Many countries, especially European ones, are tormented by the financial crisis that has been evolving since 2007, and the recession developing since the beginning of the year. An attempt to describe this situation using a single keyword is a far-reaching simplification as each of the phenomena gives rise to completely different threats, and consequently requires a different countermeasure.
The word “crisis” is now ever-present and used by virtually everybody − politicians, analysts and even academics. However, this is an oversimplification. The crisis is a turning point − a situation where the patterns of behaviour relevant in the past exhaust their capabilities and it is necessary to reorient them radically.
There is no doubt that since 2007, such a situation has turned out in the global financial sector. Overdependence on the easily available credit has destabilised even the most powerful financial institutions, the symbol of which is Lehman Brothers. As private financial institutions were unable to face up to the challenge on their own, governments rushed to help.
Global finance under the burden of debt
And then it turned out that even among them, there are many unable to bear the burden of the debt they incurred on their own. Some sovereigns proved as unstable as private financial institutions operating in their domains, so the crisis soon spilt over to public finance as well. Today, the crisis whirlpool starts sucking in central banks − the European Central Bank, which step by step departs from its principles, is more and more visibly taking the lead of this dangerous phenomenon.
Crises ripen for a long time (the current crisis had its roots at least at the turn of the 1980s and 1990s), but when already ripe, the process of their manifestation tends to be relatively fast. In the years 2007-2008, private financial institutions, which were unable to obtain liquidity and raise capital in the market any more, held out their hands to governments. Governments did not refuse support, but as a consequence their own borrowing needs have increased so much that already in the years 2009-2011 they too had to hold out their hands to the International Monetary Fund and other international institutions (some of them, like the European Stability Mechanism, were created only under the pressure of events). In turn, today more and more hands are being held out to central banks.
The crisis did not reach us
In all seriousness and responsibility, I claim that the crisis − understood as above − has never reached Poland. Neither banks nor any other Polish financial institutions had to receive government support. In turn, the government satisfies its borrowing needs on its own in the market and at a reasonable price. And finally, no one expects the NBP to begin to buy, on a mass scale, the bonds issued by the government in order to force money into the economy in lieu of the bonds.
Poland’s resilience to the crisis had several causes: lower inclination of the public to finance consumption needs with credit than that observed in richer countries, a fairly traditional banking model that protected the country against the accumulation of worthless assets, sound banking supervision, constitutional and statutory provisions on the ceilings for public debt, and a balanced monetary policy pursued for a dozen or so years.
Poland, which due to the whims of history joined the developed market economies with a huge delay and in a way learned their principles anew, proved a very clever disciple, treating the knowledge it acquired more seriously than the teachers who delivered the knowledge. Such a serious approach to the healthy rules of the market economy is a huge achievement of contemporary Poland, which is still little understood and appreciated by citizens. Which is a pity.
Owing to the fact that in the past years Poland has adhered to sound financial rules, today it does not need to − unlike the major part of Europe − search for some extraordinary anti-crisis solutions and make an essential shift in our policy. The continuation of fiscal consolidation, further vigilance on the part of financial supervision and maintenance of the positive real interest rate in the monetary policy are undoubtedly essential, but all these measures fall within the scope of the existing pattern of behaviour. On no account is it a radical shift forced by the crisis.
Various facets of the business climate
The well-established resilience to the financial crisis is not equal to resilience to the other negative phenomenon tormenting Europe, namely recession. Since Poland’s accession to the EU in 2004, the Polish business cycle − after an adjustment fluctuation at the end of 2004 and in the first half of 2005 − has become fully synchronised with the European cycle.
The business climate peaked at the turn of 2006 and 2007 in the euro area and in Poland, at exactly the same time. Similarly, Poland hit the economic bottom together with other Europeans in the first quarter of 2009. Finally, the rickety recovery and equally rickety expansion seen both in Europe and in Poland in 2010 expired in the first quarter of 2011. From that time, a slowdown in the European economy has been observed, which has already driven the euro area into recession and reduced the Polish growth rate almost by half (from 4.6% in the first quarter of 2011 to 2.4% in the second quarter of 2012).
The onset of the new wave of recession after only 24 months of the revival and expansion may seem extremely quick, but such unusual cycles have already happened before. The recession, which began in May 1960, was also preceded by only 24 months of a good economic situation. Before the recession of August 1981, the number of good months was even lower, only 10. And finally, one may not forget that before the recession that began in September 1929, the preceding expansion was also limited to less than two years.
For over eight years now, the path of the Polish growth has been undulating in the exactly same manner as the path of entire Europe, but it runs higher by 2-3 percentage points (when the GDP growth in the euro area exceeded 3%, in Poland it was above 6%; when in the euro area it dropped just below zero, in Poland it still remained above 2%).
Poland owes this surplus over the standard of “old Europe” to the fact that it is still “the catching-up economy,” it has performance reserves which are activated thanks to the inflow of foreign investments. Poland also has a competitive export offer and the flexible exchange rate provides an additional adjustment mechanism in this regard. In addition, Polish consumers, starved for fifty years of the Communist era ‘fast,’ are reluctant to limit their spending even in difficult times.
Government fights to maintain economic growth
Solutions proposed by the government: “Polish Investments,” the special purpose financial vehicle based on the allocated assets of the State Treasury and controlled by Bank Gospodarstwa Krajowego; maintaining the flexibility of the labour market and introducing new forms of its stimulation (new way of evaluating public employment services and private employment agency providers); cash settlement of VAT for a large group of companies − are aimed at not losing the economic growth surplus over the European level. The point is that in a situation where the euro area will be stuck in the shallow and most probably chronic recession (the economy will be shrinking by 0.5-1% yoy), the Polish economy will maintain slight growth (1.5-2% yoy).
Perhaps this is an extremely pragmatic approach which does not have the properties of a great vision. However, when I watch TV and see professors who claim to know how to ensure Poland’s economic growth of 10% and how to go against the tide of events in Europe, I have a feeling that their brains are controlled by television studio hashish, very similar to battle hashish that can take control of brains of soldiers in combat. Poland developing even a little when the significant part of Europe reduces its aspirations may have a bittersweet taste, but pure sweetness is a scarce commodity in our times.
The author is a professor at the University of Gdańsk and a member of the Economic Council at the Prime Minister of the Republic of Poland.