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The euro has been a massive failure. So why does Poland want in?

As the entire world started to crumble in 2009, a few countries appeared capable of weathering the storm. Developing countries like China and India, for one thing, managed to keep growing. Australia didn't even have a recession, while Israel barely did and Sweden rebounded quickly.

But we would, as ever, be foolish to forget about Poland. It grew by 1.6 percent in 2009. By comparison, the U.S. economy shrunk by 3.5 percent. Just look at how great Poland did here:

But Poland is apparently deciding it wants to look more like the yellow line than the red one. Donald Tusk, the prime minister, supports joining the euro, and while he had previously argued that Poles committed themselves to the currency in 2003 when they voted to join the EU, he's now relenting and calling for a referendum on the matter. It's all part of an effort to get the country ready to join the currency by 2015.

It's fair enough if Poland wants to develop closer ties to its European neighbors. But as Paul Krugman notes, joining the euro would deprive Poland of the strategy that allowed it to weather the recession so effectively. The key to the Polish miracle was massive currency devaluation. Here's what happened to the zloty, the currency of Poland, relative to the euro from 2007 to 2012:

Chart by Matthew O'Brien

That giant, 50 percent fall in the zloty's value you see there? That's the stuff dreams are made of. Or, at least, the stuff that successful export-driven growth is made of. Indeed, as this IMF-drafted chart shows, exports' contribution to growth increased tremendously in 2009. They probably let Poland avoid a recession:

That's all zloty debasement. Of course, if Poland joins the euro, then it can't strategically devalue its currency in times of crisis and make sure its economy stays growing. There's still time for the country to back out, but it sure looks like Warsaw wants to adopt a policy that would have created big problems for the country in 2009.



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Dylan Matthews · March 27, 2013

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