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

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

Poland could delay euro adoption: PM

Poland’s Prime Minister Donald Tusk on Wednesday said his government could delay its 2012 target for the adoption of the euro currency should the global financial crisis pose risks to the Polish currency or financial system.

Before joining the eurozone, would-be members must spend at least two years in the exchange-rate mechanism known as ERM-2 which tests the stability of their national currency.

In order to meet the 2012 euro target date Poland must enter the eurozone’s required Exchange Rate Mechanism (ERMII) in the first half of 2009.

"I’m not sticking to the doctrine that if I’ve said May (for ERMII entry) it must be so," Tusk told Poland’s commercial broadcaster TVN24.

"If it will be the case that (entry into ERMII) will be risky for the Polish currency and our financial system, we will delay it," Tusk said.

The Polish central bank and government insisted Wednesday there was no need for intervention to prop Poland’s currency the zloty, which has plunged to a five-year low against the euro and Swiss franc.

The zloty tumbled from 3.50 to the euro in September 2008 to a five-year low this week hovering around 4.50.

The fall comes despite forecasts that 2004 EU entrant Poland will be just one of two of the 27 member bloc’s states to achieve economic growth over two percent this year.

Poland committed itself to joining the eurozone and replacing its currency, the zloty, with the euro as part of its 2004 European Union entry agreement. No deadline for the switch was set.
Source:montrealgazette.com

FEATURE-Pain, defiance in East Europe as strong euro takes toll

From mortgage holders to travel agents, many East Europeans are feeling poorer this winter after their local currencies lost up to a quarter of their value against the euro over the past six months.

The ex-communist region's once booming economies are now taking a nasty and unexpected further knock as the bitter row between Russia and Ukraine seriously disrupts gas supplies at a time of subzero temperatures.

Yet the mood among shoppers flocking to January sales in Warsaw, Prague and elsewhere remains surprisingly resilient and upbeat. Many say they have yet to feel the impact of the currency losses -- or of the global credit crunch that triggered them -- in their own daily lives.

"Personally I don't see any difference and customers don't seem to care whether the zloty is strong or not," said Katarzyna Pietkowska, 19, a Polish student selling souvenirs in a glitzy new Warsaw shopping mall.

"As a country, we survived Hitler and Stalin, so what's a little financial crisis," she said, expressing an optimism still prevalent among consumers in Poland, largest of the ex-communist nations to have joined the European Union since 2004.

Poland's economy is expected to have grown by more than 5 percent in 2008, though it is now slowing fast.

The zloty has lost 24 percent against the euro since last July as investors have fled a region seen as too risky at a time of global economic crisis. Hungary's forint has shed 16 percent, Romania's leu 15 percent and the Czech crown 12 percent.

Despite a brief New Year bounce, the currencies are expected to stay under pressure in the coming months as foreign investment continues to dry up and exports wither in the face of recession in western Europe, the region's main trade partner.
Some cast an envious glance at tiny Slovakia, which on January 1 became the first ex-Soviet bloc country to adopt the euro and thus escape the region's wild currency gyrations.

FEAR

East Europeans who took out mortgages and other loans in euros or Swiss francs because of lower interest rates than those offered at home are among those hardest hit.

Romanian magazine designer Dan Ivanescu, 35, said monthly instalments on a euro-denominated loan he took out have leapt by 50 percent since September.

"I used to pay 1,000 lei in the summer and now because of the level of the euro I am paying about 1,500 lei. Because of this I was forced to scrap other expenses like clothing and household appliances," he told Reuters in Bucharest.

"I also had a loan to buy a plot of land to build a house on it later. But because of this crisis I got scared and decided to pay it back to the bank."

A weaker local currency also translates into higher prices of imported goods including fuel for countries of the region.

Companies as well as individuals are suffering.
"Retail companies have foreign currency loans like everybody else and their financing costs have increased," said Gyorgy Vamos, head of Hungary's National Alliance of Commerce.

