:00:12. > :00:16.Europe's protracted debt crisis has laid bare a stark reality. Germany
:00:16. > :00:20.is the Union's major player, and Berlin's wishes will do much to
:00:20. > :00:24.change the future of Europe. Nowhere does that carry more
:00:24. > :00:30.resonance than in Poland. My guest today is Jacek Rostowski, Poland's
:00:30. > :00:33.Finance Minister. EU membership has been good for Poland, but are Poles
:00:33. > :00:43.ready to join the euro, and sign up to fiscal rules bearing a German
:00:43. > :01:11.
:01:11. > :01:15.Welcome to HARDtalk. Good afternoon. I want to begin by taking you back
:01:15. > :01:18.to the words of your colleague, the Polish Foreign Minister, who at the
:01:18. > :01:26.end of last year said that Europe's sovereign debt crisis, to him,
:01:26. > :01:30.represented the most scary moment of his entire political career. Now
:01:30. > :01:35.that we are in the new year, looking at the way that Europe is
:01:35. > :01:39.dealing with this, are you still feeling scared? My colleague said
:01:39. > :01:42.that in a speech in Berlin at the beginning of December, and I have
:01:42. > :01:46.just read in the Financial Times that Donald Tsang, he is the chief
:01:46. > :01:56.executive of Hong Kong, said exactly the same thing for the same
:01:56. > :01:58.
:01:58. > :02:05.reasons a few days ago at Davos. But I have to say, that from our
:02:05. > :02:11.point of view, we are getting a bit less scared. We think that the
:02:11. > :02:18.situation is slowly stabilising. The actions that have been taken by
:02:18. > :02:25.the ECB, not before time, are beginning to bear fruit. Liquidity
:02:25. > :02:28.in the European banking system is improving. Yields on Italian and
:02:28. > :02:32.Spanish bonds, which for us are the most important indicator of the
:02:32. > :02:42.intensity of the crisis, are steadying and declining in a steady,
:02:42. > :02:46.
:02:46. > :02:50.predictable and sustained way. may interrupt, Minister, you talk
:02:50. > :02:57.about a steady decline in the sense of panic, I suppose, but it is not
:02:57. > :03:00.really steady at all in Europe, is it? Because, as you say, a slightly
:03:00. > :03:04.more benign attitude towards debt in Spain and Italy, but Portugal,
:03:05. > :03:07.for example, has debt yields going through the roof. The markets have
:03:07. > :03:12.apparently decided that Portugal will eventually default in the way
:03:12. > :03:18.that Greece is, in essence, defaulting. So the idea of
:03:18. > :03:26.contagion is still out there. but it is very important who is
:03:26. > :03:29.under threat of contagion. Even though I think what is happening
:03:29. > :03:32.with Portuguese yields is unfair, because the new Portuguese
:03:32. > :03:34.government is very determined and very clear in its determination to
:03:34. > :03:38.reform the Portuguese economy, nevertheless, the important
:03:38. > :03:41.dominoes - if I can use that word, although they are not really
:03:41. > :03:45.dominos, because we can now see they are unlikely to fall - but the
:03:45. > :03:55.big players in this, the important players, are of course Spain and
:03:55. > :04:03.
:04:03. > :04:07.Italy. And the very fact that Spanish and Italian bonds continue
:04:07. > :04:17.to decline as Portuguese yields are going through the roof is, I think,
:04:17. > :04:19.
:04:19. > :04:22.evidence that generally the situation is stabilising. And I
:04:22. > :04:32.have to say that almost everybody now expects a mild recession in the
:04:32. > :04:36.
:04:36. > :04:40.first half of this year. In Europe and in the eurozone. We were
:04:40. > :04:48.concerned as late as early December, before the summit, that we might be
:04:48. > :04:54.facing something on the scale of 2009 or even much, much worse. And
:04:54. > :04:58.that prospect seems to be receding. Let's talk about the fiscal compact
:04:58. > :05:06.that 25 of the 27 EU members have agreed to, although all of the
:05:06. > :05:14.detail has not yet been worked out. In essence, this compact, if it is
:05:14. > :05:19.ratified, represents the triumph of austerity economics made in Germany.
