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Poland Affirms Desire to Join Euro Zone

March 27, 2013 by Leave a Comment

With the tiny island of Cyprus fighting to avoid a messy exit from the euro, it would seem a particularly inauspicious time for Poland, an economic powerhouse of Eastern and Central Europe, to be clamoring to join the currency union.

Yet in what appears to be a calculation that he can convince a skeptical nation to give up the zloty, the Polish prime minister, Donald Tusk, has opened the door to a referendum on joining the euro zone. Analysts warned that the move could backfire amid a growing backlash against the currency stoked by the euro zone’s long-running debt crisis.

“I would be in favor of reaching an agreement to change the Constitution, where there would be a referendum about joining” the euro zone, Mr. Tusk said at a news conference on Tuesday, according to Reuters.

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. Analysts said the prime minister was determined to prepare the ground for a national debate on the euro before a possible entry in 2017. Mr. Tusk has indicated that his government would only set a date for euro entry after the next election, which is expected in 2015.

Broaching the referendum issue was also tactical. Mr. Tusk has in the past opposed a demand by Law and Justice, a euro-skeptic opposition party, to hold a popular vote on the euro. Analysts said the prime minister was now raising the possibility of allowing a referendum on the condition that the opposition agree to changes to the Constitution necessary to adopt the currency.

Under the current Constitution, only the zloty can serve as Poland’s currency. Mr. Tusk’s Civic Platform party and its junior coalition partner, the agrarian Polish People’s Party, together lack the two-thirds majority necessary to change the Constitution.

Even though any referendum is likely to be years away, analysts said Mr. Tusk faced an uphill struggle at a time when the crisis in Cyprus had made Poles extremely wary of joining the euro zone and being encumbered with spiraling costs associated with paying for the profligacy of other euro zone nations.

According to a survey conducted this month by TNS Polska, 53 percent of Poles think that adopting the euro would have a negative effect on the country, with 69 percent believing it would adversely affect their households. The margin of error was roughly three percentage points.

Witold Orlowski, a professor of economics at the Warsaw University of Technology Business School and a member of an economic council advising the government, said Mr. Tusk wanted to send a strong signal to Poland’s E.U. partners that the country was determined to be at the heart of the European project, regardless of the challenges ahead.

“Who loves the euro today? Nobody. Of course, there are risks that Poles could vote no in a referendum, and the aim to expand influence could backfire,” he said. But he stressed that for Poland, tugged between Russia and Germany over the centuries, joining the euro was not primarily about economics but about the political imperative of being cemented more firmly to the Union.

But Mr. Orlowski said that not being straitjacketed by the euro’s one-size-fits-all monetary policy had helped Poland to weather the crisis gripping much of the Continent. Those benefits have been somewhat offset by Polish companies’ complaints that being outside the euro zone saddles them with cumbersome and expensive transaction costs.

The Polish economy has proved relatively robust, although it grew by just 2 percent in 2012, down from 4.3 percent in 2011. A flexible exchange rate and tight monetary policy have helped the country to sustain growth while many of its E.U. partners have stagnated or seen their economies shrink.

Among the former communist countries in the Union, Slovakia, Slovenia and Estonia have already adopted the euro, while Latvia has indicated it wants to join as early as 2015. But enthusiasm for the currency is tepid across the former Soviet bloc countries that have yet to join, according to a recent Eurobarometer poll, with 54 percent of people in these countries, which include Hungary, the Czech Republic and Romania, believing the euro would have negative consequences for their countries.

Ryszard Petru, president of the Association of Polish Economists, said it remained doubtful that Law and Justice would agree to the necessary changes in the Constitution, even if that meant securing a referendum on the euro.

But if there were a referendum today, he added, “the no side would win.”

Article source: http://www.nytimes.com/2013/03/28/business/global/poland-affirms-desire-to-join-euro-zone.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Cyprus Lawmakers Prepare to Vote on New Bailout

March 22, 2013 by Leave a Comment

Without lawmakers’ approval for new measures, the country will not receive the €10 billion, or $13 billion, bailout it has requested and could risk a disorderly default.

Members of the so-called troika of lenders — the International Monetary Fund, the European Central Bank and the European Commission — met Friday morning with President Nicos Anastasiades and were planning to review the new proposal, should Parliament pass it.

A crowd of several hundred demonstrators massed again Friday morning in front of the Parliament building. Many angrily demanded compensation for their losses at the banks.

With anger and anxiety growing across Cyprus, Mr. Anastasiades’s new plan would scrap a tax on bank deposits. Experts warned, however, that the deposit-tax plan might need to be revisited unless the government found other means to reach the goal of raising €5.8 billion to satisfy Cyprus’s creditors and unlock the full bailout funds.

The plan sent to Parliament would nationalize pension funds from state-run companies and conduct an emergency bond sale to help raise the €5.8 billion. Gone was any reference to a deposit tax, which Parliament roundly rejected in a vote Tuesday.

Before concrete details emerged, German leaders made it clear they would not back a deal that involved nationalizing the state-owned companies’ pensions, a measure that is rejected in Berlin as more socially dangerous than even the original plan to tax smaller savings.

In a closed-door meeting with members of her junior coalition partner, the Free Democrats, Chancellor Angela Merkel made clear her impatience with the government in Cyprus, stating that “under no circumstances can we give up our principles,” the public television network ARD reported.

“When you consider that there was massive resistance against involving the savings, then it is not easy to see how tapping the pension funds, which we view as socially a much more drastic step, is a very good idea,” Steffen Seiber, Ms. Merkel’s spokesman, told reporters.

Germany is not alone. Luc Frieden, Luxembourg’s finance minister, expressed frustration over a lack of communication in Nicosia, telling Germany’s RBB radio, “It is difficult that we are not getting any details from Cyprus.”

