Poland argues euro best defense against crisis

Strong public finances and quick adoption of the euro are the best remedy for Poland's deepening economic turmoil, the country's finance minister said Thursday, as new figures showed a sharp drop in industrial production.

"Secure public finances and a quick adoption of the euro are the best way out of the crisis for Poland," Jacek Rostowski told parliament.

Euro membership is still years away, but the subject gained new urgency after Eastern European currencies and stock markets were hit in recent days by continuing bad economic news.

Poland and its zloty have been suffering after initially avoiding the worst of the initial fallout triggered by the collapse of banks and financial institutions in the United States and western Europe.

The zloty stood at 4.73 to the euro on Thursday — better than Wednesday's level of 4.89. That good news, however, was tempered by the Central Statistical Office's announcement that Poland's industrial production dropped 14.9 percent in January compared with the same month last year.
It was the third consecutive month of declining industrial production — a key indicator for the overall health of the economy.

Prime Minister Donald Tusk said earlier this month that Poland would stick to its plans to adopt the euro in 2012, but acknowledged that the financial crisis could threaten that goal.

The government has refused to increase the budget deficit even after the crisis pushed down 2009 growth estimates from around 3.7 percent to 1.7 percent. Instead, it opted earlier this month to find 19.7 billion zlotys ($5.5 billion) in savings in the 2009 budget.

"We are ready to find more savings, and if that doesn't suffice we don't want to raise taxes or increase the budget deficit, but we have to be prepared for a situation in which we have to choose the lesser evil," Rostowski said.

Danske Bank chief analyst Lars Christensen said Poland's public finances "are relatively strong, both in a central European and even a European perspective," and that the government is "more or less on track and moving in the right direction."

Before adopting the euro, prospective members are required to spend at least two years in an exchange rate mechanism, or ERM-II, that demands low and controlled inflation, healthy public finances and a budget deficit below 3 percent. Meeting Poland's 2012 euro target would require Warsaw to start that process this year.

Analyst Christensen said the government is veering onto a "dangerous path" with its continued talk "about ERM-2 and euro adoption when it is clear that there is no commitment on the other side of the table from the ECB (European Central Bank) or the EU Commission."

Christensen said such talk raises too many questions — such as where to peg the zloty — and "creates uncertainty rather than certainty."

Rostowski, who has been criticized by the opposition for his handling of the economy in the face of the turmoil, said adopting the euro would shield Poland's currency from pressures that have seen the zloty drop as much as 15 percent in 2009 to 4.9 against the euro and pushed up foreign debt payments.

"Our ambition to quickly join the euro stems from the fact that it is the best means to fight the crisis in Poland," Rostowski said.

The 16 countries using the euro — including Poland's neighbor Slovakia, which joined Jan. 1 — have seen growth plummet and strain on their public finances, but have not had to deal with added pain of sharp currency devaluations. Some non-euro countries, such as Iceland, Hungary, and Ukraine, have needed IMF bailouts after their currencies plunged.
Source: iht.com

Obama team urges Polish patience on shield

The United States urged Poland Thursday to be patient over a missile defence deal it inked with Washington while President Barack Obama's team reviews the controversial multi-billion dollar shield.

"What I told the defense minister today is that they have to give us a little more time to review these things," US Defense Secretary Robert Gates said at a NATO meeting in Krakow, southern Poland.

Gates said no final decision on the shield, which has enraged Russia, has yet been made.

"Between the economic crisis, Afghanistan and Iraq the administration has not yet reviewed where it is on a whole range of issues including relationships with our allies, the missile defense program, the relationship with the Russians."

Former president George W. Bush launched plans to extend the US missile shield into Europe, basing 10 interceptors in Poland linked to a radar in the Czech Republic to counter any threat from "rogue states," primarily Iran.

But Obama's administration has begun a review of the project's costs and technical feasibility, a move which has eased fears in Russia that the shield was aimed at it.

Polish Defence Minister Bogdan Klich said talks with Washington on implementing the deal, and in particular the stationing of US Patriot missiles in Poland, were ongoing.

"We must be patient and wait until the new administration in Washington will end the ongoing review and we will receive a clearer and forward looking position," Klich said after talks with Gates.

