Europe
10:29 pm
Sun August 12, 2012

Poland Watches Warily As Euro Crisis Spreads

Originally published on Mon August 13, 2012 3:51 pm

One factor that has kept Poland somewhat insulated from the eurozone crisis is domestic consumer spending. Poland had more than 4 percent growth last year while the rest of the continent was mired in negative or flat growth. Poles have more discretionary income than ever before, and they're using it to buy things in swank malls cropping up all over the country.

"Consumer spending has risen significantly in recent years," says Miroslaw Borjarczyk, as he shops at Warsaw's Golden Terraces mall. "I think it's because of malls like this, which allow people to buy a wider variety of products in nice surroundings, and this spending is a driving force behind our economy."

Just over 20 years since the end of communism, rampant consumerism is now embraced as Poles feel like they are still trying to catch up with Western Europe. But with the debt struggles of Greece, Spain and others, many Poles see danger signs ahead.

Pawel Jozwicki, who works installing industrial air conditioners, is not hesitating to buy a new washing machine as he shops at a chain store in central Warsaw. But he is having second thoughts about his country's plans to eventually join the euro single currency.

"I really think it's best to stay with our own currency like Great Britain did," he says. "They stayed with their own money, and today they're able to take care of themselves a lot better."

The anxiety is well-founded. Poland's economic destiny is deeply tied to Europe: About 80 percent of its trade is with EU countries, about 30 percent with neighboring Germany, Europe's largest economy.

"If you are a Polish investor sitting on cash, you [are] looking ... [at the] disaster which is happening in eurozone, you are simply afraid of investing big money," says Ryszard Petru, a partner with PwC in Warsaw.

He says many Polish companies are now investing enough to keep operations going, but they are holding off on making big-ticket investments in infrastructure, expansion or hiring.

"You are going to think twice or three times before you do it," he says, "because if euro breaks up, nobody knows what's going to happen. So in other words, what we see: hesitation. People are very cautious. And they are postponing big stuff."

That can have a ripple effect. Poland's economy is diversified, but not so diverse that it could absorb a eurozone shock.

Polish Finance Minister Jacek Rostowski recently warned of "potentially serious risks" to the economy from the debt saga.

"The nature of the threat is we don't know exactly how severe it will be," he said. "I warn that it would be very serious."

Adding to the economic apprehension here is the forthcoming big drop in public spending. Poland has been the biggest benefactor of EU structural funds for highways and other large infrastructure projects.

Poland pumped money into gigantic ventures, including roadways and stadiums, ahead of co-hosting the Euro 2012 soccer tournament in June. In all, it is estimated that Poland's total preparations for Euro 2012 amounted to more than 5 percent of its gross domestic product. That massive, de facto stimulus program is now over.

Still, banker Joseph Wancer, chairman of the American Chamber of Commerce in Poland, says this is no time to panic.

"The fact that its GDP is not 4 percent, but it's 2.8, should not be interpreted that it's a catastrophe," he said. "It's still excellent and much better than in most other countries.

"It's a slowdown. We are dependent on what's happening in our region, in Europe, what's happening globally."

He argues that Polish banks are fundamentally solid, and he should know: In many ways, he's the father of modern Polish banking. Wancer's Jewish parents were arrested by the Red Army after fleeing the Nazis eastward during World War II. He was born in a Soviet labor camp in 1942. After the war, he and family members made it to the U.S. He returned to Poland from a banking career in America just after the fall of communism and played a central role in helping Poland build a modern banking system.

He notes that few Polish banks today dabble in exotic derivatives or are badly exposed to Spain's disastrous real estate holdings.

"It's completely wrong to have banks that cannot fail because they are too big," he says. "Although I am a banker for 50 years, I have to say this is completely wrong. It grew to the point where banking services and products are being produced that very few people really understand, and there is nothing tangible behind these products."

Wancer thinks Poland can withstand some shock if the euro crisis deepens and spreads, but he quickly adds a caveat: "Nobody knows to what point we can hold out. There is no country that is that strong enough to resist a tremendous attack if it comes from all sides, or if the eurozone breaks apart."