Lawmakers will also vote on restrictions on taking cash out of banks and out of the country, known as capital controls, when the banks reopen Tuesday after a national holiday Monday. The bill would limit cash withdrawals, prohibit or restrict check cashing and bar “premature” account closings and any other transaction the authorities deemed unwarranted.

The authorities have ordered Cypriot banks to keep A.T.M.’s filled with cash as long as the banks themselves are closed. But that has been of little help to the thousands of international companies that do banking in Cyprus, which cannot transfer money in and out of those accounts to conduct business.

The central bank said Thursday that Cyprus had until Monday to reach an agreement with the European Union and the International Monetary Fund, if the government wanted its banks to continue to receive the low-interest loans essential to keeping them afloat.

Many of the wealthiest citizens of Russia, which is not in the euro currency union, have bank accounts in Cyprus — one reason that euro zone finance ministers have taken such a hard line.

A delegation of Cypriot officials led by the finance minister, Michalis Sarris, remained in Moscow until Friday morning to press their case for additional aid, but there were no reports of progress, and the officials stayed out of sight.

The Russian prime minister, Dmitri A. Medvedev said Friday in a joint news conference in Moscow with José Manuel Barroso, the president of the European Commission, that his country was not walking away from Cyprus.

Instead, said Mr. Medvedev, Russia would wait until a deal is done between E.U. authorities and Cyprus before extending additional help.

“Regarding our participation in this process, we haven’t shut the doors,” said Mr. Medvedev. “Of course we’ve got our own economic interests at stake.” Additional efforts to help Cyprus will come “only after a final settlement scheme” involving the European Union, he said.

The situation in Cyprus “is very dramatic and should be addressed as soon as possible,” Mr. Medvedev said.

Reporting was contributed by Melissa Eddy in Berlin, David M. Herszenhorn in Moscow, James Kanter in Brussels and Andreas Riris in Nicosia.

Article source: http://www.nytimes.com/2013/03/23/business/global/cyprus-bailout-vote.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

As Government Stands Firm, Analysts See Risk of New Recession in Britain

March 17, 2013 by Leave a Comment

LONDON — As George Osborne, the chancellor of the Exchequer, prepares this week to update Parliament on his plans for the economy, the prospect of stagflation is back to haunt Britain.

Recent disappointing economic data coupled with rising consumer prices have heightened fears among some economists that Britain is once again edging closer to a recession, leaving Mr. Osborne and his austerity plan increasingly isolated.

Calls for Mr. Osborne to take a break from his relentless efforts to balance the budget and instead find ways to get economic growth back on track intensified in advance of the annual budget, which he is to present to Parliament on Wednesday. Even within his own Conservative Party and among members of the government’s junior coalition partner, the Liberal Democrats, lawmakers have started to suggest that it time for a new approach.

“The pressure is mounting on Mr. Osborne,” said Simon Wells, an economist at HSBC. “He’s been in the job almost three years, and over this period the economy has grown by a measly 1 percent.” That compares with 4.9 percent growth in the United States during that span, 3.7 percent in Germany and 1.7 percent in France, according to Mr. Wells.

“With an election looming in 2015, he needs growth if he is to stabilize the public finances, and he needs it soon,” Mr. Wells said.

Some lawmakers and economists suggested that Mr. Osborne should use the budget update to announce a slight increase in borrowing to invest in infrastructure, education and other projects that would help revive growth. But the government is widely expected to stick with its plan of balancing the books within five years, even as a deteriorating economy makes achieving that goal more difficult.

“This month’s budget will be about sticking to the course, because there’s no alternative,” Prime Minister David Cameron said in a speech last week.

In January, Britain’s industrial production surprisingly fell to its lowest level in 20 years, reviving concerns that the country could fall back into a recession for the third time in little more than four years. A dismal economic outlook had pushed the pound to the lowest level against the dollar in nearly three years; that makes imports more expensive and threatens to increase inflation that is already above the E.U. average. Higher consumer prices in turn would further cut spending power.

Irfan Aslam, the founder of Global Components, a British supplier of bolts, textiles and other components to the local furniture industry, said the weak pound had already hurt his business by making parts he buys in the United States and Europe more expensive.

“It’s having a real detrimental effect on the business,” said Mr. Aslam, 37. “It forces us right to the edge.”

Mr. Aslam had to postpone plans to expand his warehouses and hire staff members and said he might be forced to pass price increases to his customers. “Demand is weak anyway, and we should be thinking about offering promotions to create demand, but we can’t. We’re actually thinking about increasing prices,” he said.

The government and the Bank of England had welcomed a weaker pound, arguing it would help the economy by making British exports cheaper. But the recent slump of the currency against the dollar, as well as the euro, prompted Mervyn King, governor of the Bank of England, to change his tone. In an interview with the television channel ITV on Thursday he said the pound was now “properly valued,” indicating a further decline was not desirable.

Ha-Joon Chang, an economist at the University of Cambridge, said Britain had failed to generate a trade surplus despite the relatively weak pound because the country was unable to produce enough valuable goods that could be exported. Britain’s economy shrank 0.3 percent in the final quarter of last year and is expected to grow 1 percent this year, according to the International Monetary Fund.

The opposition Labour Party has been pointing to the weak economic growth as evidence that Mr. Osborne’s austerity plan — which has included some tax increases, the elimination of tens of thousands of public sector jobs and cutting social benefits — was not working. Austerity is choking the economic recovery, opposition lawmakers have argued; they say the government needs to increase spending to fuel growth.

Article source: http://www.nytimes.com/2013/03/18/business/global/as-government-stands-firm-analysts-see-risk-of-new-recession-in-britain.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,