Tuesday, January 24, 2012

The Shining Star of Europe?

Fareed Zakaria points us to what may be the shinning star of Europe:
[P]erhaps the biggest reason for poverty-stricken nations like Egypt to pay close attention to Poland is that it is a very rare breed in today's world, especially in Europe. Poland has a strong economy - the sixth biggest in the European Union now and the only European Union country to avoid a recession altogether. None of its banks needed to be rescued.   Its economy grew 4% last year, and is on track to grow 3% in 2012. Why, you'll ask. How did it survive the turmoil in the Euro Zone? One answer is that it has strong domestic demand and has been pouring money into infrastructure projects.   But the real - and fortuitous - reason is that Poland has yet to be allowed in to the Euro Zone - it continues to use zlotys instead of the euro. So unlike Greece or Italy, it was able to devalue its currency to stay competitive.
I know that last part will leave some of my hard money readers in angst, so think of it this way.  Poland has been able to stabilize domestic demand by adjusting its monetary policy accordingly. The Eurozone periphery has not been able to do this and paid dearly as seen below:

Now Poland has done other things right as noted by Zakaria, but what this contrast highlights is that the Eurozone crisis is as much a monetary crisis as anything else.  Yes, there are deeper structural problems with the Eurozone, but if Eurozone officials want to address these deeper problems they need to first address the immediate monetary problems behind the crisis.  Maybe the shining star of Europe will help them appreciate the monetary nature of the crisis. 



    This might have something to do with it.

  2. David
    This old post reaches the same "conclusions".

  3. Marcus,

    Great figures in your post. So where has Sadowski been lately?

  4. David
    Sadowski used to be Morgan Wastler´s "main competitor" in Scott´s comments. He´s been quiet lately. Maybe concentrating on his teaching duties!

  5. Lorenzo,

    I would love to see the same tenacity from a reporter in one of Bernanke's press conference.

  6. The usual soft money, anti-ECB prejudice from commenters here.

    The main reason why the Irish are on the hook for unsecured creditors of their banks is that they chose to guarantee them all ( ) at the start of the financial crisis in a beggar-thy-neighbour move that astonished the rest of Europe and initially even led to inflows into Irish banks to benefit from the unlimited government guarantee.

    If the ECB official had been a bit sharper or less tactful, it might have been the journalist who was humiliated.

    But then I suppose I should not expect any respect for official promises from people here whose answer to economic weakness is to cheat creditors with a bit of unanticipated inflation.

  7. I hate to say it, but communist Belarus has done well for the last several years as well.

    The horrible, repressive oil-rich monkeyman Middle East dictatorships do well also.

    My point? I am not sure, but I like people to be honest about which nations are prospering. Argentina has done well since reneging on debts.

  8. David, Poland is probably the country that I have been following the closet in the past decade as part of my day. I visit the country a number of times every year. In I was in Warsaw last week.

    The change in Poland since the end of communism 23 years ago has been remarkable.

    Massively structural was past especially when Leszek Balcerowicz was finance minister in the early 1990s and then in the later in the mid-1990s. Over the past decade Poland has past few reform. The new reelected centre-right government under the leadership of Donald Tusk is now pushing for much need pension reforms.

    While Poland's performance especially during the crisis has been rather impressive - in my view mostly due to the floating exchange rate regime - there are certainly also structural problems such as high structural unemployment (probably above 10%), high levels of corruption and enormous red-tape for businesses.

    Looking ahead Poland needs to address these issues to continue to grow strongly. Poland especially to deal with very serious democraphic challenges.

    In terms of monetary policy central bank governor Marek Belka generally have done well even though the central bank's insistence of occassionally intervening in the currency market to me seem to be an odd praxis. Luckily Poland is one of the countries where I can say that directly to the central bank governor;-)