Jacek Rostowski - Minister of Finance, Poland HARDtalk

Europe's protracted debt crisis has laid bare a stark reality. Germany

is the Union's major player, and Berlin's wishes will do much to

change the future of Europe. Nowhere does that carry more

resonance than in Poland. My guest today is Jacek Rostowski, Poland's

Finance Minister. EU membership has been good for Poland, but are Poles

ready to join the euro, and sign up to fiscal rules bearing a German

Welcome to HARDtalk. Good afternoon. I want to begin by taking you back

to the words of your colleague, the Polish Foreign Minister, who at the

end of last year said that Europe's sovereign debt crisis, to him,

represented the most scary moment of his entire political career. Now

that we are in the new year, looking at the way that Europe is

dealing with this, are you still feeling scared? My colleague said

that in a speech in Berlin at the beginning of December, and I have

just read in the Financial Times that Donald Tsang, he is the chief

executive of Hong Kong, said exactly the same thing for the same

reasons a few days ago at Davos. But I have to say, that from our

point of view, we are getting a bit less scared. We think that the

situation is slowly stabilising. The actions that have been taken by

the ECB, not before time, are beginning to bear fruit. Liquidity

in the European banking system is improving. Yields on Italian and

Spanish bonds, which for us are the most important indicator of the

intensity of the crisis, are steadying and declining in a steady,

predictable and sustained way. may interrupt, Minister, you talk

about a steady decline in the sense of panic, I suppose, but it is not

really steady at all in Europe, is it? Because, as you say, a slightly

more benign attitude towards debt in Spain and Italy, but Portugal,

for example, has debt yields going through the roof. The markets have

apparently decided that Portugal will eventually default in the way

that Greece is, in essence, defaulting. So the idea of

contagion is still out there. but it is very important who is

under threat of contagion. Even though I think what is happening

with Portuguese yields is unfair, because the new Portuguese

government is very determined and very clear in its determination to

reform the Portuguese economy, nevertheless, the important

dominoes - if I can use that word, although they are not really

dominos, because we can now see they are unlikely to fall - but the

big players in this, the important players, are of course Spain and

Italy. And the very fact that Spanish and Italian bonds continue

to decline as Portuguese yields are going through the roof is, I think,

evidence that generally the situation is stabilising. And I

have to say that almost everybody now expects a mild recession in the

first half of this year. In Europe and in the eurozone. We were

concerned as late as early December, before the summit, that we might be

facing something on the scale of 2009 or even much, much worse. And

that prospect seems to be receding. Let's talk about the fiscal compact

that 25 of the 27 EU members have agreed to, although all of the

detail has not yet been worked out. In essence, this compact, if it is

ratified, represents the triumph of austerity economics made in Germany.

Would you agree with that? And if you do agree with it, why is Poland

so readily accepting it? Maybe I will start with the second question.

The compact, or the pact, will not be binding for countries that are

not in the euro, until they join the euro. So we shall not be taking

on any additional obligations as a result of signing the pact. On the

other hand, going back to your introduction, you said that the

pact embodied fiscal rules made in Germany. Although the precise

fiscal rule that countries signed up to, once they are members of the

eurozone and once this pact is accepted, is in fact a German

fiscal rule, Germany introduced its fiscal rule only in 2010. Or 2009,

I cannot remember. Poland has had extremely rigorous fiscal rules

since 1997. And we in fact, constitutionally, cannot have a

debt to GDP ratio that would exceed 60%, which is the Maastricht Treaty

limit and which is of course massively exceeded by almost all

eurozone countries, including Germany - which, if my memory

serves me correctly, has a ratio of public debt to GDP of 81 or 82%.

I may interrupt, you talk about national debt there, and I take

your point. Poland is constitutionally committed to

keeping its national debt below 60%. I understand that. But in terms of

cyclical economic policy, the Polish government has recently been

seen to be happy to live with budget deficits of 5% or 6% or 7%.

