis?

I think it was quite unusual for the IMF to be part of a team of three, rather than doing it on its own. The programme was a compromise between what the IMF thought was most proper and the exigencies of European integration. So this is an uneasy alliance in the sense that the priorities of Brussels might be slightly different than the priorities of Washington. So it’s an uneasy task and unusual task. But on the other hand how can the IMF ignore the situation in Greece and other European countries? This would make the IMF less relevant in the world. So this is the product of certain circumstances and compromises.

What is the biggest risk to the global economy?

The next crisis, because we have used so much of our war chest to fight the former crisis that it would be difficult to fight another one. We don’t have the option of decreasing interest rates. Much fewer countries have fiscal space to intervene so we are less prepared. If we get into a next crisis, we have less weaponry to fight it.

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