:05:19. > :05:25.Would you agree with that? And if you do agree with it, why is Poland
:05:25. > :05:29.so readily accepting it? Maybe I will start with the second question.
:05:29. > :05:36.The compact, or the pact, will not be binding for countries that are
:05:36. > :05:42.not in the euro, until they join the euro. So we shall not be taking
:05:42. > :05:45.on any additional obligations as a result of signing the pact. On the
:05:45. > :05:54.other hand, going back to your introduction, you said that the
:05:54. > :05:57.pact embodied fiscal rules made in Germany. Although the precise
:05:57. > :06:01.fiscal rule that countries signed up to, once they are members of the
:06:01. > :06:08.eurozone and once this pact is accepted, is in fact a German
:06:08. > :06:16.fiscal rule, Germany introduced its fiscal rule only in 2010. Or 2009,
:06:16. > :06:23.I cannot remember. Poland has had extremely rigorous fiscal rules
:06:23. > :06:26.since 1997. And we in fact, constitutionally, cannot have a
:06:26. > :06:29.debt to GDP ratio that would exceed 60%, which is the Maastricht Treaty
:06:29. > :06:32.limit and which is of course massively exceeded by almost all
:06:32. > :06:42.eurozone countries, including Germany - which, if my memory
:06:42. > :06:49.
:06:49. > :06:52.serves me correctly, has a ratio of public debt to GDP of 81 or 82%.
:06:52. > :06:58.I may interrupt, you talk about national debt there, and I take
:06:58. > :07:03.your point. Poland is constitutionally committed to
:07:03. > :07:06.keeping its national debt below 60%. I understand that. But in terms of
:07:06. > :07:13.cyclical economic policy, the Polish government has recently been
:07:13. > :07:17.seen to be happy to live with budget deficits of 5% or 6% or 7%.
:07:17. > :07:21.You are now saying that you are prepared to accept the compact. I
:07:21. > :07:25.say made in Germany, you can argue about it, but it is a compact that
:07:25. > :07:29.says you cannot run anything beyond a balanced budget. And if you go
:07:29. > :07:36.beyond a 3% budget deficit you will be severely punished. Are the
:07:36. > :07:42.Polish people ready for that? points. First of all, these rules
:07:42. > :07:49.will bind us once we join the euro. And we are not joining the euro for
:07:49. > :07:53.a while. Well, you know what I have to do now. LAUGHTER. I have to ask
:07:53. > :07:58.you, when are going to join the euro? Not for a while yet. My
:07:58. > :08:02.simple answer is when it has been fixed, so it is safe to join. Going
:08:02. > :08:06.back to your earlier point, it is not quite true that you have to run
:08:06. > :08:09.a balanced budget all the time. What you actually have to do is run
:08:09. > :08:13.a balanced structural budget, which means you can allow automatic
:08:13. > :08:23.fiscal stabilisers to work, and they can either be quite a strong
:08:23. > :08:23.
:08:24. > :08:27.variation as the cycle develops, or not such a strong variation. In
:08:27. > :08:30.Poland it is actually a strong variation, and the fines that would
:08:30. > :08:34.be paid for exceeding 3% deficit, once we joined the eurozone,
:08:34. > :08:44.whenever that may be, are actually no higher under the pact then they
:08:44. > :08:50.
:08:51. > :09:00.were under the pact which we helped to negotiate. They were brought
:09:01. > :09:04.
:09:04. > :09:07.into EU law in September of last year. So as far as we are concerned,
:09:07. > :09:10.this pact really introduces very little that is new on the fiscal
:09:10. > :09:13.side except the duty to introduce this rule into a country's
:09:13. > :09:17.constitution, and that applies only to countries that are in the
:09:17. > :09:20.eurozone, and of course we shall have to see how many countries
:09:20. > :09:30.succeed in ratifying the treaty and the part from that which succeed in
:09:30. > :09:34.
