After fireworks heralded the arrival of the euro in 1999, the currency's reputation has gone steadily downhill. That's why Polish Prime Minister Donald Tusk's move to hold a possible referendum on joining the euro has raised some eyebrows.
Poland, in case you didn't know, is one of the few Western economic success stories of the post-crash era. Dylan Matthews of The Washington Post points out that its economy grew by 1.6 percent in 2009, while the U.S. economy was shrinking by 3.5 percent. As recently as 2011, when the rest of Europe was mired in a currency crisis, Poland's economy was growing at a robust rate of 4.3 percent.
The secret to its success? Sticking to its currency, the zloty, which allowed Poland to devalue its currency to keep exports strong. Meanwhile, members of the eurozone, burdened by a single, inflexible currency, continue to struggle with an endless feedback loop of austerity and recession. Now, Matthews says, "it sure looks like Warsaw wants to adopt a policy that would have created big problems for the country in 2009."
It really does make you want to bang your head against a wall. Think of Spain, Ireland, now Cyprus. How much more evidence do we need that the euro is a trap, which can all too easily leave countries with no good options in the face of crisis? [New York Times]
Krugman says Cyprus should drop out of the euro and restore its old currency, which would allow the country to better finance its debt and entice bargain-hungry European tourists to arrive in droves. The other option is to follow the perilous path of Greece, which has enacted draconian budget cuts to qualify for bailout loans. "We’re talking about Greek-level austerity or worse in an economy whose fundamentals, thanks to the implosion of offshore banking, are much worse than Greece’s ever were," Krugman writes.
Yes, Poland is a relatively large country of 38 million people, while Cyprus, with a population of just over a million, is smaller than Dallas, Texas. But in the throes of a currency crisis, the same rules apply.
Euro fatigue isn't limited to newspaper columnists. According to the Financial Times, 62 percent of Poles oppose joining the euro "with skepticism increasing markedly since the financial and debt crises hit Europe five years ago."
With so much against the idea, why does Poland want to join the euro anyway? Because it has to — eventually. When it agreed to gain all of the economic advantages of becoming part of the European Union, it also agreed to adopt the euro. Only the U.K. and Denmark have opt-out clauses.
Furthermore, Poland stands to benefit economically from joining the euro, as long as it doesn't get caught in a currency crisis. Indeed, Tusk's renewed push to join the euro is being seen as a sign of confidence in the reforms the European Union has made in recent years to safeguard the continent against another disaster.
Finally, joining the euro has political benefits as well, particularly for a large Eastern European country whose leaders have chosen to embed the country more deeply in the fabric of Western Europe — as opposed to Russia. "Ever since coming to power in 2007, Mr. Tusk has argued that Poland risks being relegated to the second tier of European decision-making if it remains outside the euro," says Dan Bilefsky at The New York Times.
Still, with Cyrpus flaring up, the timing couldn't be worse. A reasonable date for Poland to join the eurozone looks to be 2017, when, according to the Financial Times, it's expected to lower its budget deficit, interest rates, and inflation to acceptable levels. Poland originally was shooting to join in 2012, but those plans were scrapped after the 2008 crash.