"People will also buy less as access to foreign currency loans shrinks. The import costs of producers also rise, though those who also have exports find some compensation."

The travel industry is bracing for chilly times after a huge post-communist expansion in the number of Poles, Czechs and others buying exotic holidays in the sun.

"Foreign tours are going to get about 12 or so percent more expensive this year (because of the fall in the zloty)," said Jacek Dabrowski, spokesman of the Triada travel agent network.

GLOOM IN COUNTRYSIDE

The mood darkens noticeably away from the buzz and bright lights of the region's affluent capital cities.

"People in Budapest talk easily, almost all of them have a job. In the country it is harder," said Tibor Lovas, 48, a building worker in Hosszuheteny, a village in southern Hungary.

"The New Year festivities were much more subdued here than in previous years. The bars are empty. People buy ridiculous amounts of wood or coal for heating too, like 300 kg at a time."
Hungary needed an emergency IMF bailout last autumn to avert economic meltdown. Though Budapest shoppers also turned out in force for the sales, the tone is more cautious than in Warsaw or Prague whose economies are still relatively buoyant.

"Generally, individuals do not suffer from the crisis yet, but the bad things are yet to come, including unemployment and other negative developments caused by the financial crisis," said Budapest lawyer Joszef Heffentreger, 65.

Poles, by contrast, remain among the most optimistic in Europe about the economic situation and are continuing to spend their zlotys even as the clouds darken, surveys show.

"I buy whatever I want, just as before... Maybe things are a bit more expensive, but I don't need to count every zloty," said one Warsaw restaurant owner, 57, who declined to give his name.

"But I'm sure the crisis will affect me some day," he added.
Source: uk.reuters.com

UPDATE 1-Poland sells JPY 25 bln in bonds, may issue more

WARSAW, June 10 (Reuters) - Poland sold 25 billion yen in 30-year yen-denominated bonds maturing in 2038 and does not rule out further foreign currency issues, the finance ministry said on Tuesday.

The bonds were priced at 65 basis points above the 30-year swap rate, corresponding to a yield of 3.3 percent.

"Given the current market conditions this is a very good price," said Piotr Marczak, head of the finance ministry's debt management department.

Other yen or euro-denominated issues are possible this year, Marczak said, but added that market conditions would determine whether the ministry pursued this option.

"A potential yen issue is possible after the summer, most likely in the fourth quarter," Marczak said.

Poland last went to the foreign markets in March, when it placed bonds worth 475 million Swiss francs.

The ministry has been struggling recently to sell its paper on the domestic market due to weak market conditions and has been forced to change its issue plans, limiting the supply of long-term bonds in favour of shorter T-bill notes. (Reporting by Patryk Wasilewski; Editing by Ron Askew)
Source:in.reuters.com

Poland will not join euro zone before 2012: bank chief

Poland's national bank chief Slawomir Skrzypek said on Friday that the country would not join the euro zone before 2012.

Skrzypek said Poland is only expected to meet fiscal deficit levels required in the Masstricht Treaty in 2009, and will then enter the Exchange Rate Mechanism II (ERM II) which was designed to ensure that would-be euro zone members can orient their currency policies toward stability, and lasts two years.

"Therefore, the country could join the euro zone in 2012 at the earliest," Skrzypek said, adding that Poland would only join it when circumstances are most favorable.

At a seminar held earlier in the day to discuss the euro's influence on Poland's future, Skrzypek said the government had assigned a group of experts to study issues related to the euro zone entry. The group will issue a report on their findings by the end of 2008.

A newcomer in the European Union, Poland has been hesitant on whether to join the euro zone. Warsaw worries that the entry could slow down economic growth and has thereby taken a wait-and-see attitude towards the issue.

President Lech Kaczynski once said in 2006 that Poland would hold a referendum in 2010 on whether to join the euro zon.
Source:http: english.people.com.cn