Thus far, the crisis has hit Poland via four routes. First, Poland is experiencing a sudden drop in exports reported by numerous companies that are strongly dependent on Western European markets. It is hardly surprising as, since Q4 2008, the majority of EU countries have been in deep recession, while the rate of GDP drop reaches 1-3% in Western Europe, and as much as 10% in Latvia.
The second aspect is investments, especially those by multinational corporations. During the previous recession of 2001-2002, the stream of foreign investments to Poland dropped by 50%. Consequently, fears are justified that the inflow of foreign investment may considerably shrink for a year or two.
The third source of impact of the financial crisis on Poland is unstable exchange rates. Poland did not take advantage of the economic boom of 2004-2008 to introduce the euro. The zloty is vulnerable to strong fluctuations, the exchange rate largely depending on changing moods of global investors. Along with a strong depreciation (nearly 30% against the euro), the debt of households, companies and the state, incurred in foreign currencies markedly increased compared to their income.
The fourth impact of the crisis has not yet revealed itself fully, but is nevertheless imminent. This is unemployment growth, and the consequent drop in Polish families’ purchasing power.
The effects of the global crisis may seriously undermine the already widely accepted opinion that Poland’s membership of the EU is an undisputable success. Paradoxically enough, the phenomena named by experts as key benefits of the membership may today turn against Poland. For instance, the relocation to CEE of a major part of automotive production leads to a serious reduction in the region’s economic activity, while the growth in the export to GDP ratio, observed over the last five years, renders the region more dependent on changes in the economic situation in Western Europe than before. Also, the success in attracting foreign capital renders countries of the region more exposed to dwindling investor confidence, their cutting down on new investments and withdrawal of capital.
Will Poland manage the crisis better due to its EU membership?
Is it the case that, as a result of EU membership, Poland will suffer more from that crisis than it would have was it not an EU member?
Against other countries of the continent, Poland is a very attractive location for investments. The main reason is a combination of high level of investment safety and low production costs. International corporations know that it makes more sense to build new European factories in Poland and other CEE than in Western Europe. This does not help at present, as companies faced by recession put on hold any investment decisions. However, the crisis is bound to end at some point, and the investments will flow in again. It may be assumed that the process of transfer to the new member states of some business operations from the countries of the “old” Union will accelerate, offering Poland at least a decade of speedy development.
Membership of the EU to a certain extent protects Poland against shocks in the world economy owing to development funds. A massive amount of EUR 70 billion is assigned to Poland under the EU budget for the years 2007-2013 for investment in infrastructure and human resources development. The most optimistic forecasts for 2009 show the Polish GDP growth rate at 1-2%. Symbolic importance may be attached to the fact that, according to the present estimates, it is EU funds that may ensure a positive growth rate for Poland. Public investments co-funded by the EU also translate into thousands of new jobs for people otherwise threatened with unemployment. First and foremost, however, better infrastructure is a chance for the improvement of long-term development opportunities for Poland.
EU membership offers Poland greater financial stability. It may count on emergency loans if under threat, not only from the International Monetary Fund, but also European financial institutions, as well as united support from the entire EU.
Being part of the EU allows a greater level of coordination of economic policy and cooperation on fighting the negative consequences of the crisis. An example of such actions is facilitated access to European funds, designed to increase the number of investments co-funded by the EU, and plans of increased lending by the European Investment Bank. Depending on the course of the crisis, it may turn out that there are many more similar areas of cooperation.
Membership of the EU protects against the most serious threat related to the global crisis, i.e. protectionist measures. Luckily, it is more difficult to play this game in the EU than anywhere else. Customs barriers have been lifted. In the single market it is not possible to block imports from other EU states, or offer aid to one’s own producers to give them the competitive edge. Finally, Poland is part of the common labour market (all restrictions will disappear in 2 years) and it is not possible to hinder employment of citizens from other EU states.
We can obviously ask whether Poland fully took advantage of the EU membership to cope with today’s crisis better. By all means, many things could have been done better. An example may be the euro which could have already replaced the national currency (as is the case in Slovakia) and cross out the exchange rate instability from the list of potential problems. Poland could also have been prepared better to absorb EU funds, and public finance could have been more resistant to economic fluctuations, had deeper-reaching reforms been implemented during the period of fast growth. All the above notwithstanding, it should be argued that the years 2004-2008 reinforced the foundations of Poland’s economic development, owing to which it is now able manage the crisis better.
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Economists and institutions that make forecasts on economic development share a conviction that only 3 to 4 states stand a chance of averting the drop in GDP in 2009. Poland is always mentioned in the group. Against other European states, its growth compares favourably although its rate is decreasing. Despite strong financial links with other countries, the Polish economy appears to be relatively well-prepared to manage the crisis, also thanks to a rather low level of internal and external imbalance: both its current account deficit and budget deficit are among the lowest in the new EU states, and the present depreciation of the currency can be ascribed more to market panic and speculation than weakness of macro-economic foundations of the country.
First and foremost, though, it should be remembered that the present crisis is short-lived, while the key advantages of EU membership are realised in the longer run. After the crisis, acute as it certainly will be, Poland will again enjoy high economic growth. Strong economic links with Western European markets may in the short term lead to the growth being even more sluggish. Yet in the longer term of 3 to 5 years, they will contribute to accelerated development of the country and growth in its residents’ income.

(Abridged from an article in “5 Years of Poland in the European Union” published by the Office of the Committee for European Integration, Warsaw, 2009)