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Europe's protracted debt crisis has laid bare a stark reality. Germany | :00:12. | :00:16. | |
is the Union's major player, and Berlin's wishes will do much to | :00:16. | :00:20. | |
change the future of Europe. Nowhere does that carry more | :00:20. | :00:24. | |
resonance than in Poland. My guest today is Jacek Rostowski, Poland's | :00:24. | :00:30. | |
Finance Minister. EU membership has been good for Poland, but are Poles | :00:30. | :00:33. | |
ready to join the euro, and sign up to fiscal rules bearing a German | :00:33. | :00:43. | |
:00:43. | :01:11. | ||
Welcome to HARDtalk. Good afternoon. I want to begin by taking you back | :01:11. | :01:15. | |
to the words of your colleague, the Polish Foreign Minister, who at the | :01:15. | :01:18. | |
end of last year said that Europe's sovereign debt crisis, to him, | :01:18. | :01:26. | |
represented the most scary moment of his entire political career. Now | :01:26. | :01:30. | |
that we are in the new year, looking at the way that Europe is | :01:30. | :01:35. | |
dealing with this, are you still feeling scared? My colleague said | :01:35. | :01:39. | |
that in a speech in Berlin at the beginning of December, and I have | :01:39. | :01:42. | |
just read in the Financial Times that Donald Tsang, he is the chief | :01:42. | :01:46. | |
executive of Hong Kong, said exactly the same thing for the same | :01:46. | :01:56. | |
:01:56. | :01:58. | ||
reasons a few days ago at Davos. But I have to say, that from our | :01:58. | :02:05. | |
point of view, we are getting a bit less scared. We think that the | :02:05. | :02:11. | |
situation is slowly stabilising. The actions that have been taken by | :02:11. | :02:18. | |
the ECB, not before time, are beginning to bear fruit. Liquidity | :02:18. | :02:25. | |
in the European banking system is improving. Yields on Italian and | :02:25. | :02:28. | |
Spanish bonds, which for us are the most important indicator of the | :02:28. | :02:32. | |
intensity of the crisis, are steadying and declining in a steady, | :02:32. | :02:42. | |
:02:42. | :02:46. | ||
predictable and sustained way. may interrupt, Minister, you talk | :02:46. | :02:50. | |
about a steady decline in the sense of panic, I suppose, but it is not | :02:50. | :02:57. | |
really steady at all in Europe, is it? Because, as you say, a slightly | :02:57. | :03:00. | |
more benign attitude towards debt in Spain and Italy, but Portugal, | :03:00. | :03:04. | |
for example, has debt yields going through the roof. The markets have | :03:05. | :03:07. | |
apparently decided that Portugal will eventually default in the way | :03:07. | :03:12. | |
that Greece is, in essence, defaulting. So the idea of | :03:12. | :03:18. | |
contagion is still out there. but it is very important who is | :03:18. | :03:26. | |
under threat of contagion. Even though I think what is happening | :03:26. | :03:29. | |
with Portuguese yields is unfair, because the new Portuguese | :03:29. | :03:32. | |
government is very determined and very clear in its determination to | :03:32. | :03:34. | |
reform the Portuguese economy, nevertheless, the important | :03:34. | :03:38. | |
dominoes - if I can use that word, although they are not really | :03:38. | :03:41. | |
dominos, because we can now see they are unlikely to fall - but the | :03:41. | :03:45. | |
big players in this, the important players, are of course Spain and | :03:45. | :03:55. | |
:03:55. | :04:03. | ||
Italy. And the very fact that Spanish and Italian bonds continue | :04:03. | :04:07. | |
to decline as Portuguese yields are going through the roof is, I think, | :04:07. | :04:17. | |
:04:17. | :04:19. | ||
evidence that generally the situation is stabilising. And I | :04:19. | :04:22. | |
have to say that almost everybody now expects a mild recession in the | :04:22. | :04:32. | |
:04:32. | :04:36. | ||
