On Wednesday members of the government and the prime minister Donald Tusk announced, that Poland could enter the Eurozone already in 2011. The statement is surprising in regard with the date of entry, which was not supposed to be before 2013 by most market participants. As a reaction on the currency market EUR/PLN came back to levels below 3.40. Before the statements EUR/PLN was traded around 3.47.

 

It would be technically possible for Poland to enter the Eurozone in 2011. On the other hand, however, the following points should be considered:

 

An adoption of the Euro would make an entry into the ERM-2 system necessary. This of course needs time for preparation and talks between the parties involved, which would be the ruling government, the NBP and the European Commission together with the ECB. However, no talks concerning any strategy have been started so far.

Even if all players agreed fast enough on the adoption in 2011, this would probably make changes in the polish constitution necessary. In order to do that, the ruling government would need a qualified majority in order to pass the change through parliament. It is obvious, that under the current political circumstances this would be a hard task to achieve. And even if it succeeded, the president would have to sign the change, too, which is not probable at the current status quo.

From an economic point of view Poland would give up all monetary policy instruments. This might be problematic, since Poland has not yet converged to standards, which prevail in countries of the Eurozone. Monetary policy of the ECB is designed for developed economies such as Germany or at least for the "average Eurozone economy". This could lead to situations ECB´s action do not conform with the policy needs of Poland. This is of course more probable, the more divergent the economic development in both regions is.

Nevertheless, there is of course a mayjor advantage of a possible Eurozone accession: Transaction costs and currency risks would cease to exist. Poland has an exports to GDP ratio of 40% with Germany and France being the most important trading partners for Poland.

With an inflation rate of around 5% Poland could have problems with achieving the inflation criteria, though inflation rates are expected to fall during the next two years. All the other three Maastricth criteria would be probably less of a problem.

 

Thus, it remains to see, what concrete steps will follow after the statements. We expect EUR/PLN to be driven more by speculation regarding Eurozone accession now. In the next couple of days the market could push EUR/PLN further down, especially given that Zloty was quite weak in August and also most recently.