The Domestic Politics of Euro Adoption in the Czech Republic,
Hungary and Poland
Assem Dandashly* and Amy Verdun**
*PhD Candidate at the University of Victoria
**Professor and Jean Monnet Chair
Department of Political Science
University of Victoria
Po Box 3060 Victoria BC
Canada V8W 3R4
Email: averdun@uvic.ca
assemd@uvic.ca
Paper prepared for presentation at the Conference
The Evolution of Integration in Europe, 20 Years after the Fall of the Berlin Wall
at Allendorf a.d. Eder, Viessmann Academy, Viessmann Corporation-Hesse, Germany
October 12-14, 2009
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The Domestic Politics of Euro Adoption in the Czech Republic,
Hungary and Poland
1
INTRODUCTION
Following their accession to the European Union (EU) on May 1st, 2004, ten New
Member States (NMS), and two more that joined in 2007, are expected to fulfill the
Maastricht convergence criteria and enter the last stage of Economic and Monetary Union
(EMU) in due course thereby adopting the euro. However, nothing in the Treaty on
European Union specifies a time frame for joining the euro area. Some countries have
already joined; the others have not. Slovenia joined in 2007, Cyprus and Malta in 2008
and Slovakia in 2009. The other eight NMS have not yet adopted the euro. Some have
made serious attempts; others are far removed from having made the necessary
preparations to be ready to join. How can we explain the difference in speed of euro
adoption?
An economic cost-benefit analysis would suggest that in the long run euro
adoption is positive for NMS. Economists typically look at macroeconomic conditions to
determine if a country is ready or not. However, they are unable to explain the political
processes that lead to the policies that change those macroeconomic conditions so that a
country may be ready to join. By contrast, thus far political scientists studying EMU (for
example Dyson, 2006 and 2008; Greskovits, 2006 and 2008 and Johnson, 2001, 2006 and
2008) have mostly offered more or less constructivist analyses of euro adoption strategies
in Central and Eastern Europe. To explain variance in government policies towards euro
adoption they have typically focused on collective identity, the role of policy learning,
ideas and knowledge transfer among central bankers and other political elites, as well as
adjustment to the global economy and Europeanization. They rarely look at the domestic
politics of these NMS that may affect the euro adoption timetable.
We find neither economic nor existing political science analyses satisfactory in
their explanation of euro adoption strategy of member states. We argue that for a
complete understanding of the euro adoption strategy in NMS one needs to look at the
domestic political situation. This paper develops a domestic politics approach to analyze
the euro adoption process and applies it to three case studies: the Czech Republic,
Hungary and Poland. Each of these countries has not yet adopted the euro and over the
past decade each has had differing political stances towards it. Based on an examination
of government documents, reports in the media, academic literature and face-to-face
interviews with nineteen key informants in these three countries we seek to offer new
insights into the role of domestic politics in explaining the process of euro adoption in
NMS. A cost benefit-analysis indicating positive economic effects of euro adoption and
the existence of shared economic values and beliefs among central bankers were
insufficient to bring about speedy euro adoption. Government policies, elections,
electoral cycles as well as constitutional rules, to name just a few, turned out to be crucial
in explaining the lagging euro adoption process in these countries.
The paper is structured as follows. The next section reviews the literature on euro
adoption (both economics and political science literature). Next, we provide details of the
factors we consider in our domestic politics approach and report on the methodology
2
used. The three sections that follow offer the case studies. The final section highlights the
most important findings of the comparative study and offers some general conclusions.
2
LITERATURE REVIEW
When we turn to the academic literature to seek possible explanations, indeed
predictions, of the speed of euro adoption in NMS, we first and foremost turn to the field
of economics. This literature includes work on exchange rate regimes and the question of
what benefits and costs there are of fixing exchange rates and thus ultimately the question
of when it is economically beneficial to join a monetary union (known as the Optimal
Currency Area (OCA) literature Mundell, 1961; McKinnon, 1963; Kenen, 1969).
Basically it stipulates that countries benefit from joining a monetary union when their
economies are sufficiently similar and synchronized and if factors of production (capital
and labor) are mobile. In recent years the OCA literature has been adjusted in light of the
experience in Europe. The choice to join EMU is no longer one in which prospective
partners can renegotiate the terms; they will be joining the existing union. The markets
know these countries will join one day and the euro area is already a reality. This recent
literature suggests that even if at first countries may not fit the criteria prescribed by OCA
theory, they will soon adjust and converge and thus joining the monetary union sooner
rather than later would be deemed more beneficial than first considered in the original
OCA theory. This view is referred to as the endogenous OCA theory (Frankel and Rose,
1998; Mongelli, 2005). This literature offers valuable insights into the costs and benefits
of giving up the exchange rate instrument. It also discusses what other factors are needed
so as to have adjustment mechanisms in place once the exchange rate instrument and
monetary policy are no longer available to the national government (for a discussion see
De Grauwe, 2006a).