You are now saying that you are prepared to accept the compact. I

say made in Germany, you can argue about it, but it is a compact that

says you cannot run anything beyond a balanced budget. And if you go

beyond a 3% budget deficit you will be severely punished. Are the

Polish people ready for that? points. First of all, these rules

will bind us once we join the euro. And we are not joining the euro for

a while. Well, you know what I have to do now. LAUGHTER. I have to ask

you, when are going to join the euro? Not for a while yet. My

simple answer is when it has been fixed, so it is safe to join. Going

back to your earlier point, it is not quite true that you have to run

a balanced budget all the time. What you actually have to do is run

a balanced structural budget, which means you can allow automatic

fiscal stabilisers to work, and they can either be quite a strong

variation as the cycle develops, or not such a strong variation. In

Poland it is actually a strong variation, and the fines that would

be paid for exceeding 3% deficit, once we joined the eurozone,

whenever that may be, are actually no higher under the pact then they

were under the pact which we helped to negotiate. They were brought

into EU law in September of last year. So as far as we are concerned,

this pact really introduces very little that is new on the fiscal

side except the duty to introduce this rule into a country's

constitution, and that applies only to countries that are in the

eurozone, and of course we shall have to see how many countries

succeed in ratifying the treaty and the part from that which succeed in

introducing this rule into the constitution. We are very much in

favour of this pact. I appreciate the detail in your answer, but I

suspect that your own people in Poland, and people around the world,

will want some pretty simple answers to basic questions. And I

go back to Poland and the euro. me worry about what people in

Poland want. I think I can deal with that. Well, your Prime

Minister told his people, I believe five years ago, that Poland would

be joining the euro in 2012 or 2013. Am I to take it, from your cautious

answers, that you are kicking that into the long grass? We kicked that

into the long grass a while ago, because of course in September 2008,

which was when we made that declaration, we had no idea that

this was going to happen. It was before the fall of Lehman Brothers

and the world economic crisis, but more importantly, we had no idea

that the eurozone would find it so hard to function effectively to

prevent the kind of contagion that we have been seeing. That European

institutions, and in particular eurozone institutions and member

states, would find it so hard to work together to put an end to this

crisis. But do you not think there is a real problem now? The rational

response to you saying to me that you will only enter the euro when

it is safe to do so is to assume that right now you think it is not

safe to do so. That is a message that the Polish public have clearly

picked up on. A recent opinion poll said that 29% of Polish people

favoured joining the euro, while 53% opposed it. Do you have a

fundamental problem now? No, I don't think we have a fundamental

problem. I think the eurozone has a fundamental problem and we are all

aware of that, and we very much want the eurozone to solve its

problems and we very much want to help the eurozone solve its problem.

It is no good sitting on the sidelines and yelling that the

eurozone has a problem, as I am afraid some people in the UK do,

because if the eurozone were to really start falling apart, I don't

think anybody should believe - certainly nobody who lives as close

to the eurozone as both Poland and the UK do - that we could possibly

escape from such a catastrophe unscathed. But unlike the United

Kingdom, you and your government are committed to joining as soon as

it is feasible to do so. The UK is not committed to joining. So that

is why I say you have a problem. are not out of kilter with our own

people. Our own people understand that there is a major problem in

the eurozone, and we understand that there is a major problem in

the eurozone, and we have no intention of joining the eurozone

until it is safe to do so. We have no obligation to join the eurozone

as long as it is unsafe. I return to my opening proposition, that

right now it does look as though European economic structures are

being driven by a heavy influence from Berlin. And one can look

around Europe, one can look at the fact that there was a government in

place in Greece and another in Italy, which have been, in a sense,

put in place by the European Commission - by Brussels - as much

as by the electorate in those countries. I just wonder whether in

Poland there is a long-term basic fear that if you join the eurozone,

if you sign up to the pact that we have talked about, economic policy

management and policy making in your country will be driven from

I would put it differently. That is why I said that the eurozone is not

safe to join yet. The cases that you spoke about, I think you have

overstated the extent to which the policy is driven exclusively from

Brussels and Berlin. I think markets are playing an important

role as well. Nevertheless, the fact is that countries that are in

this difficult political situation are in the situation because

sometimes through no fault of their own they have got into a difficult

economic situation. The risk of getting into a difficult economic

situation without adequate mechanisms, not only of correction

and disciplined, but also support, is one of the things that concerns

us about the structure of the eurozone. That is, the

institutional structure and the political structure of the eurozone.

We don't want to find ourselves in that sort of difficult political

and economic situation which can lead to the kind of situation you

have just described. That is what I mean when I say that we will be

very happy to join the eurozone once it is safe to join. Let me ask

in a different way. I think about your relationship with the Germans.

It is fundamentally important in Europe. It has a huge history. It

matters a great deal to the future of the European economy. Do you

believe the Germans understand sufficiently the need to stimulate

growth across the eurozone? quote the Danish Prime Minister,

just the other day she said there are countries that can afford a

stimulus and they should consider doing so, clearly implying they are

not doing so at the moment. As far as growth is concerned,

Poland has no problem. We have been the fastest-growing economy in

Europe for the last four years. We have had almost 16% of cumulative

growth in that period. We have created 880,000 new jobs, the

second best level after Germany, and they have twice the population.