first half of this year. In Europe and in the eurozone. We were | :04:36. | :04:40. | |
concerned as late as early December, before the summit, that we might be | :04:40. | :04:48. | |
facing something on the scale of 2009 or even much, much worse. And | :04:48. | :04:54. | |
that prospect seems to be receding. Let's talk about the fiscal compact | :04:54. | :04:58. | |
that 25 of the 27 EU members have agreed to, although all of the | :04:58. | :05:06. | |
detail has not yet been worked out. In essence, this compact, if it is | :05:06. | :05:14. | |
ratified, represents the triumph of austerity economics made in Germany. | :05:14. | :05:19. | |
Would you agree with that? And if you do agree with it, why is Poland | :05:19. | :05:25. | |
so readily accepting it? Maybe I will start with the second question. | :05:25. | :05:29. | |
The compact, or the pact, will not be binding for countries that are | :05:29. | :05:36. | |
not in the euro, until they join the euro. So we shall not be taking | :05:36. | :05:42. | |
on any additional obligations as a result of signing the pact. On the | :05:42. | :05:45. | |
other hand, going back to your introduction, you said that the | :05:45. | :05:54. | |
pact embodied fiscal rules made in Germany. Although the precise | :05:54. | :05:57. | |
fiscal rule that countries signed up to, once they are members of the | :05:57. | :06:01. | |
eurozone and once this pact is accepted, is in fact a German | :06:01. | :06:08. | |
fiscal rule, Germany introduced its fiscal rule only in 2010. Or 2009, | :06:08. | :06:16. | |
I cannot remember. Poland has had extremely rigorous fiscal rules | :06:16. | :06:23. | |
since 1997. And we in fact, constitutionally, cannot have a | :06:23. | :06:26. | |
debt to GDP ratio that would exceed 60%, which is the Maastricht Treaty | :06:26. | :06:29. | |
limit and which is of course massively exceeded by almost all | :06:29. | :06:32. | |
eurozone countries, including Germany - which, if my memory | :06:32. | :06:42. | |
:06:42. | :06:49. | ||
serves me correctly, has a ratio of public debt to GDP of 81 or 82%. | :06:49. | :06:52. | |
I may interrupt, you talk about national debt there, and I take | :06:52. | :06:58. | |
your point. Poland is constitutionally committed to | :06:58. | :07:03. | |
keeping its national debt below 60%. I understand that. But in terms of | :07:03. | :07:06. | |
cyclical economic policy, the Polish government has recently been | :07:06. | :07:13. | |
seen to be happy to live with budget deficits of 5% or 6% or 7%. | :07:13. | :07:17. | |
You are now saying that you are prepared to accept the compact. I | :07:17. | :07:21. | |
say made in Germany, you can argue about it, but it is a compact that | :07:21. | :07:25. | |
says you cannot run anything beyond a balanced budget. And if you go | :07:25. | :07:29. | |
beyond a 3% budget deficit you will be severely punished. Are the | :07:29. | :07:36. | |
Polish people ready for that? points. First of all, these rules | :07:36. | :07:42. | |
will bind us once we join the euro. And we are not joining the euro for | :07:42. | :07:49. | |
a while. Well, you know what I have to do now. LAUGHTER. I have to ask | :07:49. | :07:53. | |
you, when are going to join the euro? Not for a while yet. My | :07:53. | :07:58. | |
simple answer is when it has been fixed, so it is safe to join. Going | :07:58. | :08:02. | |
back to your earlier point, it is not quite true that you have to run | :08:02. | :08:06. | |
a balanced budget all the time. What you actually have to do is run | :08:06. | :08:09. | |
a balanced structural budget, which means you can allow automatic | :08:09. | :08:13. | |
fiscal stabilisers to work, and they can either be quite a strong | :08:13. | :08:23. | |
:08:23. | :08:23. | ||
variation as the cycle develops, or not such a strong variation. In | :08:24. | :08:27. | |
Poland it is actually a strong variation, and the fines that would | :08:27. | :08:30. | |
