For Poland, Euro-Launch Will Be Complex

While countries in the European Union, and especially the Euro-zone, have been busily preparing their infrastructure for the euro, Poland has had a comparatively easy time of it.

There's been less of a last-minute push among businesses and financial institutions to install new computer systems, specifically to suit the new currency. Poland's rapid modernization through the 1990s took care of such technical problems, anyway.

And there's been little worry among Poles, as there has been among some Germans for instance, about the risk of losing money when banks and investment funds perform their billions of automatic transfers into the new currency. Plenty of Poles still prefer to save their cash the old fashioned way – safely in jars at home.

"The EU and euro are good for Poland," says Polish central bank president Leszek Balcerowicz, confidently.

But this does not mean the euro-launch will be painless in Poland.

Exchange slump

The first businesses to feel it will be the countless currency exchanges that flourish in every Polish marketplace, big and small.

Once the common currency goes into circulation, the clock will start ticking on final transactions in the Euro-zone's 12 outgoing currencies, before their value expires for good. Once all those old notes are traded away, changers predict their business will sag dramatically.

"This means less turnover for us, because we make our money on the individual conversion charges," says Darius Piasecki, a changer in Warsaw. "It's obvious that we will make less profit."

No statistics exist to prove it, but it's no secret that many Poles still prefer to keep their savings in the trusty Deutschmark, despite the recent strength of their national currency, the zloty.

Savers' enduring preference for foreign cash has kept changers busy, because of the constant demand for exchange. But this, for obvious reasons, is on the way out.

Once the euro arrives, there will be three major alternatives – the euro, the dollar or the zloty.

Trade advantage

The happiest Polish businesses, no doubt, are those trading with the Euro-zone, who stand to save money and time on currency transactions.

The country's links with former socialist economies have dwindled in recent years, as its ties to the EU have strengthened. In 2000, 76.3 percent of Poland's exports went to the EU, and 61.2 percent of imports came from the EU.

For businesses like Elektromontaz Warsaw, a manufacturer of switchgear for power stations, the new currency is more than welcome.

"The introduction of the common currency [will enable us] to eliminate uncertainty when calculating in other currencies," says Zbignew Misztal, the company’s director.

"This will stabilize business. After all the European market is much bigger than the individual markets of the European countries."

Exporters, hoping to take advantage of favorable currency rates, are hoping that the euro will be strong. Importers, meanwhile, would prefer it weak.

The Zloty’s fate

Unlike some EU candidate countries, hankering to join the Euro-zone by pegging their currencies to the euro even before joining the union, Poland is content to wait.

The zloty first floated freely on international currency markets at the end of the 1990s, when it was unpegged from a basket of hard currencies. It has been riding high lately, thanks to booming Polish industrial production, says Balcerowicz, the central bank president.

Keen to join the EU, but equally content to keep its valuable currency, Poland expects to join the union first and the Euro-zone later, central bank advisors say.

More pressing matters

The Euro-launch is big news for Poland, but not the biggest.

The country hopes to overcome an anticipated drag-down effect caused by weakening Western economies.

The government in Warsaw forecasts continued economic growth through the end

of this year, by 2.0-2.5 percent, but a weakening EU won't help.

"The real problem," says Balcerowitz, "is slumping demand from abroad, in particular decelerating economies in Germany and other Western economies."

It wasn't long ago that Poland's businesses performed the daunting feat of finding new export markets in the EU. The end of socialist regulation throughout the region, and the abolition of fixed demand for production, forced that change.

Now with analysts forecasting swifter growth in Eastern Europe's once-slumping economies, and a concurrent slowdown in countries like Germany, some Polish businesses may be tempted to double back on themselves by trading again with the east.

But the EU is moving into those countries, too. Even during an EU recession, if it should come to that, most Polish businesses see the Union as the nearest stable market.

EU enlargement could occur by 2005, but in truth nobody really knows the exact date,

which must be suggested by the EU's executive commission and approved by member states.

When enlargement comes, for many Polish and East European businesses, the euro will have preceded it.