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...As you read about Bosnia and Kosovo in your daily newspapers I remind you of the words of Socrates spoken at his trial in his own defence: "I do not know what effect my accusers have had upon you gentlemen but for my own part I was almost carried away by them; their arguments were so convincing. On the other hand scarcely a word of what they said was true."....

четвртак, 08. децембар 2011.

European Disunion: Euro's Allure Dims in Eastern Europe - WSJ.com

European Disunion: Euro's Allure Dims in Eastern Europe - WSJ.com

OSTROW MAZOWIECKA, Poland—Assembly lines in a sprawling furniture factory here run round the clock, seven days a week, churning out desks and bookcases for customers across Europe.

Despite the downturn gripping much of the Continent, workers struggle to keep up with demand. "Frankly speaking, we haven't even felt the crisis," said Maciej Formanowicz, president of Fabryki Mebli Forte SA, as forklifts loaded a shipment of television cabinets bound for Germany.

A critical reason for Forte's strength: Poland doesn't use the euro.

When turmoil enveloped the globe three years ago, Poland's zloty declined against currencies seen as safer, including the euro. That made Polish exports less expensive for buyers abroad and helped keep the economy growing. Since then, Poland has been the sole member of the European Union to avoid a recession.


Support from the zloty isn't the only reason for Poland's success. But, coupled with the debt crisis rattling the euro zone, it has changed minds about adopting the euro—long a stated goal and something the government had pledged to do by 2012.

Now, Finance Minister Jan Vincent-Rostowski, citing "very deeply rooted structural problems" in the currency union, says it "will take several years before we will know if the euro zone is well constructed and safe to join," as he put it in a recent radio interview. Opposition leader Jaroslaw Kaczynski is blunter: He says adopting the euro now would be "economic suicide."

Across Central and Eastern Europe, the story is much the same. Governments from Hungary to Bulgaria that once clamored to join the euro club are putting plans on hold and reassessing the costs and benefits of something that used to seem inevitable. The spread of the euro was seen as part of Europe's manifest destiny, and the countries that emerged from behind the Iron Curtain saw the adoption of the currency as a potent sign of success, both political and economic.

The change of heart is an ominous portent for the decades-long process of increasing European economic integration. The common currency is the centerpiece and the leading symbol of that integration. If enthusiasm wanes for the euro, boosters fear, this could spell trouble for other efforts to knit the nations of the Continent together.

Moreover, economies like Poland's and the Czech Republic's are the kind that euro-zone leaders want to bring into their currency union—competitive, with low debt and strong growth prospects.

"It's a big question mark over the future not only of the euro zone, but of the European Union and the convergence process," said Simon Quijano-Evans, an economist with ING Bank in London who follows Central and Eastern Europe.

A critical new effort to shore up the euro zone is under way this week. European leaders at a Brussels summit that starts Thursday are expected to consider a French-German proposal for all EU states, whether they use the euro or not, to accept tighter restrictions on national budgets and debt. If such a change to the treaty that governs the EU seems out of reach, a fallback plan calls for greater enforcement of fiscal discipline among the 17 nations that use the euro as well as any non-euro nations that want to sign up.

It isn't clear how the former socialist states of "the New Europe" would take to additional EU limits on their spending authority. In a statement Wednesday, Czech Prime Minister Petr Necas said that he supports more "fiscal and macroeconomic discipline," but that any rule changes should apply "primarily" to members of the euro zone. Polish government spokesman Pawel Gras said the joint proposal by German Chancellor Angela Merkel and French President Nicolas Sarkozy is "going in a good direction."

Euro Zone Crisis Tracker

See economic, political and markets news from across Europe as governments and financial institutions deal with the continuing debt crisis.

Debt, Doubt and the Euro Zone

See country-by-country events in the crisis.

Key Players in Europe's Debt Crisis

Europe's political and financial leaders

Political leaders in Warsaw say they want to join the euro zone eventually. And they have cited stricter fiscal rules as something that could make joining more attractive, by lessening the risk of future debt crises. Yet ceding power to outsiders could be a hard sell for nations such as Poland that regained real sovereignty only 20 years ago, after decades as Soviet satellites.

Polish Foreign Minister Radoslaw Sikorski gave a speech in Berlin late last month calling on Poland's historic enemy, Germany, to lead Europe toward a solution, and pledging support for stronger European institutions and limits on national freedom to maneuver. The political opposition accused him of being willing to surrender national independence.

Polish citizens were souring on the euro before the currency union's latest troubles, which include a spread of high borrowing costs to more countries and a credit review (for possible downgrade) of 15 governments announced by Standard & Poor's.

A September survey of Poles showed support for adopting the euro at 29%, down from 38% just 15 months earlier. Opposition rose to 53% from 47% in the survey conducted for the Polish Finance Ministry.

"Poland should stick to its zloty," said Jacek Czerwinski, a 62-year-old managing partner at a television-services company. "If we had joined [the euro zone], we would find ourselves in dire straits."

Mr. Czerwinski added that as the euro area teeters, he has become cautious about buying new equipment for his business, concerned that a prolonged economic downturn there could spill over into Poland. To him, in order for joining the euro zone to be attractive for Poland, changes would have to be made: "The strong should remain and the weak should be chucked out."

