Preparing for Euro Adoption in Poland

The objective of joining the euro area has become an important priority in the policy agenda of the current government. The paper focuses on the major structural reforms necessary to prepare for euro adoption that should allow a sustainable fulfilment of the Maastricht criteria and maximisation of the ensuing various benefits. These reforms are desirable independent of the effective date of adoption, given the necessity to restore fiscal discipline, maintain price stability and ensure a balanced growth going forward. However, they are even more essential in the run up to euro adoption as the process of real and nominal convergence remains largely incomplete, which requires a substantial strengthening of alternative adjustment mechanisms to domestic interest- and exchange-rate changes. The reforms should aim to create strong institutions to ensure fiscal sustainability and an efficient counter-cyclical rules-based fiscal policy supported by an independent fiscal council; promote flexibility in labour and product markets; and head off the risk of a boom-bust cycle triggered by much lower real interest rates, too rapid credit expansion and overblown perceived permanent income gains. The timing of euro adoption should therefore be determined by the speed of the implementation of reforms; otherwise the outcome of early membership without appropriate preparation may turn out to be difficult and risky. Yet, provided that adequate reforms are implemented, euro adoption should speed up the convergence process. This Working Paper relates to the 2010 OECD Economic Survey of Poland (www.oecd.org/eco/surveys/poland).