Will Poland make the eurozone by 2012?

WARSAW — Poland’s best defense against the full brunt of the economic crisis has been a piece of paper — namely the euro, and the pledge that it would join the common currency as early as 2012.

That promise, made by Prime Minister Donald Tusk just before the collapse of Lehman Brothers last September, has served to reassure investors that Poland is committed to keeping its economic house in order during the turbulence of the last few months.

“The promise to join the euro has been enormously important, and there will be a price to be paid if Poland doesn’t follow through,” said Raffaella Tenconi, a macroeconomist with Wood & Co., a Prague brokerage.

But now, as the downturn begins to bite, there are increasing doubts over whether Poland will make the deadline.

In order to join the euro, the currency shared by 16 of the European Union’s 27 members, each aspirant has to meet a set of conditions on spending and currency stability set out in the Maastricht criteria. Countries that want to join also have to spend two years in the ERM-2 exchange rate mechanism that is a precursor to euro membership (it requires the value of the currency to float within 15 percent of the value of the euro). To join the euro by 2012, Poland would have to enter the ERM-2 this year.

Officially the government says the plan is still on, but senior officials are beginning to express some doubts.

“The first of January 2012 is still realistic, but it may require some delay,” said Jacek Rostowski, Poland’s finance minister, pointing out that joining ERM-2 in the next few months was unlikely because of the variability of Poland’s exchange rate, which slumped against the euro and the dollar earlier this year before regaining some strength.

“We announced our decision to join the euro before the crisis struck, and even then we said the first of January 2012 was an ambitious but realistic aim,” he said. “Well it’s still a realistic aim but it’s become more ambitious. This world economic crisis has come along and it would be naive to pretend that that has no effect at all. We always said it was an aim that was not dogmatic. If we have to move it along by one year, that’s not the end of the world.”

The problem in Poland, as in almost everywhere else in the world, is that the downturn is turning out to be a lot more severe than just about anyone anticipated.

Early last year, the government was confidently predicting that the economy would grow by more than 4 percent in 2009. By the end of the year that number had shrunk to 1.7 percent, and in its latest predictions, the European Commission says the Polish economy could contract by 1.4 percent this year.

Even that level would still be better than almost every country in Europe, but it would make joining the euro very difficult. If the economy tips into recession, government spending will increase sharply to cover expenses like unemployment benefits, while the tax take will shrink.

Tusk said the government would revamp the budget in July, and Rostowski said the deficit would come in at no more than 4.6 percent of gross domestic product this year. But the commission forecasts 6.6 percent this year followed by 7.3 percent in 2010. The criteria for joining the euro specify that the deficit cannot be more than 3 percent of GDP.

Now that the pledge to join the euro has served to defend Poland from some of the shock of the downturn, doubts are beginning to arise about the need to rush toward the common currency. As the panic begins to recede from the global economy and the worries about a systemic collapse turn into a realization that the world is probably facing a severe recession instead of a new Great Depression, some voices in Poland are beginning to say it might be no bad thing to stay out of the euro for a bit longer.

The Polish zloty has lost almost a third of its value against the euro and the dollar, which has given a boost to local exporters.

“If the zloty got weaker it would really do the economy a lot of good,” said Tom Kolaja, of Kolaja and Partners, a Warsaw management consultancy. “It’s almost better for Poland to stay out of the euro for a while.”

More on Poland’s economy:

A world of trouble, the sequel

Poland’s long road to better infrastructure

A bearish direction for Polish banking?

For more on the global economic crisis: