When Poland joined the EU on May 1, 2004, it simultaneously joined the Economic and Monetary Union, aka the euro zone. Granted, adoption of the euro was immediately “suspended,” but Poland is nevertheless obligated to undertake key fiscal and macro-economic reforms necessary to adopt the euro.

The question is not if Poland will adopt the euro, but when. That said, neither the Treaty of Accession nor the underlying Treaty Establishing the EU set a precise date by which Poland must adopt the euro. Each member state is supposed to take the initiative to adopt the euro as soon as possible.

The current budgetary crisis, of which Greece is only the most recent example, has led some commentators to forecast the demise of the euro. Personally, I think this is nonsense.

What’s the fuss?

At the risk of antagonizing some economists, I fail to see the risk Greece poses to the euro. The creditworthiness of Greece (or Spain or Portugal for that matter) can vary from stronger members of the euro zone, such as Germany, without affecting the underlying value of the euro, just as the creditworthiness of Kraków can vary from Warsaw without affecting the zloty’s value.

Greece only makes up two percent of the EU’s economy. If anything, the fiscal reforms that Greece has recently announced will only serve to strengthen the integrity of the euro zone and Greece itself. I don’t buy into this gloomy scenario used as an argument to delay, or even scrap, the adoption of the euro.

Requirements

In order to be admitted to the euro zone, a member state must satisfy several fiscal criteria set by the Maastricht Treaty. Aspirants must maintain inflation at a level of no more than 2.3 percent, a budget deficit at or below three percent of GDP and a government debt level at no more than 60 percent.

Poland closed out 2009 with an inflation rate of 3.45 percent and a budget deficit in excess of seven percent, both numbers well above the acceptable thresholds. Finance Minister Rostowski has pledged to reduce the deficit to below three percent by 2012, the same deadline recently imposed by the European Commission. Government debt, which currently stands at 50 percent, is expected to increase to 55 percent in 2010, but should remain below the 60 percent threshold.

Euro zone candidates must also belong to the Exchange Rate Mechanism for a minimum of two years, by which the fluctuation in a member state’s exchange rate is maintained below 15 percent. During the past 12 months the złoty has fluctuated in value by more than 20 percent against the euro.

Not so bad

In comparison to other member states, including those already in the euro zone, Poland’s numbers are quite good. Portugal and Spain each ended 2009 with a budget deficit in excess of nine percent, while France ended the year with a eight percent budget deficit. Ireland ended the year with a budget deficit in excess of 11 percent, while Greece set the record at 13 percent.

In total, 20 out of 27 member states exceeded the three percent threshold set by the Maastricht Treaty.

What next?

Poland may, at the earliest, join the euro zone by 2015, assuming it first satisfies the requirements to join the Exchange Rate Mechanism by the end of 2012. I hope Minister Rostowski is right.

Paul Fogo is a senior attorney with Miller, Canfield, W. Babicki, A. Chelchowski & Partners. fogo@pl.millercanfield.com