ANALYSIS-Poland leans towards euro entry despite crisis

Karolina Slowikowska

* Policymakers changing stance on timing of accession

* Warsaw wants to be at EU's decision-making core

* Sees risks of remaining on outside

* Euro zone heavyweights would back Polish entry

WARSAW, Oct 24 (Reuters) - Polish policymakers are shedding their doubts about joining the euro and starting to favour accession again because they believe the risks of being left outside the core of Europe outweigh the danger of joining a single currency still in the grip of crisis.

Polish officials had been treating euro entry as a distant prospect after a debt crisis tipped the bloc into disarray three years ago. Public opinion turned against the euro, and other countries in the region also backed away.

But the euro zone plan for a banking union has changed Polish thinking, persuading important decision-makers in Warsaw that the only way to have a say in the new European Union that would emerge from the crisis was to be inside the euro.

``Poland, which is outside the euro zone, is affected by it (through the financial markets) and is paying a price for the crisis. Yet it has no influence over the decision-making process inside the bloc,'' Roman Kuzniar, an adviser to Polish President Bronislaw Komorowski, told Reuters.

``Adopting the euro is a matter of our economic and financial security. The risk otherwise exists that in this process Poland will be pushed away to the EU's peripheries,'' Kuzniar said. ``This is more important than the potential short-term costs (of joining the euro).''

There are still plenty of obstacles to Poland's accession to the euro. It has to meet criteria on its deficit and inflation. Opinion polls show public support for joining is as low as 12 percent. The constitution will need to be changed, though there is no legal requirement to hold a referendum.

Warsaw will also not join until it believes the crisis is under control. ``As long as the euro zone is not stable, it's not attractive for us,'' central bank governor Marek Belka said on Tuesday.

But the decision will be a political one, not for the central bank, and Belka acknowledged the cost of not joining indefinitely although he said euro zone interest rates were far too low for the Polish economy.

``It will be very difficult politically and economically to join that kind of enhanced integration,'' he said. ``But it will be very difficult to stay outside ... we don't want to be marginalised.''


The official Polish position is also cautious: that euro entry is a strategic objective but that there is no timetable for joining.

But many policymakers believe the euro zone has now turned a corner in its handling of the crisis.

``The whole euro entry plan is just not in the public view these days but preparations ... are moving along. Euro entry is something that we certainly did not forget,'' said Dariusz Rosati, head of the parliamentary public finance committee.

``If I had to say when this could happen, I would say 2016-2017, particularly since it now seems like the euro zone and the global economy is on the right track,'' said Rosati, a lawmaker in Prime Minister Donald Tusk's Civic Platform party.

Recent diplomatic activity has highlighted the concern in Warsaw about being outside the tent looking in.

EU diplomats said Poland offered to join a group of countries going ahead with a financial transaction tax if it were granted a seat at the table of the Eurogroup of euro zone finance ministers. It was rebuffed.

However, the big players inside the euro area would welcome Poland as a member of the currency club when the time comes.

``The answer is a strong 'Yes'. Such a signal from one of the best ... performing EU economies, and of the size of Poland, would be perceived as a boost to the single currency,'' said one euro zone diplomat on condition of anonymity.

A foreign ministry source in Germany described Poland as a ``dynamic and reform-oriented country''.

``It is good that Poland is already actively participating in efforts to deepen economic and currency union,'' the source said.


Poland, the EU's sixth biggest country by population and eastern Europe's biggest economy, differs from its neighbours in that it sees itself as a major player in European decision-making, not just a rank-and-file member.

It has set it sights on eventual euro entry since Tusk first became prime minister in 2007.

Fiscal policy is focused on meeting the euro's convergence criteria, including cutting the deficit to about 3.5 percent of gross domestic product this year from last year's 5.1 percent.

Before joining the euro, Poland would also have to enter a mechanism called ERM-2. That involves pegging its currency to the euro for two years and preventing it from fluctuating outside a set range. Economists say this is achievable.

But the crisis in the euro zone cooled Poland's political desire for entry. Tusk's original target of joining in 2012 came and went. Officials avoided public statements on the issue. One person familiar with the government's thinking said earlier this year accession was possibly a decade away.

This began to shift over the summer when it became clear that euro zone states, in response to the crisis, were pushing for greater integration. One element, the banking union, presented a particular dilemma for Poland.

Under the plans being drafted, the union would impose regulations affecting all EU members, but a large part of the decision-making would take place within the European Central Bank, effectively excluding non-euro members.

Britain, once an ally of Poland in the EU, responded by pulling away. Poland is leaning towards the opposite approach: deeper engagement.

``A new construction is in the making, a new formula of integration,'' said Pawel Swieboda, head of Poland's DemosEuropa think-tank. ``The Polish government understands this very well.''

``There are political aspects here. In order to have influence, you need to be inside. This is an ever more frequently appearing argument,'' Swieboda said.

As a prelude to entry, Poland would have to change a clause in the constitution that says only the central bank can print money. This would require a two-thirds majority in parliament, which government supporters believe they can scrape together.

There is, however, not yet a consensus among Polish policymakers.

A source close to the government, who spoke on condition of anonymity, acknowledged that not every cabinet member was convinced that working towards euro adoption is worthwhile.

Some leading politicians believe the euro zone may not survive. Others believe that Poland, through its resilience to the global financial crisis so far, has proven strong enough to be able to continue outside the single currency.

(Additional reporting by Jan Strupczewski in Brussels, Alexandra Hudson in Berlin and Paul Taylor in Paris. Editing by Christian Lowe and Mike Peacock)