Poland slashes 2007 deficit on road to eurozone

Poland slashed its public deficit last year by a third from the forecast figure, the finance ministry said on Thursday, marking a big step towards European Union targets and eurozone membership.

"We can say with certainty that the (2007) deficit did not exceed 19 billion zloty," Deputy Finance Minister Elzbieta Suchocka-Roguska told journalists here against a background of efforts to meet eurozone entry criteria within the next four years.

The figure of 19 billion zloty compares with a projected 2007 deficit of 30 billion zloty (8.3 billion euros, 12.2 billion dollars) approved by the previous conservative and eurosceptic Law and Justice government.

That forecast figure amounted to 3.7 percent of gross domestic product, substantially exceeding a 3.0-percent target for eurozone membership.

The ministry did not say what the actual deficit now represents in terms of output, but the European Commission had estimated that the ratio would fall to 2.7 percent of output in 2007, rising again to 3.2 percent in 2008 and 3.1 percent in 2009.

The 2008 budget, recently passed by the liberal, business-friendly Civic Platform administration which took office in November, forecasts a deficit of 27.09 billion zloty, or 3.2 percent of GDP.

Under the Maastricht Treaty which created economic and monetary union, and laid down obligations and conditions for EU members to adopt the single currency, a public deficit should not exceed 3.0 percent of output.

The Stability and Growth Pact, which reinforces this discipline for countries in the eurozone, requires the public accounts to move into surplus in the medium term. The public deficit covers central government, social, and local authority budgets.

When Poland joined the EU in May 2004, its EU partners gave it until 2007 to bring its deficit into line with the 3.0-percent ceiling.

Under Prime Minister Donald Tusk, the liberals predict GDP growth of 5.5 percent in 2008. The economy grew by 6.4 percent in the third quarter of last year on a 12-month comparison.

In November, the European Commission urged Tusk's freshly installed liberals to take action to cut the country's public deficit amid evidence that it would breach the 3.0-percent level in 2008.

Tusk has insisted that he will adopt a strong pro-EU policy after two years of eurosceptic conservative PiS government, which often clashed with the European Commission.

When Poland joined the EU in 2004 it became bound to work towards achieving criteria for membership of the eurozone which, with the accession on January 1 of Cyprus and Malta, now has 15 members from the 27 countries in the EU. The main targets concern inflation, interest rates, currency stability, and containment of the public deficit and debt, together with independence of the central bank in managing monetary policy.

While euro adoption is the priority for Tusk liberals, Finance Minister Jan Rostkowski has said swapping the zloty for the EU single currency is at least four years away.

Source:eubusiness.com