A recent volume (Schadler, 2005) looks explicitly at the concrete question of euro
adoption. Various contributions examine whether euro adoption is in the interest of
member states. The findings suggest that in the long run all new member states will
benefit from joining the euro. The question then becomes, under what conditions will
they be joining the euro sooner rather than later? Various contributions in that volume
speak to the various aspects of this question. Frankel (2005) examines the effects of
asymmetric shocks. He argues that if countries still suffer from asymmetric shocks, they
should not yet join EMU. But he then goes on to examine asymmetric shocks and
concludes that they are not likely to happen as frequently in the European context as they
do elsewhere, or as they did in Europe in the past. He concludes that the gains of joining
the euro are substantial and one need not to be too concerned about asymmetric shocks in
euro adoption countries. Moreover, there are policies that can be pursued to
counterbalance the possible fall-out of such a shock. Not everyone agrees with this view.
For instance, Thimann (2005) believes that the countries would need to be judged on a
case-by-case basis to see if the economic conditions are right for countries to join the
euro. The EU members do not have same economic features and they do not form “a
homogeneous economic area” (cf. Gros and Thygesen, 1998: 300). Countries have
different trade structures, legal and fiscal systems, growth, unemployment rates, Gross
Domestic Product (GDP), development, institutions, and so on (see also De Grauwe,
3
2006b: 13-23). Another study in this volume, De Grauwe and Schnabl (2005) examines
the extent to which the exchange rate is an instrument that could assist countries to deal
with stabilization. De Grauwe and Schnabl find that, contrary to what had been
conceptualized during the early OCA literature, in the current global financial context,
with integrated economies, and small open economies, having an exchange rate separate
from the larger area may actually be a source of shock. In these cases the loss of
exchange rate might be a benefit. Some scholars examine the cost of the transition as a
country might incur major costs if it is not done well (Lipschutz, Lane and Mourmouras,
2005). However, even if there are some short-term costs when the conditions are not
exactly right, there are, according to Viñals, factors that can offset these problems (such
as policies to improve research and development or develop the financial sector and make
it more resilient). In other words, economists view the euro adoption process as one in
which new member states decide when and under what conditions these countries will be
ready to join EMU. None of these works examine, analyze or indeed predict how we can
understand the process of euro adoption, nor do they offer insights into what factors
within the country (other than macroeconomic factors) that may lead to a country
choosing to adopt the euro fast or slow. Nevertheless the overall consensus is that in the
long run euro adoption is beneficial for these countries.
Turning to the political science literature, the question of euro adoption may be
situated in the broader literature. Literature on economic policy decisions in Central and
Eastern European Countries (CEECs), since the end of the Cold War, has focused on the
launch of political and economic transition in these countries and with it the observation
that a trend of fast institutional development has taken place not only as a result of
European integration and international incentives but also due to an ongoing social
learning process. Central banks were among the institutions that underwent major
changes and were affected by this trend. One of the main beliefs that were transferred to
CEECs was that “protecting price stability and central bank independence is the key to
economic development in democratic states” (Johnson, 2006: 363). The creation of
independent central banks was the result of the continuous effort of the EU and other
national central banks such as the Bundesbank, the Bank of England, the Federal Reserve
Bank, also international institutions such as the International Monetary Fund (IMF), the
World Bank and the Bank for International Settlements (BIS) (see Johnson, 2003, 2006;
Andrews, 2003; Dyson et al., 1995; Kaelberer, 2003; Marcussen, 2000; Verdun 1999).
This transfer of ideas, technical assistance and socialization process led to privatization
and economic and institutional development that aimed to transform those countries into
a capital-market economic system. The move from independent central banks to being
part of the European System of Central Banks (ESCB) is, in this view, a logical step
(Dyson and Marcussen, 2010). The problem is, however, that preparing for euro adoption
through the path of getting the central banks ready for EMU is not sufficient for actually
adopting the euro.
EMU has also been viewed through the lens of “Europeanization”. Those who
look at it through this lens study how it affects the “policies, politics, and public
institutions”. In a pioneering book on euro adoption in CEECs edited by Kenneth Dyson
(2006), the authors suggest that the best way to understand EMU’s domestic influence is
through a “defining and negotiating fit” framework, which has a “multilevel context”:
international, European and domestic. Joining EMU is considered to be “strategic” and
4
“cognitive” procedure (Dyson, 2006: 2). Although explicitly dealing with EMU and the
CEECs, the study does not offer an understanding of how the domestic political
environment influences the decisions taken regarding euro adoption. One of the main
conclusions of this recent study is that small states are working hard to join and are faster
than larger states. We find this result empirically not fully satisfactory, because not all
small member states have worked equally hard to join the euro and not all larger new
member states pursued the same policies on euro adoption. Some scholars, such as Zubek
(2006, 2008), highlighted some of the domestic issues and how they affect the road to
EMU. However, the focus was too narrow in most cases. It focused mostly on the role of
central bankers, finance ministers and other internal conflicts from Europeanization
perspective. Finally, Risse et al. (1999) contributed to the general understanding of how
euro adoption might be connected to the national collective identity. Again, however, it is
not clear how these insights might be able to explain specific reasons why euro adoption
policies wax and wean in various countries and why some governments are more and
others less devoted to euro adoption.