"I reminded him (Gates) that the agreements that were signed last year should be implemented," Klich told AFP after the meeting.

Klich however said talks at deputy ministerial level on technical aspects of the controversial US plan -- the benefits Poland stood to gain from the deal -- "are on track."

The minister told AFP there was no delay "on the topic of the SOFA (Status of Forces Agreement) supplemental agreement; we are speaking about implementation deals on the (missile) base agreement and the topic of locating American Patriot missiles in Poland."

Earlier Thursday Gates reiterated the Obama administration's position on the missile shield.

"We are concerned about the Iranian missile threat and as long as that threat exists we will continue to pursue missile defense, as long as we know it will work and as long as it is cost effective.

"But we will pursue it not only with our NATO allies but also with the Russians."

The August 14, 2008 missile defence deal inked by Washington and Warsaw sparked outrage in Moscow which threatened to aim its own missiles at the planned US installations in Europe.

Washington had wanted the Polish and Czech installations up and running by 2011-2013, to complete its system already in place in the United States, Greenland and Britain.

Washington insists the shield -- endorsed by NATO at it's February 2008 summit -- is in no way aimed at Russia.

The United States warns that Iran could develop long-range missiles capable of carrying nuclear warheads by 2015-2017.

Quoted by the Czech CTK agency in Washington earlier this month, Czech Foreign Minister Karel Schwarzenberg suggested the Czech radar facility was likely to be delayed for three years while the Obama review was conducted.

"Czechs will fully understand it if the US administration puts off the construction of the radar base by three years. We will not be basically opposed to this," Schwarzenberg said.

Missile defence is expected to figure high on the agenda of Russian Prime Minister Vladimir Putin during a planned visit to Poland in the next few months, his first in seven years.

In late January, Polish Prime Minister Donald Tusk said he was confident Russia would freeze a move to deploy missiles in the Kaliningrad region, on Warsaw's doorstep, in retaliation for the US deployment in Poland.
Source:AFP

Polish Zloty, Stocks Lead East Europe Rally on Government Help

Feb. 19 (Bloomberg) -- Poland’s zloty, stocks and bonds led a rally in east European markets after the government pledged to support the currency and reaffirmed its commitment to adopt the euro in 2012.

Warsaw’s benchmark stock index soared the most in almost three months, the zloty jumped as much as 2.9 percent and government bond prices rose as Deputy Finance Minister Ludwik Kotecki told Gazeta Prawna the currency will strengthen in May or June as the country plans to join the euro. Prime Minister Donald Tusk said today the currency must be protected “at any cost.”

The Czech koruna and Hungarian forint also advanced as Goldman Sachs Group Inc. said it ended bets on a further depreciation and a Czech newspaper report signaled the central bank may enter the market.

“The zloty is setting an upbeat tone for the region’s currencies on the intervention and euro-adoption plans,” said Marcin Grotek, an analyst at Raiffeisen Bank in Warsaw. “We’ve also heard verbal intervention in the Czech Republic, and the Hungarian government is talking about unconventional ways to defend the forint. All that is helping eastern European markets gain.”

The zloty strengthened to 4.6799 per euro at 4:33 p.m. in Warsaw. Poland will continue to sell euro funds from the European Union on the interbank market, PAP newswire reported, citing Finance Minister Jacek Rostowski. Adopting the euro is the “best remedy” for the economy amid the global financial crisis, he told parliament.

Best Performer

The Polish currency was the best-performer among emerging- market counterparts in the past two days, advancing 5.4 percent. It rebounded from an almost five-year low on Feb. 17 after Moody’s Investors Service said banks with east European subsidiaries may face rating downgrades.

The gain in government debt pushed the yield of the five- year note 2 basis points lower to 5.89 percent. Bond yields move inversely to prices.

“Government debt prices are gaining on the zloty’s advance, though liquidity is still low,” said Maciek Slomka, head of fixed income in Warsaw at Bank Pekao SA. “The euro sales by the government, comments on euro entry plans and the Goldman report pushed the markets up.”

