Poland survives crisis relatively unscathed

Maria Karasinska-Fendler
During the recent financial crisis, sound macroeconomic and financial management allowed Poland to emerge relatively unscathed. Indeed, Poland was the only economy in the EU to register positive economic growth in 2009 and expects to reach a growth rate of more than 2 percent in 2010. The recent crisis has laid bare some troubling weaknesses in Europe’s institutional framework. As Europe works to reshape its institutions now – making them stronger, more resilient, and better able to promote balanced and sustained growth – these weaknesses must be repaired. For Poland, after the painful early years of transition, economic growth took off, trade flourished, and stable institutions took root. Growing economic and financial ties with Western Europe accelerated this process and boosted foreign investment. All these produced a remarkable rise in living standards, with incomes beginning to converge toward Western European levels. This is the most important development: integration has improved the quality of people’s lives. The Polish government and economists are convinced that European institutions and mechanisms were able to provide some cushion from the crisis.
For members of the Eurozone, monetary integration proved a valuable safeguard, providing protection against additional disturbances from destabilising currency gyrations. In addition, the European Central Bank (ECB) made emergency liquidity facilities available, extending a financial lifeline to banks in the Euro area.
EU structural funds helped bolster investment in new member states, including Poland, and thus support economic growth. Countries outside the Eurozone facing external financing difficulties could make use of the EU’s balance of payments facility. Finally, through the European Bank Coordination Initiative, western parent banks agreed to maintain exposures in a number of emerging European countries. However, it is well seen that what mattered more for how Europe’s economies fared during the crisis were domestic factors – including macroeconomic fundamentals, financial sector policies, and political will. Naturally, given the tremendous diversity in the region, countries in emerging Europe have experienced the crisis very differently – ranging from Poland, which virtually escaped recession altogether, to Ukraine, the Baltic States, Romania and Hungary – all of which suffered severe downturns. What has made the difference in terms of a country’s response to the crisis has been the quality of its economic policies and institutions. In this regard, Poland stands out. Thanks to strong economic institutions and commendable policy management, Poland has avoided the excesses seen in many other countries in recent years. And because there was sufficient fiscal space to adopt temporary stimulus measures, the impact of the crisis on growth was lessened. Indeed, as the largest economy in the region, Poland is leading the economic recovery.
At the same time Poland is very interested in the reinforcement of institutional and financial tools like the envisaged establishment of a European Systemic Risk Board and a European System of Financial Supervisors, increasing the EU’s ability to monitor financial sector risks – and hence to prevent crises. From the Polish point of view, Europe should also strengthen economic policy coordination. Currently, the major policy frameworks in Europe – macroeconomic, financial, and structural – are relatively independent of one another. One of the crisis’ lessons in Europe is that a single currency without enough economic policy coordination may lead to huge imbalances. To sustain growth over the longer run, competitiveness must be increased. Reforms that tackle rigidities in labor and product markets, as set out in the Europe 2020 Strategy, should be accelerated. In fact, more effective labor markets are allowing many emerging European economies to recover more rapidly from the crisis and should provide a boost to their competitiveness for many years to come.