Our point here is that although these studies provide a useful analysis of the
general conditions under which euro adoption might flourish, we find the factors looked
at unable to explain the specific government policies, the success of those policies, and
thus the resulting speed and timing of euro adoption. Thus we propose here to include
domestic factors in an analysis of euro adoption strategies in NMS in order to address
those issues.
3
THEORETICAL FRAMEWORK AND METHODOLOGY
Domestic Politics Approach
We have argued above that in order to understand states’ preferences, we cannot only
rely on economic or constructivist theories to explain the intricate differences in the
timing or indeed speed of euro adoption in the NMS that joined the EU in 2004. In order
to understand the specific political processes that take place in the domestic arena that
determine the speed and the timing we need to borrow from those who have developed a
domestic politics approach (cf. Huelshoff, 1994; Ladrech, 1994). We are not the first to
point to the importance of the domestic setting and domestic actors in explaining EMU
(cf. Sandholtz, 1993; Dyson and Featherstone, 1996; Hallerberg, 2004; for an overview
of the literature see Sadeh and Verdun, 2009). Yet, these earlier authors have not
explicitly addressed the question of how one is to understand the divergence in outcome
in euro adoption process among NMS. Seen that many factors could be captured by this
approach we have narrowed the scope of our study and are restricting ourselves to four
broad categories: (1) macroeconomic characteristics and conditions; (2) government and
opposition, the electoral cycle and any legal or constitutional constraints; (3) the central
bank; (4) public opinion, the media and economic interest groups.
Case Selection and Methodology
5
In order to examine the domestic politics of euro adoption in selected NMS we study
three NMS that have not yet adopted the euro: the Czech Republic, Hungary and Poland.
We choose these particular countries because they differ in their relative enthusiasm (or
reservation) towards euro adoption, since the early 2000s. Some of them first were
enthusiastic and set optimistic goals but then had to postpone these target euro adoption
dates.
The empirical case studies presented below are based on official documents,
reports in the media, academic literature, a few presentations by key informants at public
events, and personal interviews. We conducted face-to-face interviews with officials from
ministries of finance, the central banks and a few others in each of the three countries.
Nineteen interviews were held in the period April-June 2009 based on a semi-structured
list of questions.
CASE STUDIES
4
CZECH REPUBLIC
4.1 Macroeconomic indicators:
The Czech Republic, up until 2005, was among the NMS looking to be among the likely
candidates to join EMU sooner rather than later in so far as the macroeconomic indicators
were concerned. Already in the early part of the decade the country had the plan to join
the euro relatively early. In 2004, the Czech Republic met all but one of the Maastricht
convergence criteria. It met the criteria concerning inflation rate (1.8 per cent), interest
rate (4.7 per cent) and public debt (37.9 per cent) while the reference values that had to
be met so as to be eligible to join the euro area at that time were 2.4 per cent, 6.4 per cent
and 60 per cent respectively. As for the deficit, it missed the reference value (3 per cent)
by 2 percent (deficit was 5 per cent) (ECB, May 2004: 22). Yet, despite this strong start,
the Czech Republic was not long on track to speedy euro adoption since it soon started to
fall behind on its performance on meeting the convergence criteria. Until 2008 it ran an
excessive deficit and due to the global financial crisis it is expected once again to have a
high deficit. In 2008, the budgetary deficit was 1.5 per cent of GDP; inflation was 6.3 per
cent of GDP per annum (it decreased to 1.3 per cent in February 2009) while the
reference value was 3.2 per cent. However, it meets the other criteria: its long-term
interest rate is 4.6 per cent while the reference value is 6.5 per cent and with its public
debt at 28.9 per cent it stays well below the 60 per cent value. However, with the
financial crisis, in addition to the increase in the deficit, the debt is projected to increase
further and the unemployment is also projected to be 6.1 and 7.4 per cent in 2009 and
2010 respectively (European Commission, 2009).
This small open economy has chosen to have a flexible exchange rate in the run
up to euro adoption. The Czech koruna has typically been more or less stable against the
euro and other currencies in the region – if anything it had gradually gained strength
against the euro appreciating about 30 per cent against the euro over the period January 1,
1999 until mid 2009. However, with the global financial meltdown of fall 2008 the
currency depreciated considerably (15 per cent) over a period of three months (October
6
1st, 2008– mid February 2009) but then picked up again (6 per cent) in the same period
thereafter.