The Czech koruna advanced as much as 1.5 percent after Mlada Fronta Dnes newspaper cited central bank Deputy Governor Miroslav Singer as saying he would not rule out further use of monetary policy tools, including verbal intervention, to support the currency. The koruna was last 0.6 percent higher at 28.770 per euro.

‘Non-Conventional Intervention’

The Hungarian forint jumped as much as 1.4 percent and traded at 302.00 per euro, compared with a record low of 309.71 two days ago. Hungarian Prime Minister Ferenc Gyurcsany said yesterday he asked central bank President Andras Simor and Finance Minister Janos Veres to seek a “non-conventional intervention opportunity that can help in the defense of the Hungarian forint.”

The euro snapped three days of losses against the dollar on speculation German Chancellor Angela Merkel will signal Europe’s largest economy plans to help ease the financial turmoil in the region.

Goldman recommended closing a trade betting the Polish, Hungarian and Czech currencies will decline further.

Goldman View

“We have long had the view that CEE3 currencies will likely underperform on the basis of unsustainable external imbalances,” London-based analysts Thomas Stolper and Themos Fiotakis at Goldman Sachs wrote in a note sent to clients late yesterday. “But after the rapid depreciation in recent weeks and months we now see several factors that make short positions in eastern European currencies less of a one-way bet.”

Poland’s WIG20 Index rallied 68.16, or 5.1 percent, to 1,405.94, as a rebound in the zloty boosted financial shares, calming concerns about provisions linked to currency options. Hungary’s BUX Index gained 2.9 percent, the most since Jan. 6, and the Czech PX Index rose 4.5 percent, the most in three months.

“The currency rebound pushed the banks up, no doubt about it,” said Marek Juras, head of equity research at Bank Zachodni WBK SA in Warsaw. “That brought some relief about earnings.”

The financial industry’s WIGBANK Index jumped 8.5 percent, the biggest one-day gain in almost three months as Rostowski said the Polish banking system is “healthy.”

Polish Banks

Bank Pekao SA, Poland’s biggest lender and a unit of UniCredit SpA, soared 9.85, or 15 percent, to 77.7, climbing from a seven-year low. PKO Bank Polski SA, the second-largest, gained 1.18 zloty, or 6 percent, to 21. BRE Bank SA, controlled by Commerzbank AG, increased 10.5 zloty, or 11 percent, to 107.5.

Banks led declines this year in Polish equities as they raised provisions for failed bets on currency options and the economy braces for its worst slowdown since 2002. The zloty’s slump compounded problems for companies that bought options from banks last year to bet on an increase in the currency.

Poland’s financial services regulator last week almost tripled its estimate of losses from option deals to as much as 15 billion zloty ($4.1 billion). Polish banks may have to write off as much as 2.25 billion zloty because of companies’ potential losses linked to currency options, the regulator said Feb. 10.

Source: Ewa Krukowska, Pawel Kozlowski
bloomberg.com

Lufthansa is extending its route network in Poland by adding Rzeszów to its summer timetable 2009.

From 27 April 2009, the Lufthansa CityLine regional airline subsidiary will begin operating five flights weekly on the Frankfurt-Rzeszów route with a Bombardier CRJ-700.

Rzeszów is an important economic and cultural centre in southeastern Poland. Located in the Carpathian foothills, and near the border with Ukraine and Slovakia, the city has become a major communication hub, attracting a number of companies and investors to set up bases there.

Aside from the aviation industry, the city is home to automotive components and mechanical engineering firms. Alongside its business importance, Rzeszów is a major academic centre. It hosts diverse universities providing education to a current 70,000 students, principally in aviation studies and electrical engineering.

“The new flights to Rzeszów will expand Lufthansa’s broad array of services in Poland. With their addition to the network, we will be offering our customers fast and convenient connections to eight Polish cities in different regions,” said Karl-Ulrich Garnadt, Executive Vice President Services and Human Resources Lufthansa Passenger Airlines. “Only a few months ago, Lufthansa augmented the existing connection ex Munich to Poznan by laying on flights there from Frankfurt as well, giving Lufthansa passengers a choice of more than 200 weekly connections to Germany’s neighbouring country.

The Frankfurt to Rzeszów round-trip is available from 99 euros.
Source:asiatraveltips.com