So we have no problem with growth. If you look at the countries that

came second in that European growth league, Slovakia had half the

growth we have had in the last four years. So growth is not something

we are bad about. We have done that without the German stimulating

their economy. But our problem is less about stimulation and more

about stabilisation. We think there is a problem in the eurozone that

there are no mechanisms to ensure contagion and spill-over effects do

not spread from one country to another. You made that point

earlier and you were entirely right. We have argued for a long time that

the ECB should be mandated to intervene on government bond

markets if there are disturbances which are the result of spill-over

effects. They could lead to a threat to the unity of the eurozone.

This is a fundamental thing which is missing in the architecture of

the eurozone. This brings us back to Nicolas Sarkozy. He mentioned

Germany has a burden of responsibility. You say that too

and the Germans are still not listening. It is a fundamental

problem. Germany is an independent country and does not have to listen

to what we say. They take their decisions, we take our decisions.

We have made clear what we think is important for Europe to remain

stable. We certainly, all the points we make, we make in the

context of committed Europeans and as people who believe in fiscal

prudence in the medium term. Surely what we have learnt from the

economic crisis in Europe is one simple thing. If you look at Greece

or Portugal, you see countries that fail to take on difficult

structural reform. Dodging that reform has caught up with them. I

wonder whether you can truly say, hand on heart, that Poland has

taken on the difficult structural reforms which mean in the long-term

they can look forward to being a fully functioning member of the

eurozone. First of all, as far as reforms are concerned, nobody has

ever doubted that we have taken on the reforms, the kind of reforms

which are contrary to use ago. They have not been taken on by any

European country except those in the Soviet bloc. So I would like to

see any country in Western Europe try to introduce those kind of

reforms and politically get away with it. I will not be lectured

about reforms by anybody in Western Europe. I do not want to lecture

you, but members of your own political class, indeed, a former

deputy finance minister, who say that Poland needs to do much more

to reform an overgrown and malfunctioning state. He believes

there is much more to do. He always believes there is more to do. Some

people believe the end is nigh and have been saying it for the last 40

years. He is like the people on Speaker's Corner. Of course, we

actually happen to have the sixth lowest ratio of civil servants per

10,000 inhabitants in the whole of the European Union. We also have

one of the lowest ratios of tax to GDP. So I - fair enough - there is

a strong lobby of people in Poland, and I am glad there is such a lobby

of people, who think we should always be doing more and faster.

The result is that we have done a great deal. 20 years ago our Prime

Minister introduced those reforms we were talking about. Nevertheless,

compared to the countries of western Europe, I think we have

done far more than any Western European country could talk about.

A couple of specifics, if I may? I may. Excuse me. If I may. Then

the second point is that we are not actually joining the union. We are

going around in circles in this conversation. You keep talking

about how difficult it will be for us to cope in the eurozone as if we

are about to join. We are not about to join, partly because the

eurozone is not ready. And secondly, we have undertaken a lot of reforms

over the last 20 years and the last four years and we have a very full

reform programme for the next four years. But do carry on with your

specifics. The specifics - why, if Poland has committed itself to

privatisation, why are so many of the larger businesses privatised in

a way that has left a dominant stake-holding in the state sector?

That is privatisation-lite. privatisation we have undertaken

over the last four years has been the fastest since the turn of the

millennium. Much faster than there was, than had taken place earlier.

We are certainly committed to continue that. But what we

definitely want to do is have some Polish companies. We do not want

this to be state companies. But that does mean that most of the

privatisation has been on the local stock exchange, which, by the way,

has the third highest level of IPOs in the world. Also thanks to that

privatisation. That means that for a while the controlling amount of

shares remain in government hands until the companies will be fully

privatised. A final thought, Minister. If you are right and the

country is on such a path to dynamic, efficient growth, why is

it that so many Poles, about 2 million, have left your country to

seek work elsewhere in the European Union? The most dynamic, young,

brightest people you have. There are two answers. Most of that

immigration took place before the crisis, before we came to power, in

the first part of our membership in the European Union. When the German

and Austrian frontiers were opened last year, there was hardly any net

immigration into Germany. The second point is that we are fast

growing, but from low levels. So people still earn a lot more and

have a higher standard of living in western Europe. So that is

understandable. But that gap is closing fairly fast. 20% of the gap