4.2 Government, opposition and the elections
The June 13-14, 2003 referendum on EU accession represented a victory not only of the
77 per cent (55 per cent turnout) who voted for joining the EU (Hanley, 2004), but also of
the efforts of the political elites, communities and successive governments to bring the
Czech Republic back to Europe (Baun, Dürr, Marek and Šaradín, 2006). Most of the
major political parties, as well as the Civic Democrats (a more Euroskeptic political
party), were in favor of EU accession. The Communists were the only exception (Baun,
et al., 2006: 250-251).
In the Czech Republic, the major parties are divided about their overall stance to
the EU and, by extension, the euro. The four parties that have had seats in parliament
since 2002: two of them are major parties – Civic Democratic Party (CDP or ODS) which
is a Euroskeptic party created by President Václav Klaus and the Czech Social
Democratic Party (CSDP or ČSSD) – a party of the centre-left. Furthermore, there are
two smaller parties – a communist party and a smaller Christian Democratic Party. In
2002 the CSDP was the largest party with 70 of the 200 seats, with the CDP receiving 58
seats. The parliamentary elections of June 2006 produced an outcome whereby two
coalitions with exactly 100 seats each could be made. The stalemate was broken when in
January 2007 the Civic Democrats, Christian Democrats and Greens finally gained
confidence and could start ruling, under the leadership of Prime Minister Topolanek. But
the balance of power was very delicate. Indeed, after four attempts, the parliament
succeeded on March 23, 2009 to bring down the Topolanek government (FT, March 25,
2009).1
From the outset the Czech government had planned to adopt the euro in 2010.
However, by 2006 this date was becoming increasingly unlikely. In February 2007 the
Finance Minister proclaimed 2012 to be a more realistic date. By November 2007 it
became clear that the target date was still too early. In August 2008, an assessment was
made suggesting that euro adoption would not take place before 2015. In January 2009,
the Topolanek government announced that a date to adopt the euro would be decided by
November 1, 2009 (Prague Daily Monitor, January 2, 2009). This announcement was
welcomed by other opposition parties and by the shadow finance minister Boshulav
Sobotoka from the ČSSD. But the continuous unstable political situation in the Czech
Republic makes it very unlikely that the announcement of the euro accession target day
on November 1, 2009 will be fulfilled. In addition the term of the new government of
technocrats, which was appointed following the fall of Topolanek government, lacks the
mandate to make major decisions during its short time in power before the parliamentary
elections in October 2009 that will be held following the fall of the government in spring
2009.
In the Czech case the president played an important role too. The Euroskeptic
President of the Czech Republic, Václav Klaus,2 first took office in 2003 and was re1
The fall of government occurred during the six-month period in which the country was holding the
presidency of the European Union.
2
Klaus was prime minister from 1992 to 1997 and parliamentary speaker from 1998 to 2002.
7
elected in 2008. He was a clear euroskeptic and influential figure in the Czech context.
Besides having founded the Civic Democratic Party in 1991, he appointed officials to the
central bank’s monetary board, who, like him, were euroskeptic and thus did not favor a
speedy euro adoption process. This brings us now to the central bank’s position and its
relation to the government.
4.3 Central bank
The Czech National Bank (CNB) was established in 1993 as an independent central bank.
Since 1997, and at least until 2005, the CNB faced a lot of political pressure regarding
euro adoption (CNB officials favored an early euro adoption) as half the population and
others did not see the merit of euro adoption (European Commission, 2008: 38). This
continuous struggle between the CNB and the government led to an attempt to limit the
independence of the CNB through passing an amendment to the CNB act (No. 442/2000).
The European Commission and several financial institutions—such as the ECB and the
IMF—criticized these changes. Later on, in 2001, the Constitutional Court of the Czech
Republic decided that this amendment was unconstitutional and therefore canceled it. The
court’s decision was effective from August 3, 2001 (Czech National Bank Website,
2009). The reasons behind such an amendment to the CNB act were the results of the
monetary policy adopted which the politicians considered to be “too restrictive” (Geršl,
2006: 23).
The struggle between the CNB and the political leaders kept pushing the euro
adoption date from 2007 to 2009-2010 and even to 2013-2014 – which are optimistic
accounts (at the time of writing, 2015 is more likely).3 CNB failed to influence the
decision of the government to implement a more restrictive policy, cut the deficit and
meet the Maastricht criteria so the Czech Republic can join the euro fast. Moreover,
President Václav Klaus changed three of the seven members of the monetary board
whose term expired in February 2005. Members appointed for a six-year term on
December 1, 2006, such as Vladimír Tomšík and Mojmír Hampl, hold views similar to
those of the president (EIU, February 23, 2005).
The CNB lost a lot of its integrity in entering into a losing game and pushing for
an early euro adoption (Johnson, 2008: 95; also Johnson, 2006). Moreover, the
appointment of persons close to views of the President caused the CNB’s independence
to be indirectly somewhat undermined. It seems to us that this struggle and the lack of
cooperation between CNB and the government in part explained this delay in euro
adoption. With the development in the CNB vision regarding when to adopt the euro and
not pushing hard for an early adoption, allowed for more cooperation between the
Ministry of Finance and the CNB.4 One of the outcomes of such close cooperation is the
3
According to a special report published by ERSTE Bank on May 8, 2008, they do not foresee a euro
adoption in the Czech Republic before 2015 since major political elites are not in favor of a speedy
entrance and the necessity to reform the pension system and healthcare, etc.
