Poland faces inflation challenge on road to ERM-2, euro adoption - minister

WARSAW (Thomson Financial) - Poland is unlikely to enter the pre-euro exchange rate mechanism this year and its chief barrier to joining in the near future will be volatility on financial markets and high inflation, Finance Minister Jacek Rostowski said Sunday.

'We will be ready to join the ERM-2 mechanism when we meet the Maastricht criteria (for economies joining the euro zone) and first and foremost when the situation on global markets has calmed,' Rostowski told reporters on the sidelines of a party rally to mark the government's first 100 days in power.

'In 2008 it is very unlikely that the situation on markets will stabilise and from March we will no longer meet the inflation criteria. I hope this problem will cease to exist in 2009.'

Rostowski reiterated comments made to a newspaper on Friday that he could 'not rule out' the adoption of the euro in 2012 by Poland, which with a population of 38 mln is one of the largest countries in the bloc with its own currency.

This formula is the closest the new government has come to setting a possible date for adoption of the euro. Previously, he had said only that it was unlikely to come before the government's term ends in 2011.

Poland's zloty and debt markets have been boosted by expectations this government would support a swift push to adopt the single currency but Rostowski's approach has played down hopes of entry before 2013-14.

Rising inflation in recent months has made it clear that, like other eastern European states, Poland's main problem with meeting the euro's economic fitness tests will be on price stability.

'Formally we could join ERM-2 without meeting the conditions on inflation but this would unwise,' Rostowski said.

Asked again when Poland would most likely join, he reiterated: 'We do not rule out 2012.'

Source: By Paweł Sobczak,

forbes.com