High inflation, war in Ukraine, currency fluctuations, and increased interest rates are sparking talk about Poland’s potential entry into the eurozone to help combat some of these economic headwinds. The idea has potential, because this process would take only a couple of years given that Poland fulfills the currency convergence criteria.
It is a decision that will greatly impact the Polish economy for decades, and that is why the long-term pros and cons of such a solution need to be taken into consideration — joining the eurozone should not be treated as a panacea for temporary shifts in the Polish economy.
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Following the coronavirus pandemic, most OECD countries are dealing with inflation, which is currently fueled by increased prices of resources and food due to the war in Ukraine. Inflation is also a problem for the eurozone, its rate and specific sources are affected by a number of internal factors in each country. Among the eurozone, the highest inflation rates are affecting Central and Eastern European countries; Estonia has hit 19 percent; Lithuania 16.6 percent; and Latvia 13.2 percent. In Slovakia, there is 10.9 percent inflation.
Polish inflation is at a similar level of 12.3 percent, but interest rates are much higher than ones in the eurozone.
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Is the reference rate of the European Central Bank (ECB) at the level of “zero” optimal for those eurozone countries? I believe that Polish monetary policy would actually be better for these nations. Thanks to the fact that in Poland, the Monetary Policy Council decides what rate of interest is suitable for us, we are able to react constantly to the fluctuations of inflation. And it goes without saying that the influence of increased rates on the level of inflation is delayed by up to several quarters.
If Poland was in the eurozone, we would not enjoy such comfort, and we would be dependent on ECB decisions, shared by all countries within the currency union. The effects of the current policy of the Frankfurt bank would be greatly unfavorable, just as they are for the citizens of the Baltic countries and Slovakia.
It is worth noting that high levels of inflation in the countries of the “New Union,” which are relatively poorer, could generate social problems, because those who suffer the most from high prices are always the poorest.