4
Even though the vision is that of a euroskeptic politicians, but at least there is more coherence and
cooperation regarding macroeconomic policies and mainly regarding what is better for the Czech
Economy. Those politicians were elected by the Czech citizens based on this view and they reflect their
opinions. So in case the public are not ready yet with 42 per cent of the population wants the euro accession
to be as late as possible in comparison to only 18 per cent want it to happen as soon as possible (European
8
joint documents published by the CNB and the Ministry of Finance similar to the one
approved by the Government of the Czech Republic on December 16, 2008 (CNB, 2008).
The main message of the report is that the Government of the Czech Republic intends to
join the euro area once the economic conditions are right. Add to this that the entry date
is highly dependent on how convergent the Czech economy is with the euro area (see
Czech Republic’s 2003 Euro-area Accession Strategy; also see the Updated version in
2008, p. 1).
This positive relationship between the government and the CNB in first instance
contributed to meeting the convergence criteria.5 However, with the changes in the
central bank Board, the overall stance towards euro adoption turned negative.
Furthermore, due to the current financial crisis and the expected slow down in the
economy in 2009 in which the growth of 3.6 per cent will not be met according to the
CNB. CNB governor Tuma announced on October 12, 2008 that the Czech Republic
needs a break until the markets settle down and the financial crisis is sort of resolved
(EUobserver, October 13, 2008). The real GDP for 2009 is expected to contract with 3
per cent after having shown a 3.2 per cent growth in 2008. However, 2010 is expected to
again show slow, but positive, growth of 1.2 per cent (EIU, 2009: 9).
4.4 Public opinion and the media
The CNB faced considerable political pressure regarding euro adoption, not only from
the government, but also from labor unions and the public (Geršl, 2006: 38)—with
almost half the population (45 per cent) expecting euro adoption to be a good thing while
44 per cent disapprove of euro adoption, leaving the remainder to be uncertain or have no
opinion. These overall findings were confirmed by Eurobarometer data (2008) that report
48 per cent of the population disatisfied with the fact that the euro will replace their
currency while only 42 per cent are content with that prospect (European Commission,
2008). Moreover, according to the same poll 42 per cent of the population wants euro
accession to be as late as possible compared to only 18 per cent who want it to happen as
soon as possible. However, only 50 per cent declare that they are well informed about the
euro in comparison to 48 per cent who say they are not (European Commission, 2008).
Here we have to emphasize that the media’s role in highlighting and informing people
about the importance of the euro exchange rate fluctuations. When the euro witnesses
sharp appreciation or depreciation, the media’s coverage and emphasis on the euro
increases but when the currency stabilizes media coverage all but disappears.
Following the intention of the previous government to announce a target date for
adopting the euro, a STEM poll for the Czech TV showed that 64 per cent of the Czechs
are in favor of setting a date for euro accession during this year while 36 per cent were
against. According to the Economic Chamber, local firms and businesses are in favor of
joining the euro soon. Those who are keen to adopt the euro (domestic export firms) are
Commission, 2008: 44), then it will not be possible to join before the public are really ready, since any
referendum might have negative results regarding euro accession.
5
We are not arguing here that only the relationship between the government and the CNB resulted in
positive macroeconomic conditions and led the Czech one step closer to meeting the convergence criteria.
Other factors, such as the openness of the economy, strong GDP growth and other economic indicators also
played important role.
9
motivated in part because the Czech koruna is quite strong relative to the euro and other
currencies (Prague Daily Monitor, January 2, 2009).
Independent of their opinion (either pro or against), overall citizens have not felt
the euro adoption issue to be all that important. This lack of salience is one of the main
reasons the major parties are not using the euro adoption as a tool to attract voters in the
campaign leading up to early elections in October 2009.
5
HUNGARY
5.1 Macroeconomic indicators
At the outset, Hungary was among the most enthusiastic of all NMS to be among the first
to join the euro. In the early 2000s, euro entry was projected for the year 2006. In 2004,
the year Hungary joined the EU, it failed to meet most of the criteria for adopting the
euro, except for the public debt which was slightly below the 60 per cent reference value
(57.6 per cent). All others were problematic: for instance, its inflation rate was 6.8 per
cent and the budgetary deficit stood at 6.2 per cent and the interest rate was 8.1 per cent –
far above the threshold (European Commission, 2005: 73). Since this time the situation
has not improved.