be paid for exceeding 3% deficit, once we joined the eurozone, | :08:30. | :08:34. | |
whenever that may be, are actually no higher under the pact then they | :08:34. | :08:44. | |
:08:44. | :08:50. | ||
were under the pact which we helped to negotiate. They were brought | :08:51. | :09:00. | |
:09:01. | :09:04. | ||
into EU law in September of last year. So as far as we are concerned, | :09:04. | :09:07. | |
this pact really introduces very little that is new on the fiscal | :09:07. | :09:10. | |
side except the duty to introduce this rule into a country's | :09:10. | :09:13. | |
constitution, and that applies only to countries that are in the | :09:13. | :09:17. | |
eurozone, and of course we shall have to see how many countries | :09:17. | :09:20. | |
succeed in ratifying the treaty and the part from that which succeed in | :09:20. | :09:30. | |
:09:30. | :09:34. | ||
introducing this rule into the constitution. We are very much in | :09:34. | :09:41. | |
favour of this pact. I appreciate the detail in your answer, but I | :09:41. | :09:44. | |
suspect that your own people in Poland, and people around the world, | :09:44. | :09:48. | |
will want some pretty simple answers to basic questions. And I | :09:48. | :09:54. | |
go back to Poland and the euro. me worry about what people in | :09:54. | :09:58. | |
Poland want. I think I can deal with that. Well, your Prime | :09:58. | :10:01. | |
Minister told his people, I believe five years ago, that Poland would | :10:01. | :10:06. | |
be joining the euro in 2012 or 2013. Am I to take it, from your cautious | :10:06. | :10:11. | |
answers, that you are kicking that into the long grass? We kicked that | :10:12. | :10:15. | |
into the long grass a while ago, because of course in September 2008, | :10:15. | :10:19. | |
which was when we made that declaration, we had no idea that | :10:19. | :10:29. | |
:10:29. | :10:30. | ||
this was going to happen. It was before the fall of Lehman Brothers | :10:31. | :10:34. | |
and the world economic crisis, but more importantly, we had no idea | :10:34. | :10:37. | |
that the eurozone would find it so hard to function effectively to | :10:37. | :10:44. | |
prevent the kind of contagion that we have been seeing. That European | :10:44. | :10:46. | |
institutions, and in particular eurozone institutions and member | :10:46. | :10:51. | |
states, would find it so hard to work together to put an end to this | :10:51. | :11:01. | |
:11:01. | :11:01. | ||
crisis. But do you not think there is a real problem now? The rational | :11:01. | :11:05. | |
response to you saying to me that you will only enter the euro when | :11:05. | :11:10. | |
it is safe to do so is to assume that right now you think it is not | :11:10. | :11:14. | |
safe to do so. That is a message that the Polish public have clearly | :11:14. | :11:18. | |
picked up on. A recent opinion poll said that 29% of Polish people | :11:18. | :11:23. | |
favoured joining the euro, while 53% opposed it. Do you have a | :11:23. | :11:27. | |
fundamental problem now? No, I don't think we have a fundamental | :11:27. | :11:32. | |
problem. I think the eurozone has a fundamental problem and we are all | :11:32. | :11:35. | |
aware of that, and we very much want the eurozone to solve its | :11:35. | :11:39. | |
problems and we very much want to help the eurozone solve its problem. | :11:39. | :11:42. | |
It is no good sitting on the sidelines and yelling that the | :11:42. | :11:46. | |
eurozone has a problem, as I am afraid some people in the UK do, | :11:46. | :11:50. | |
because if the eurozone were to really start falling apart, I don't | :11:50. | :11:53. | |
think anybody should believe - certainly nobody who lives as close | :11:53. | :11:57. | |
to the eurozone as both Poland and the UK do - that we could possibly | :11:57. | :12:06. | |
escape from such a catastrophe unscathed. But unlike the United | :12:06. | :12:09. | |