It isn't hard to understand the disenchantment, as the depth of the crisis and the EU leadership's inability to unite behind effective solutions weaken confidence in European institutions.

One benefit that has attracted governments to the euro in the past—the prospect of lower government borrowing costs—is much less of a draw now, as non-euro nations see the way the markets drove up yields on bonds from euro-using countries such as Portugal and Ireland. Indeed, Poland can borrow more cheaply than they can; its 10-year bonds yield about 5.89%.

Then there are the bailouts, financed by the richer euro-zone members. "We can all see how the monetary union is turning into a transfer union or even a debt union," said Mr. Necas, the Czech prime minister. "Nobody knows what this project will come down to."

In neighboring Slovakia, which adopted the euro at the start of 2009, outrage among lawmakers and the public about having to contribute to rescue efforts for wealthier nations in October brought down the country's government and threatened to derail crisis-management measures.

The debt mess has cast a harsh light on the danger of handing over monetary policy to a multinational central bank. Greece, Portugal, Italy and other weaker euro-area countries have struggled to reignite growth in part because they no longer have a currency that can fall in value and make their exports more affordable.

That has left what economists call an "internal devaluation"—a drop in wages and prices, something harder to accomplish—as among the few routes available to an economic comeback. For officials in New Europe, the take-away is that belonging to the euro might make it tougher for their economies, not easier.

Maciek Nabrdalik/VII for The Wall Street Journal

Founder Maciej Formanowicz checks machinery at the Forte furniture firm in Poland, where exports benefit because the country doesn't use the euro.

"If you are strong, it is good to be inside the euro zone," said Hungary's economy minister, Gyorgy Matolcsy. "If you are weak, it is life-threatening."

While much of the euro zone has lagged, Poland has forged ahead, narrowing the gap in living standards between its residents and those of the richer European nations to the West. Poland's per capita gross domestic product as measured by purchasing power was roughly half the EU average in 2006; now it is nearly two-thirds.

Growing exports and robust domestic demand are expected to boost Poland's economic output this year by at least 4%, a rate that far outstrips the EU average.

A floating currency is by no means all Poland has going for it. Its households didn't borrow as much during the credit boom as many of their peers in other parts of Europe. A constitutional limit on public borrowing has held down government debt. Tax cuts and infrastructure spending helped bolster domestic demand.

But "it's obviously better to be outside" the euro zone now, said Poland's central-bank governor, Marek Belka, because "we can avail ourselves of a sovereign monetary policy, including the ability of the currency to depreciate," and don't have to share in the cost of bailouts. "We have the benefits of being in the European Union, but not the euro zone," he said.

Those EU-membership benefits include tariff-free access to Europe's markets, plus EU development funding. Thanks to those attractions, many European nations that aren't yet in the EU, such as Serbia, remain keen on joining, despite the crisis in the euro zone.

Poland's strength is in the same low- to medium-technology goods, such as furniture, shoes and processed foods, as those produced in struggling Greece, Portugal and Italy, putting Poland in direct competition with countries the euro zone is fighting to save.

The Forte furniture company, founded when Mr. Formanowicz bought an insolvent state-run factory in 1992, exports about 80% of its products, nearly all to countries in the euro zone.

Poland's currency was about 25% cheaper against the euro on average in November than during 2008. "For us, the critical element has been the depreciation of the zloty against the euro," said Mr. Formanowicz, though he also credits Forte's quality and its ability to make just-in-time deliveries across the Continent. Now publicly traded, the company has become one of Europe's biggest makers of assemble-at-home furniture. Its sales are up 15% this year, Mr. Formanowicz said.

Forte's experience during the crisis shows another advantage of many Polish companies: nimbleness. By adjusting its sophisticated, computer-guided machinery, Forte was able to make its products physically leaner, using less material and lowering costs.

It was also able to shrink its labor force. In 2009, Mr. Formanowicz closed one his five Polish plants, laying off most of the work force, and invested in better machinery to boost productivity at the four remaining.

He has looked into buying factories in Western Europe to move production closer to customers, but is discouraged by the inflexibility of labor markets. Over there, "no one would consider working on Saturday or Sunday. You can't even raise the subject," he said.

Although Mr. Formanowicz says that "no one in his right mind would argue for the adoption of the euro now by Poland," he adds that in the long run, using the common currency likely would make things easier for people like him, by taking exchange-rate risk out of business calculations. "From the point of view of a small entrepreneur, adopting the euro solves a lot of problems. It gives a great deal of certainty," he said.

Central and Eastern European countries also fear the economic dislocation that a demise of the currency union would bring, because their economies are closely linked to the fate of the euro zone.

Mr. Belka, the Polish central banker, is reassessing what Poland would have to do before it would make sense to adopt the common currency. Seeing the bind that the weakest euro-zone nations now find themselves stuck in, Mr. Belka concludes it isn't enough just to meet the so-called Maastricht criteria, such as budget deficits limited to 3% of economic output. Before joining, "we need to modernize and strengthen the economy, modernize the banking sector. These are prerequisites for a good life inside the euro zone."

Ludwik Kotecki, a state secretary in Poland's finance ministry, says Poland's aim is still to join the common currency someday. "But," he said, "we want to join a stable, postcrisis euro zone."

—Marcin Sobczyk and Marynia Kruk contributed to this article.

Write to Gordon Fairclough at gordon.fairclough@wsj.com

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