:09:34. > :09:41.introducing this rule into the constitution. We are very much in
:09:41. > :09:44.favour of this pact. I appreciate the detail in your answer, but I
:09:44. > :09:48.suspect that your own people in Poland, and people around the world,
:09:48. > :09:54.will want some pretty simple answers to basic questions. And I
:09:54. > :09:58.go back to Poland and the euro. me worry about what people in
:09:58. > :10:01.Poland want. I think I can deal with that. Well, your Prime
:10:01. > :10:06.Minister told his people, I believe five years ago, that Poland would
:10:06. > :10:11.be joining the euro in 2012 or 2013. Am I to take it, from your cautious
:10:12. > :10:15.answers, that you are kicking that into the long grass? We kicked that
:10:15. > :10:19.into the long grass a while ago, because of course in September 2008,
:10:19. > :10:29.which was when we made that declaration, we had no idea that
:10:29. > :10:30.
:10:31. > :10:34.this was going to happen. It was before the fall of Lehman Brothers
:10:34. > :10:37.and the world economic crisis, but more importantly, we had no idea
:10:37. > :10:44.that the eurozone would find it so hard to function effectively to
:10:44. > :10:46.prevent the kind of contagion that we have been seeing. That European
:10:46. > :10:51.institutions, and in particular eurozone institutions and member
:10:51. > :11:01.states, would find it so hard to work together to put an end to this
:11:01. > :11:01.
:11:01. > :11:05.crisis. But do you not think there is a real problem now? The rational
:11:05. > :11:10.response to you saying to me that you will only enter the euro when
:11:10. > :11:14.it is safe to do so is to assume that right now you think it is not
:11:14. > :11:18.safe to do so. That is a message that the Polish public have clearly
:11:18. > :11:23.picked up on. A recent opinion poll said that 29% of Polish people
:11:23. > :11:27.favoured joining the euro, while 53% opposed it. Do you have a
:11:27. > :11:32.fundamental problem now? No, I don't think we have a fundamental
:11:32. > :11:35.problem. I think the eurozone has a fundamental problem and we are all
:11:35. > :11:39.aware of that, and we very much want the eurozone to solve its
:11:39. > :11:42.problems and we very much want to help the eurozone solve its problem.
:11:42. > :11:46.It is no good sitting on the sidelines and yelling that the
:11:46. > :11:50.eurozone has a problem, as I am afraid some people in the UK do,
:11:50. > :11:53.because if the eurozone were to really start falling apart, I don't
:11:53. > :11:57.think anybody should believe - certainly nobody who lives as close
:11:57. > :12:06.to the eurozone as both Poland and the UK do - that we could possibly
:12:06. > :12:09.escape from such a catastrophe unscathed. But unlike the United
:12:10. > :12:14.Kingdom, you and your government are committed to joining as soon as
:12:14. > :12:22.it is feasible to do so. The UK is not committed to joining. So that
:12:22. > :12:25.is why I say you have a problem. are not out of kilter with our own
:12:25. > :12:29.people. Our own people understand that there is a major problem in
:12:29. > :12:32.the eurozone, and we understand that there is a major problem in
:12:32. > :12:37.the eurozone, and we have no intention of joining the eurozone
:12:37. > :12:43.until it is safe to do so. We have no obligation to join the eurozone
:12:43. > :12:46.as long as it is unsafe. I return to my opening proposition, that
:12:46. > :12:54.right now it does look as though European economic structures are
:12:54. > :12:58.being driven by a heavy influence from Berlin. And one can look
:12:58. > :13:01.around Europe, one can look at the fact that there was a government in
:13:01. > :13:05.place in Greece and another in Italy, which have been, in a sense,
:13:05. > :13:09.put in place by the European Commission - by Brussels - as much
:13:09. > :13:12.as by the electorate in those countries. I just wonder whether in
:13:12. > :13:16.Poland there is a long-term basic fear that if you join the eurozone,
:13:16. > :13:19.if you sign up to the pact that we have talked about, economic policy
:13:19. > :13:29.management and policy making in your country will be driven from
:13:29. > :13:35.
:13:35. > :13:40.I would put it differently. That is why I said that the eurozone is not
:13:40. > :13:43.safe to join yet. The cases that you spoke about, I think you have
:13:44. > :13:53.overstated the extent to which the policy is driven exclusively from
:13:54. > :13:56.
:13:56. > :14:02.Brussels and Berlin. I think markets are playing an important
:14:02. > :14:05.role as well. Nevertheless, the fact is that countries that are in
:14:05. > :14:08.this difficult political situation are in the situation because
:14:08. > :14:18.sometimes through no fault of their own they have got into a difficult
:14:18. > :14:22.
