Take your zloty and shove it

The New York Times has an article by Carter Dougherty about Poland and the euro, or lack thereof:

The business leaders in this town at the Polish-German border cannot wait for Poland to adopt the euro. Twenty years after the fall of Communism, the region’s economy has been rebuilt in a Western image by local entrepreneurs who mastered all sorts of challenges, from getting their early shipments past venal border guards to engineering products that their European neighbors actually wanted to buy. But that experience did not prepare Polish businesses for the global conflagration that has sent the Polish currency, the zloty, on a roller-coaster ride over the past year: up, down, then back up again. The bitter lesson was that their own hard-fought success was not enough.
“At times of strong economic growth, people thought less about the euro than a time like now,” said Dariusz Wiecaszek, president of the Northern Chamber of Commerce, which is based here in Szczecin. “No businessman would now be able to say rationally that he does not want the euro.”
With the currency union created in Europe ten years ago now under immense stress, this shift in attitudes is proof that for all its faults, the euro still has plenty of appeal, particularly for those who have to make do without it. Ever since the financial crisis swept across Europe last autumn, Polish business has gone from regarding the common European currency, now used in sixteen countries, as a nice option for the future to something that the country could no longer afford to do without.
That may seem somewhat contradictory, given that accepting the euro would impose a straitjacket on Poland, limiting its fiscal options and preventing it from enhancing the trade competitiveness of its industries through a weaker currency. But any advantage that might provide, business leaders say, paled against the current instability that made it all but impossible for them to plan for the long run.
Prime Minister Donald Tusk of Poland has responded to the turbulence by making the first serious governmental preparations to swap the zloty for the euro since Poland joined the European Union in 2004. A fiercely nationalist government in Warsaw held the issue at bay for years but the financial crisis has focused attention on the issue within Mr. Tusk’s center-right government. The government now intends to loosely tether the zloty to the euro later this year as a precursor to full membership by 2012, when it hopes to be able to meet criteria on inflation and fiscal policy.
Ludwik Kotecki, the deputy finance minister, said during an interview that the strategy of outlining a credible plan to adopt the euro has an added benefit in helping to calm unruly currency markets. The decision earlier this month to secure a precautionary credit line from the International Monetary Fund worth up to $20.5 billion gave the Polish currency a further boost.
Countries like Spain, Greece, and Italy, already inside the euro zone, serve as a cautionary tale. Having lost markets to neighbors with stronger industries, like Germany, the logical next step in decades past would be to encourage a weaker currency to adjust the balance. But with the euro they are locked in, requiring a more painful process of wage cuts and job losses to restore competitiveness. Does their experience scare Polish businesses? Not in the least.
“I can’t wait to get into the euro zone,” said Janusz Korzeniewicz, the owner of Jako, a company that finishes granite blocks into tabletops, paving stones, and other building materials. Jako exports much of what it produces from a small facility outside Szczecin. Enormous blocks of granite go under a garrote-like wire coated with diamond dust to become slabs that are eventually worked into smaller pieces, or finished for decorative use. Mr. Korzeniewicz, a hulking bear of a man, shuttles between the saws and his polished granite desk, tracking mud and bits of stone every step of the way. Since a weaker currency helps exporters offer their wares at lower prices abroad, Mr. Korzeniewicz would seemingly welcome the zloty’s fall. But his raw material is imported, so a weaker zloty only reminds him that having a stable exchange rate would provide more predictable costs.
As the zloty has tumbled, some border towns have welcomed Germans streaming in for bargains in Poland. But the example of visitors from neighboring Slovakia wielding their euros has been even more potent, since that formerly Communist country abandoned its national currency on 1 January. “We now have another neighbor, Slovakia, with the euro, and our citizens now see very clearly the currency risks of having the zloty,” Mr. Kotecki, the Finance Ministry official, said.
Polish businesses have certainly had their taste of the risks. Many purchased currency option contracts last year to protect themselves against a stronger zloty, including Police Chemical Works north of Szczecin. When the zloty fell sharply instead, the company lost about €34 million, or $44.1 million.
“After these latest very difficult experiences,” said Ryszard Siwiec, the company’s chief executive, “there is no other way forward.”
History and geography are also conspiring to push Poland closer to the common European currency. Szczecin, known as Stettin in German, was the northern point of the Iron Curtain christened by Winston Churchill, who said it stretched from Stettin on the Baltic to Trieste on the Adriatic. Szczecin is the traditional capital of Pomerania, which was once a German region that stretched along the Baltic Sea coast of today’s Germany and Poland. After World War Two, Germans were driven out and replaced by Poles, most from eastern territories lost to Russia. But Szcezecin paid a high price for the change, which cut the port city off from its traditional economic service area, including Berlin. When the Iron Curtain fell, Szczecin found its role in a newly open Europe by serving to bridge West and East.
Ryszard Mikolajewski, 53, was a restauranteur in the German port town of Bremen in the early 1990s. A native of Szczecin, he had been caught outside Poland during the crackdown on the Solidarity trade union. After the Soviet Union collapsed, he set up another business, importing heating and cooling equipment to Poland. At first there were 27-hour waits along the border to get the goods past customs officers always on the lookout for a bribe. Now his problem is currencies, and it is larger than the bulging wallet he lugs around so he can have zloty and euro coins and bills at hand as he hops the border. Mr. Mikolajewski composed a price list last year based on an exchange rate of 3.5 zlotys to the euro, but watched the euro soar to almost 4.69 zlotys this month, just when he had to make good on €17,000 he owed the Dutch company that manufactures the equipment he sells. The difference was his loss. “I have the same problem as a restaurant,” Mr. Mikolajewski said. “I can’t just change the prices every week.”

Rico says that we forget how nice it is to have a strong and stable currency like the dollar...