Kingdom, you and your government are committed to joining as soon as | :12:10. | :12:14. | |
it is feasible to do so. The UK is not committed to joining. So that | :12:14. | :12:22. | |
is why I say you have a problem. are not out of kilter with our own | :12:22. | :12:25. | |
people. Our own people understand that there is a major problem in | :12:25. | :12:29. | |
the eurozone, and we understand that there is a major problem in | :12:29. | :12:32. | |
the eurozone, and we have no intention of joining the eurozone | :12:32. | :12:37. | |
until it is safe to do so. We have no obligation to join the eurozone | :12:37. | :12:43. | |
as long as it is unsafe. I return to my opening proposition, that | :12:43. | :12:46. | |
right now it does look as though European economic structures are | :12:46. | :12:54. | |
being driven by a heavy influence from Berlin. And one can look | :12:54. | :12:58. | |
around Europe, one can look at the fact that there was a government in | :12:58. | :13:01. | |
place in Greece and another in Italy, which have been, in a sense, | :13:01. | :13:05. | |
put in place by the European Commission - by Brussels - as much | :13:05. | :13:09. | |
as by the electorate in those countries. I just wonder whether in | :13:09. | :13:12. | |
Poland there is a long-term basic fear that if you join the eurozone, | :13:12. | :13:16. | |
if you sign up to the pact that we have talked about, economic policy | :13:16. | :13:19. | |
management and policy making in your country will be driven from | :13:19. | :13:29. | |
:13:29. | :13:35. | ||
I would put it differently. That is why I said that the eurozone is not | :13:35. | :13:40. | |
safe to join yet. The cases that you spoke about, I think you have | :13:40. | :13:43. | |
overstated the extent to which the policy is driven exclusively from | :13:44. | :13:53. | |
:13:54. | :13:56. | ||
Brussels and Berlin. I think markets are playing an important | :13:56. | :14:02. | |
role as well. Nevertheless, the fact is that countries that are in | :14:02. | :14:05. | |
this difficult political situation are in the situation because | :14:05. | :14:08. | |
sometimes through no fault of their own they have got into a difficult | :14:08. | :14:18. | |
:14:18. | :14:22. | ||
economic situation. The risk of getting into a difficult economic | :14:22. | :14:25. | |
situation without adequate mechanisms, not only of correction | :14:25. | :14:28. | |
and disciplined, but also support, is one of the things that concerns | :14:28. | :14:37. | |
us about the structure of the eurozone. That is, the | :14:37. | :14:42. | |
institutional structure and the political structure of the eurozone. | :14:42. | :14:45. | |
We don't want to find ourselves in that sort of difficult political | :14:45. | :14:49. | |
and economic situation which can lead to the kind of situation you | :14:49. | :14:58. | |
have just described. That is what I mean when I say that we will be | :14:58. | :15:03. | |
very happy to join the eurozone once it is safe to join. Let me ask | :15:03. | :15:09. | |
in a different way. I think about your relationship with the Germans. | :15:09. | :15:16. | |
It is fundamentally important in Europe. It has a huge history. It | :15:16. | :15:19. | |
matters a great deal to the future of the European economy. Do you | :15:19. | :15:22. | |
believe the Germans understand sufficiently the need to stimulate | :15:22. | :15:29. | |
growth across the eurozone? quote the Danish Prime Minister, | :15:29. | :15:32. | |
just the other day she said there are countries that can afford a | :15:32. | :15:35. | |
stimulus and they should consider doing so, clearly implying they are | :15:36. | :15:44. | |
not doing so at the moment. As far as growth is concerned, | :15:45. | :15:49. | |
Poland has no problem. We have been the fastest-growing economy in | :15:49. | :15:54. | |
Europe for the last four years. We have had almost 16% of cumulative | :15:54. | :15:59. | |