In 2008 public debt was 73.0 per cent and expected to increase to 80.8 per cent in
2009. Inflation is 6.0 per cent while the reference value is 3.2 per cent even though there
is an expectation that it will decrease in 2009 (to 4.4 per cent), and the deficit is 4.0 per
cent. Its long-term interest rate is 6.9 per cent while the reference value is 6.5 per cent
(European Commission, Spring 2009). Although the numbers have changed, two things
are still stable: the existence of an excessive deficit since 2006 and that Hungary still fails
to meet most of the Maastricht criteria. In terms of its exchange rate, Hungary was
adopting a policy of ‘ERM-II shadow’ of a crawling peg to the euro with a ± fifteen per
cent band and inflation targeting of three to five per cent by 2005 (Dean, 2004: 763; and
Loli, 2003). It fluctuated a bit over the period January 1,1999 through mid May 2008
though the fluctuations evened out. However, the second half of 2008 and the first half of
2009 saw a gradual decline of the Hungarian currency by about twenty percent (ECB
2009). Moreover, the GDP is expected to contract by 6.3 per cent in 2009 after having
still showed growth of 0.5 per cent in 2008. As for unemployment, it is projected to
continue increasing to 9.5 per cent and 11.2 per cent in 2009 and 2010 respectively
(European Commission, Spring 2009).
5.2 Government, opposition and the elections
The April 12, 2003 referendum on EU accession indicated a few things: the permissive
consensus of the Hungarians for the EU and the low intensity of preferences of EMU
membership (Fowler, 2005). Of the 45 per cent of those who voted in this referendum
(one of the lowest turnouts in NMS referendums on EU accession), 83.76 per cent voted
in favor of EU accession while 16.24 were against (Fowler, 2003 and 2005). The major
political parties were in favor of EU accession and there is no division among them
neither regarding the EU nor the euro. The system is characterized as a multiparty system
10
as there are two major parties, but neither can form a majority without a coalition partner.
The two major parties are the Hungarian Civic Union (FIDESZ), the main conservative
party, and the Hungarian Socialist Party (MSZP), the main social democratic party and
currently the minority government. MSZP has had a minor coalition partner: the Alliance
of Free Democrats (SZDSZ), a neoliberal party (in power between 2002 and 2008).
Throughout early 2000s, Hungary was among the countries keen to adopt the
euro as soon as possible. In these early years Hungary declared to pursue a policy that
would enable it to be among the first to adopt the euro (first early but soon needed to be
delayed to 2010). In 2002 elections, the Left-liberal coalition had a minor victory over the
FIDESZ-MPSZ (Hungarian Civic Alliance) coalition. This led the losers not only to
question the legitimacy of the government but also to raise accusations of corruption and
cheating during the elections – which eventually even led to some riots. These
circumstances increased the political instability in the country. Add to this the fact that
welfare spending and the euro adoption strategy “became heavily politicized”
(Greskovits, 2008: 283). Here it is important to mention that the opposition at that time
was very hard on the government regarding not only the original targeted euro entry date
(2006) but also on the way to meet the Maastricht criteria (Greskovits, 2008: 283). So the
disagreement is not whether or not to adopt the euro, but rather on what is the right policy
to do so. With the exception of some insignificant extreme right and left parties, the
major political parties are pro euro and believe that euro adoption is “a national priority”
(Greskovits, 2006: 178-179). Thus, when political tensions were high, political parties
quarreled over healthcare and privatization rather than the euro (see EIU, 2008).
Hungary’s 2002 elections witnessed hefty competition among the various political
parties to attract voters. In the heat of the campaign each of the political parties pledged
more and more funding to various societal groups. Pensioners’ payments increased
(paying out 13 instead of 12 months) and the salaries of public employees increased up to
50 per cent as promised in the 2002 campaign (Horvath, 2009; EIU, 2008: 31; also
Greskovits, 2006: 186). All these efforts were directed to increase the popularity of the
political parties and attract more votes. So part of the government target was to provide
funds to inactive citizens6 because a large part of the economy was inactive (37.57 is the
ratio of population over 65 years with respect to the working force) (OECD, 2005;
Horvath, 2009). This introduction of the huge welfare measures by the cabinet of former
Socialist Prime Minister Péter Medgyessy led to the sharp increase in the budget deficit
(9 per cent of GDP) (Euractiv, April 21, 2005). These measures of increasing spending
on welfare did not really take into consideration the importance of having strong and
reliable financial system which are necessary conditions for adopting the euro
(Greskovits, 2008; Dyson, 2002).
Between 2002 and 2006, the fiscal conditions worsened and the credibility of the
Hungarian government was shaken due to the continuous missing of the targets set in the
various convergence programme reports (Greskovits, 2008). In the 2006 election
campaign, “social welfare and the appropriate policy strategy for euro adoption” were
used as tools to gain more support. But both coalitions were focusing more on the
elections and gaining electoral support (Greskovits, 2008: 283). This did not help in
facing the budgetary problems—especially the deficit problem. By 2006, even the 2010
6
For more information on inactive citizens and who can be considered among this category in Hungary see
Fazekas, 2004.