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

RENEE MONTAGNE, HOST:

And multiple bailouts, rescue plans and summits have all failed to stop Europe's debt and banking crisis from spreading. That's led to continuing doubts about the future of the euro - at least in the currency's current form.

One nation nervously watching the storm is Poland.

DAVID GREENE, HOST:

Poland is part of the European Union but it's not yet part of the single currency. Poland's economy has been a success story during these rough times. Now, there is concern that the crisis could threaten the country's post-communist run of prosperity.

NPR's Eric Westervelt has our story from Warsaw.

ERIC WESTERVELT, BYLINE: So one factor that has kept Poland somewhat insulated from the eurozone crisis has been domestic consumer spending. Poland had more than 4 percent growth last year while the rest of the continent was mired in negative or flat growth. And Poles have more discretionary income than ever before. And they're using it, purchasing things in swank malls like this one that are cropping up all over the country.

MIROSLAW BORJARCZYK: (Foreign language spoken)

WESTERVELT: Consumer spending has risen significantly in recent years, notes Miroslaw Borjarczyk, as he shops at Warsaw's Golden Terraces mall.

I think it's because of malls like this, he adds, which allow people to buy a wider variety of products in nice surroundings. And that this spending is a driving force behind our economy.

Just over 20 years since the end of communism here, rampant consumerism is now embraced, as Poles feel like they're still trying to catch up with Western Europe. But with the debt struggles of Greece, Spain and others daily news here, many Poles see danger signs ahead.

Pawel Jozwicki, who works installing industrial air conditioners - is not hesitating to buy a new washing machine as he shops at a chain store in central Warsaw. But he is having second thoughts about his country's plans to eventually join the euro single currency.

PAWEL JOZWICKI: (Foreign language spoken)

WESTERVELT: I really think it's best to stay with our own currency like Great Britain did, he says. They stayed with their own money and today they're able to take care of themselves far better.

The anxiety is well-founded. Poland's economic destiny is deeply tied to Europe - about 80 percent of its trade is with European Union countries, about 30 percent with neighboring Germany, Europe's largest economy.

RYSZARD PETRU: If you are a Polish investor sitting on cash, you looking on disaster which is happening in the eurozone, you are simply afraid of investing big money.

WESTERVELT: Ryszard Petru, a partner with PWC in Warsaw, says many Polish companies are now investing enough to keep operations going, but they're holding off making big-ticket investments in infrastructure, expansion or hiring.

PETRU: You going to think twice or three times before you do it. Because if euro breaks up nobody one knows what will happen. So, in other words, what we see: hesitation, people are very cautious and they are postponing big stuff.

WESTERVELT: And that can have a ripple effect. Poland's economy is diversified but not so diverse it could absorb a eurozone shock.

Poland's finance minister Jacek Rostowski recently warned of potentially serious risks to the Polish economy from the debt saga. The nature of the threat is that we don't know exactly how severe it will be. I warn that it would be very serious, he said.

Adding to the economic apprehension here is the forthcoming big drop in public spending. Poland has been biggest benefactor of EU structural funds for highways and other large infrastructure projects. Poland pumped money into gigantic ventures - including roadways and stadiums - ahead of co-hosting the Euro 2012 soccer tournament in June.

In all, it is estimated Poland's total preparations for Euro 2012 amounted to more than 5 percent of GDP. Now, that massive de facto stimulus program is over.

Still, banker Joseph Wancer, chairman of the American Chamber of Commerce in Poland, says this is no time to panic.

JOSEPH WANCER: The fact that its GDP is not 4 percent but it's 2.8 should not be interpreted that it's a catastrophe. It's still excellent and much better than in most other countries. It's a slowdown. We are dependent on what's happening in our region, in Europe, what's happening globally.

WESTERVELT: Wancer notes that few Polish banks today dabble in exotic derivatives or are badly exposed to Spain's disastrous real estate holdings. He believes Poland can withstand some shock if the euro crisis deepens and spreads. But he quickly adds a caveat, saying nobody knows to what point we can hold out. There is no country in the area that is that strong enough to resist a tremendous attack if it comes from all sides, he says, or if the eurozone starts to break apart.

Eric Westervelt, NPR News, Warsaw. Transcript provided by NPR, Copyright NPR.

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