growth in that period. We have created 880,000 new jobs, the | :15:59. | :16:05. | |
second best level after Germany, and they have twice the population. | :16:05. | :16:11. | |
So we have no problem with growth. If you look at the countries that | :16:11. | :16:14. | |
came second in that European growth league, Slovakia had half the | :16:14. | :16:22. | |
growth we have had in the last four years. So growth is not something | :16:22. | :16:26. | |
we are bad about. We have done that without the German stimulating | :16:26. | :16:30. | |
their economy. But our problem is less about stimulation and more | :16:30. | :16:36. | |
about stabilisation. We think there is a problem in the eurozone that | :16:36. | :16:39. | |
there are no mechanisms to ensure contagion and spill-over effects do | :16:39. | :16:45. | |
not spread from one country to another. You made that point | :16:45. | :16:50. | |
earlier and you were entirely right. We have argued for a long time that | :16:50. | :16:53. | |
the ECB should be mandated to intervene on government bond | :16:53. | :16:56. | |
markets if there are disturbances which are the result of spill-over | :16:56. | :17:06. | |
:17:06. | :17:17. | ||
effects. They could lead to a threat to the unity of the eurozone. | :17:17. | :17:21. | |
This is a fundamental thing which is missing in the architecture of | :17:21. | :17:30. | |
the eurozone. This brings us back to Nicolas Sarkozy. He mentioned | :17:30. | :17:37. | |
Germany has a burden of responsibility. You say that too | :17:37. | :17:41. | |
and the Germans are still not listening. It is a fundamental | :17:41. | :17:49. | |
problem. Germany is an independent country and does not have to listen | :17:49. | :17:54. | |
to what we say. They take their decisions, we take our decisions. | :17:54. | :17:57. | |
We have made clear what we think is important for Europe to remain | :17:57. | :18:06. | |
stable. We certainly, all the points we make, we make in the | :18:06. | :18:09. | |
context of committed Europeans and as people who believe in fiscal | :18:09. | :18:19. | |
:18:19. | :18:23. | ||
prudence in the medium term. Surely what we have learnt from the | :18:23. | :18:27. | |
economic crisis in Europe is one simple thing. If you look at Greece | :18:27. | :18:30. | |
or Portugal, you see countries that fail to take on difficult | :18:30. | :18:37. | |
structural reform. Dodging that reform has caught up with them. I | :18:37. | :18:40. | |
wonder whether you can truly say, hand on heart, that Poland has | :18:40. | :18:43. | |
taken on the difficult structural reforms which mean in the long-term | :18:43. | :18:47. | |
they can look forward to being a fully functioning member of the | :18:47. | :18:55. | |
eurozone. First of all, as far as reforms are concerned, nobody has | :18:55. | :18:59. | |
ever doubted that we have taken on the reforms, the kind of reforms | :18:59. | :19:08. | |
which are contrary to use ago. They have not been taken on by any | :19:08. | :19:14. | |
European country except those in the Soviet bloc. So I would like to | :19:14. | :19:17. | |
see any country in Western Europe try to introduce those kind of | :19:17. | :19:22. | |
reforms and politically get away with it. I will not be lectured | :19:22. | :19:27. | |
about reforms by anybody in Western Europe. I do not want to lecture | :19:27. | :19:30. | |
you, but members of your own political class, indeed, a former | :19:30. | :19:33. | |
deputy finance minister, who say that Poland needs to do much more | :19:33. | :19:43. | |
:19:43. | :19:44. | ||
to reform an overgrown and malfunctioning state. He believes | :19:44. | :19:50. | |
there is much more to do. He always believes there is more to do. Some | :19:50. | :19:54. | |
people believe the end is nigh and have been saying it for the last 40 | :19:54. | :20:00. | |
years. He is like the people on Speaker's Corner. Of course, we | :20:00. | :20:03. | |