:14:22. > :14:25.economic situation. The risk of getting into a difficult economic
:14:25. > :14:28.situation without adequate mechanisms, not only of correction
:14:28. > :14:37.and disciplined, but also support, is one of the things that concerns
:14:37. > :14:42.us about the structure of the eurozone. That is, the
:14:42. > :14:45.institutional structure and the political structure of the eurozone.
:14:45. > :14:49.We don't want to find ourselves in that sort of difficult political
:14:49. > :14:58.and economic situation which can lead to the kind of situation you
:14:58. > :15:03.have just described. That is what I mean when I say that we will be
:15:03. > :15:09.very happy to join the eurozone once it is safe to join. Let me ask
:15:09. > :15:16.in a different way. I think about your relationship with the Germans.
:15:16. > :15:19.It is fundamentally important in Europe. It has a huge history. It
:15:19. > :15:22.matters a great deal to the future of the European economy. Do you
:15:22. > :15:29.believe the Germans understand sufficiently the need to stimulate
:15:29. > :15:32.growth across the eurozone? quote the Danish Prime Minister,
:15:32. > :15:35.just the other day she said there are countries that can afford a
:15:36. > :15:44.stimulus and they should consider doing so, clearly implying they are
:15:45. > :15:49.not doing so at the moment. As far as growth is concerned,
:15:49. > :15:54.Poland has no problem. We have been the fastest-growing economy in
:15:54. > :15:59.Europe for the last four years. We have had almost 16% of cumulative
:15:59. > :16:05.growth in that period. We have created 880,000 new jobs, the
:16:05. > :16:11.second best level after Germany, and they have twice the population.
:16:11. > :16:14.So we have no problem with growth. If you look at the countries that
:16:14. > :16:22.came second in that European growth league, Slovakia had half the
:16:22. > :16:26.growth we have had in the last four years. So growth is not something
:16:26. > :16:30.we are bad about. We have done that without the German stimulating
:16:30. > :16:36.their economy. But our problem is less about stimulation and more
:16:36. > :16:39.about stabilisation. We think there is a problem in the eurozone that
:16:39. > :16:45.there are no mechanisms to ensure contagion and spill-over effects do
:16:45. > :16:50.not spread from one country to another. You made that point
:16:50. > :16:53.earlier and you were entirely right. We have argued for a long time that
:16:53. > :16:56.the ECB should be mandated to intervene on government bond
:16:56. > :17:06.markets if there are disturbances which are the result of spill-over
:17:06. > :17:17.
:17:17. > :17:21.effects. They could lead to a threat to the unity of the eurozone.
:17:21. > :17:30.This is a fundamental thing which is missing in the architecture of
:17:30. > :17:37.the eurozone. This brings us back to Nicolas Sarkozy. He mentioned
:17:37. > :17:41.Germany has a burden of responsibility. You say that too
:17:41. > :17:49.and the Germans are still not listening. It is a fundamental
:17:49. > :17:54.problem. Germany is an independent country and does not have to listen
:17:54. > :17:57.to what we say. They take their decisions, we take our decisions.
:17:57. > :18:06.We have made clear what we think is important for Europe to remain
:18:06. > :18:09.stable. We certainly, all the points we make, we make in the
:18:09. > :18:19.context of committed Europeans and as people who believe in fiscal
:18:19. > :18:23.
:18:23. > :18:27.prudence in the medium term. Surely what we have learnt from the
:18:27. > :18:30.economic crisis in Europe is one simple thing. If you look at Greece
:18:30. > :18:37.or Portugal, you see countries that fail to take on difficult
:18:37. > :18:40.structural reform. Dodging that reform has caught up with them. I
:18:40. > :18:43.wonder whether you can truly say, hand on heart, that Poland has
:18:43. > :18:47.taken on the difficult structural reforms which mean in the long-term
:18:47. > :18:55.they can look forward to being a fully functioning member of the
:18:55. > :18:59.eurozone. First of all, as far as reforms are concerned, nobody has
:18:59. > :19:08.ever doubted that we have taken on the reforms, the kind of reforms
:19:08. > :19:14.which are contrary to use ago. They have not been taken on by any
:19:14. > :19:17.European country except those in the Soviet bloc. So I would like to
:19:17. > :19:22.see any country in Western Europe try to introduce those kind of
:19:22. > :19:27.reforms and politically get away with it. I will not be lectured
:19:27. > :19:30.about reforms by anybody in Western Europe. I do not want to lecture
:19:30. > :19:33.you, but members of your own political class, indeed, a former
:19:33. > :19:43.deputy finance minister, who say that Poland needs to do much more
:19:43. > :19:44.