11
euro entry date was dropped due to problems with the budget indicators (Euractiv,
February 22, 2007) caused by the overspending during previous years. Up until 2006 and
mainly because of the absence of political will, Hungary lacked any real reforms in the
public sector that was suffering from oversized staff. In 2007, the efforts to downsize the
public sector succeeded in which 60,000 public servants were fired (Greskovits, 2008:
291). Eventually the Hungarian government abandoned the idea of having a euro
adoption timetable.
Since the global financial crisis started and soon spread into stock exchanges and
currency markets the economic situation sharply deteriorated. The government was
unable to save the economy and needed to obtain loans from the IMF. Any hope for
speedy euro adoption vanished. The crisis hit Hungary hard due to the exposure of
Hungarian private households and companies to loans (including mortgages)
denominated in foreign currencies, such as the euro and the Swiss franc that appreciated
relative to the forint.
In Hungary several reasons, such as competition between political parties, the
fiscal profligacy of governments in power, lack of political will, and the inexperience of
governments with public finance, led to deteriorating fiscal situation, which rendered
impossible the government’s initial fast-track euro adoption strategy. Even though the
fiscal behavior of the government was not immediately penalized by the markets, due to
the global savings glut, it was still clear that the policies pursued by the government of
the day were very far removed from those needed to be ready to adopt the euro.
Politicians who were mainly seeking domestic political gains (in terms of attracting
voters through pledges to enhance voter income) were not at all focused on taking the
necessary steps that will lead eventually to euro adoption. Instead, government policies
(both the extent of expansionary fiscal policies as well as the lack of structural reform
that would have been needed to prepare for euro adoption) were inconsistent with a fasttrack euro adoption strategy.
5.3 Central bank
According to Article 1(2) of the Act LVIII of 2001 on the Magyar Nemzeti Bank (MNB),
which was adopted by the parliament, the Hungarian central bank and its decisionmaking bodies are to be independent in their decisions and do not receive any instruction
from the government or any other institution except for the ECB. Based on a proposal by
the prime minister to the president, the president of MNB is appointed for a term of 6
years. The main goal of the bank is achieving and maintaining price stability (Article
3(1)). Since then, and especially following the EU accession, the MNB Act has been
amended by the Parliament couple of times to be in line with EU requirements. However,
some attempts to amend the MNB Act were based on the relations between the Bank and
the government, which was not that good during the 2002-2007 period. As we discuss
below they aimed at reining in the independence of the Hungarian central bank.
Due to the troubled relations between the MNB, especially when Zsigmond Járai
was the governor (2002-March 2007) and the government, the independence of the MNB
was threatened. In an act that was considered a “political provocation” against
12
Medgyessy (and the MSZP government)7, who was favoring lower interest rates and
requesting a devaluation of the currency and a reduction in the fluctuation margin during
the 2002 elections, the MNB raised the interest rate. Jarai’s views were highly influenced
by the 2006 target date to adopt the euro and he was strongly critical of the government’s
promises to increase wages regardless of its effect on increasing the inflation. The Forint
had a 30 per cent fluctuation band against the euro and the MNB adopted an inflation
targeting policy “and the exchange rate was used as a tool of disinflation” (Greskovits,
2008: 282). MNB policies were criticized of being too tight. Governor Járai, who was
supported by FIDESZ-MPSZ (Hungarian Civic Alliance), made it clear that monetary
policy will not be relaxed unless the outcome of the “fiscal tightening” policy is accepted
(Greskovits, 2008: 283). However, the parliament amended the MNB act regardless of
the opposition of FIDESZ and MPSZ who considered it to be a violation of the central
bank’s independency (Grekovits, 2006: 186).
The MNB policies were not only criticized by the government, but also by the
export enterprises. Dissatisfaction with the MNB policies and especially his governor
Járai reached its peak in the second half of 2004 due to the different policies taken by the
central bank affecting the exchange rate and fluctuation of the currency. This resulted in a
government bill (Bill T/12192) sent to the Hungarian parliament to amend the MNB Act
(Greskovits, 2006 and 2008; EIU, 2008: 32). The proposed bill suggests changing in the
rules and composition of the Monetary Council by increasing its number and giving the
government more influence in their appointment to switch the balance in its favor and
reduce the tight monetary policy implemented by MNB. However, the ECB announced
that this amendment affects the independence of the central bank and there is no need for
it (see MNB, 2004).
Following the 2006 parliamentary elections, the MSZP won the majority and
continued its coalition with the SZDSZ to govern (been in power since May 2002). The
disagreement and conflict between the government and the MNB was alleviated with the
end of Járai term (who was nominated to be a Governor of MNB by Prime Minister
Viktor Orbán from FIDESZ in 2002). The political reason for the conflict between the
MNB and the government was eliminated with the appointment of Andras Simor to be
the MNB governor in March 2007. Cooperation and coordination between the
government and MNB was strengthened and Simon succeeded in convincing the
government to drop the 30 per cent (± 15 per cent) fluctuation band of the Forint with
respect to the euro. This supports the MNB efforts to reduce inflation (EIU, 2008: 33).