actually happen to have the sixth lowest ratio of civil servants per | :20:03. | :20:12. | |
10,000 inhabitants in the whole of the European Union. We also have | :20:12. | :20:20. | |
one of the lowest ratios of tax to GDP. So I - fair enough - there is | :20:20. | :20:25. | |
a strong lobby of people in Poland, and I am glad there is such a lobby | :20:25. | :20:32. | |
of people, who think we should always be doing more and faster. | :20:32. | :20:39. | |
The result is that we have done a great deal. 20 years ago our Prime | :20:39. | :20:45. | |
Minister introduced those reforms we were talking about. Nevertheless, | :20:45. | :20:48. | |
compared to the countries of western Europe, I think we have | :20:48. | :20:58. | |
:20:58. | :21:01. | ||
done far more than any Western European country could talk about. | :21:01. | :21:11. | |
:21:11. | :21:12. | ||
A couple of specifics, if I may? I may. Excuse me. If I may. Then | :21:12. | :21:17. | |
the second point is that we are not actually joining the union. We are | :21:17. | :21:21. | |
going around in circles in this conversation. You keep talking | :21:21. | :21:25. | |
about how difficult it will be for us to cope in the eurozone as if we | :21:25. | :21:29. | |
are about to join. We are not about to join, partly because the | :21:29. | :21:35. | |
eurozone is not ready. And secondly, we have undertaken a lot of reforms | :21:35. | :21:40. | |
over the last 20 years and the last four years and we have a very full | :21:40. | :21:46. | |
reform programme for the next four years. But do carry on with your | :21:46. | :21:49. | |
specifics. The specifics - why, if Poland has committed itself to | :21:49. | :21:52. | |
privatisation, why are so many of the larger businesses privatised in | :21:52. | :22:00. | |
a way that has left a dominant stake-holding in the state sector? | :22:00. | :22:10. | |
That is privatisation-lite. privatisation we have undertaken | :22:10. | :22:14. | |
over the last four years has been the fastest since the turn of the | :22:14. | :22:24. | |
:22:24. | :22:24. | ||
millennium. Much faster than there was, than had taken place earlier. | :22:24. | :22:30. | |
We are certainly committed to continue that. But what we | :22:30. | :22:35. | |
definitely want to do is have some Polish companies. We do not want | :22:35. | :22:39. | |
this to be state companies. But that does mean that most of the | :22:39. | :22:42. | |
privatisation has been on the local stock exchange, which, by the way, | :22:42. | :22:52. | |
:22:52. | :22:56. | ||
has the third highest level of IPOs in the world. Also thanks to that | :22:56. | :23:03. | |
privatisation. That means that for a while the controlling amount of | :23:03. | :23:07. | |
shares remain in government hands until the companies will be fully | :23:07. | :23:17. | |
:23:17. | :23:18. | ||
privatised. A final thought, Minister. If you are right and the | :23:18. | :23:21. | |
country is on such a path to dynamic, efficient growth, why is | :23:21. | :23:25. | |
it that so many Poles, about 2 million, have left your country to | :23:25. | :23:32. | |
seek work elsewhere in the European Union? The most dynamic, young, | :23:32. | :23:41. | |
brightest people you have. There are two answers. Most of that | :23:41. | :23:44. | |
immigration took place before the crisis, before we came to power, in | :23:44. | :23:52. | |
the first part of our membership in the European Union. When the German | :23:52. | :23:55. | |
and Austrian frontiers were opened last year, there was hardly any net | :23:55. | :24:02. | |
immigration into Germany. The second point is that we are fast | :24:03. | :24:09. | |
growing, but from low levels. So people still earn a lot more and | :24:09. | :24:13. | |
have a higher standard of living in western Europe. So that is | :24:13. | :24:21. | |
understandable. But that gap is closing fairly fast. 20% of the gap | :24:21. | :24:25. |