:19:44. > :19:50.to reform an overgrown and malfunctioning state. He believes
:19:50. > :19:54.there is much more to do. He always believes there is more to do. Some
:19:54. > :20:00.people believe the end is nigh and have been saying it for the last 40
:20:00. > :20:03.years. He is like the people on Speaker's Corner. Of course, we
:20:03. > :20:12.actually happen to have the sixth lowest ratio of civil servants per
:20:12. > :20:20.10,000 inhabitants in the whole of the European Union. We also have
:20:20. > :20:25.one of the lowest ratios of tax to GDP. So I - fair enough - there is
:20:25. > :20:32.a strong lobby of people in Poland, and I am glad there is such a lobby
:20:32. > :20:39.of people, who think we should always be doing more and faster.
:20:39. > :20:45.The result is that we have done a great deal. 20 years ago our Prime
:20:45. > :20:48.Minister introduced those reforms we were talking about. Nevertheless,
:20:48. > :20:58.compared to the countries of western Europe, I think we have
:20:58. > :21:01.
:21:01. > :21:11.done far more than any Western European country could talk about.
:21:11. > :21:12.
:21:12. > :21:17.A couple of specifics, if I may? I may. Excuse me. If I may. Then
:21:17. > :21:21.the second point is that we are not actually joining the union. We are
:21:21. > :21:25.going around in circles in this conversation. You keep talking
:21:25. > :21:29.about how difficult it will be for us to cope in the eurozone as if we
:21:29. > :21:35.are about to join. We are not about to join, partly because the
:21:35. > :21:40.eurozone is not ready. And secondly, we have undertaken a lot of reforms
:21:40. > :21:46.over the last 20 years and the last four years and we have a very full
:21:46. > :21:49.reform programme for the next four years. But do carry on with your
:21:49. > :21:52.specifics. The specifics - why, if Poland has committed itself to
:21:52. > :22:00.privatisation, why are so many of the larger businesses privatised in
:22:00. > :22:10.a way that has left a dominant stake-holding in the state sector?
:22:10. > :22:14.That is privatisation-lite. privatisation we have undertaken
:22:14. > :22:24.over the last four years has been the fastest since the turn of the
:22:24. > :22:24.
:22:24. > :22:30.millennium. Much faster than there was, than had taken place earlier.
:22:30. > :22:35.We are certainly committed to continue that. But what we
:22:35. > :22:39.definitely want to do is have some Polish companies. We do not want
:22:39. > :22:42.this to be state companies. But that does mean that most of the
:22:42. > :22:52.privatisation has been on the local stock exchange, which, by the way,
:22:52. > :22:56.
:22:56. > :23:03.has the third highest level of IPOs in the world. Also thanks to that
:23:03. > :23:07.privatisation. That means that for a while the controlling amount of
:23:07. > :23:17.shares remain in government hands until the companies will be fully
:23:17. > :23:18.
:23:18. > :23:21.privatised. A final thought, Minister. If you are right and the
:23:21. > :23:25.country is on such a path to dynamic, efficient growth, why is
:23:25. > :23:32.it that so many Poles, about 2 million, have left your country to
:23:32. > :23:41.seek work elsewhere in the European Union? The most dynamic, young,
:23:41. > :23:44.brightest people you have. There are two answers. Most of that
:23:44. > :23:52.immigration took place before the crisis, before we came to power, in
:23:52. > :23:55.the first part of our membership in the European Union. When the German
:23:55. > :24:02.and Austrian frontiers were opened last year, there was hardly any net
:24:03. > :24:09.immigration into Germany. The second point is that we are fast
:24:09. > :24:13.growing, but from low levels. So people still earn a lot more and
:24:13. > :24:21.have a higher standard of living in western Europe. So that is
:24:21. > :24:25.understandable. But that gap is closing fairly fast. 20% of the gap