What do Poland, the European Union’s brightest economic light, and Greece, its dimmest, have in common? Both have plans to cut their budget deficits to the Union’s prescribed 3 percent level by 2012, and both of those plans depend on a lot of ifs.
I can already hear cries of protest from Poland, the only EU member to show any growth at all last year. It that has taken great pains to distance itself from more troubled EU states and is extremely proud of its growth results, with Prime Minister Donald Tusk recently telling the Financial Times: “Who would have thought we would see the day when the Polish economy is talked about with greater respect than the German economy?”
But the comparison still works, not only because Poland and Greece have promised to shrink their deficits so quickly — Greece from an expected 12.7 and Poland from around 7 percent this year — but also because they are depending on growth forecasts that may not materialise. Both stories are also emblematic of a theme sweeping across Europe — an effort by governments to build confidence over fiscal consolidation plans in an uncertain recovery.
Tusk, and Poland, have a lot to crow about. While Greece is struggling to maintain credibility and tackle its huge public debt load, Poland is expected to grow by 2.5-3.0 percent by many economists. Warsaw has a relatively low debt pile of around 50 percent of gross domestic product, compared with around 120 percent for Greece. Investors have flocked to Polish stocks and bonds, driving the zloty currency 27 percent higher from mid-crisis lows hit last year. And they see more upside on the horizon because, with a living standard of only 56 percent of the EU’s average, the country is seen as a sure bet for eventual convergence to near the levels seen in more developed EU states.
Greece is clearly a different story. Its economy is expected to shrink this year and the government has embarked on a programme of eye-watering budget cuts that have prompted strikes and protests among civil servants. While Poland has had no trouble borrowing on international markets and at home, Athens must still borrow 20 billion euros before May at much higher interest rates than before the crisis.