The development in the relations between the MNB and the government eases the way
for working harder to meet the criteria for adopting the euro.
5.4 Public opinion and the media
In 2007 only 49 per cent of Hungarians were excited about the prospect that the strong
euro will eventually replace their weak forint (Gallup Europe, 2007). In 2008 people
were still divided on the issue of the replacement of the forint by euro in the rate of 47
7
Although Péter Medgyessy was independent, the MSZP nominated him to be the Prime Minister after the
2002 parliamentary elections. However, due to conflicts with the SZDSZ (which was the coalition party in
the government with the MSZP), he resigned in August 2004 and was succeeded by Ferenc Gyurcsány
from MSZP.
13
per cent content versus 43 per cent who are dissatisfied. For them euro adoption is about
costs and benefits in economic terms and not regarding identity (see Greskovits, 2008).
Around 88 per cent of the population regards the euro from its effect on the salaries,
pensions and personal accounts. Majority of them are not well informed about the euro
where only 37 per cent are well informed in comparison to 62 per cent who are not as in
2008. Moreover, the percentage of those who consider the consequences of euro adoption
to be negative is increasing (32 per cent in 2004 to 43 per cent in 2008). As for those who
consider the consequences to be positive, the percentage is decreasing (from 54 per cent
in 2004 to 44 per cent in 2008). In terms of enthusiasm for euro adoption, only 26 per
cent want speedy euro adoption compared to 29 per cent who prefer it to be as late as
possible. As for the media, it is not that focused on euro adoption issues although 83 per
cent of Hungarians consider the television to be the main source of information
(European Commission, 2008).
6
POLAND
6.1 Macroeconomic indicators
The largest of the new member states with over half the population of those who joined in
2004, the Polish economy benefits from having the largest domestic market of all NMS.
As all other NMS in 2004 Poland did not fulfill the convergence criteria but contrary to
some others, it was further removed from meeting them. With GDP at 5.3 per cent,
Poland had a general public deficit of 4.8 per cent, inflation rate 3.6 per cent, long-term
interest rate 6.9 per cent and public debt 43.6 per cent thereby clearly not meeting the
convergence criteria at the outset on the deficit and inflation although closer on long-term
interest rate (Reference value at that time: inflation 2.4 per cent and interest rate 6.4 per
cent) (European Commission, 2005: 82 and 2009: 150).
Following the financial crisis, the Tusk government emphasized its intention to
join the euro by 2012. The aim of the current government is to rein in the deficit to 1 per
cent of GDP by 2011 (The Economist, 2008), which stands at 3.9 per cent in 2008 and
will be 6.6 per cent in 2009. Moreover, the 2008 average inflation was 4.2 per cent of
GDP and expected to decrease to 2.6 per cent in 2009. The long-term interest rate was 6.1
per cent in 2008. As for the public debt it stood at 47.1 per cent in 2008 and expected to
increase further to 53.6 per cent in 2009 (European Commission, 2009: 95). Since 2000,
Poland has had a freely floating exchange rate regime. The government of the day intends
to join ERM2 for the shortest time needed, and the most recent announced date still is
sometime soon (until recently the aim was to join some time before July 1, 2009, but in
May 2009 that date was delayed, with the financial crisis and the resulting economic and
currency turmoil given as primary reasons). The Polish zloty has fluctuated over the
period January 1, 1999 through the end of July 2008 but showed a trend of upward
appreciation over this period of close to thirty percent. However, with the onset of the
major difficulties in financial markets of summer and fall 2008 the zloty came down.
From mid September 2008 to early June 2009 it tumbled more than 25 percent (ECB,
2009).
14
6.2 Government, opposition and the elections
In September 1993 elections, the parties that were born from the Polish Communist party
won the parliamentary elections. This result was considered a sign of Polish discontent
with the various economic and political policies taken by the government. The political
scene affected the reform plan and the speed of such reforms. This unstable political
scene and division continued even after joining the EU and is reflected in the
disagreement among the Polish elites and parties regarding euro adoption until now. The
division in the Polish society created two kinds of conflicts: the first between the National
Bank of Poland (NBP) and the government (in particular when Leszek Balcerowicz was
the NBP governor from 2000-2006) and the second between the government and the
opposition to which we now turn.
There are currently two major political parties in Poland: Civic Platform
(Platforma Obywatelska or ‘PO’) and the Law and Justice Party (Prawo i Sprawiedliwość
or ‘PiS’). Both parties are centre-right but the PO falls in the Christian democratic, liberal
conservative category and is predominantly pro-European. PiS is more neoconservative
and generally more Euroskeptic. Other parties are the centrist (agrarian) Polish Peoples
Party and the leftish social-democratic parties (Democratic Left Alliance) but they are
currently considerably smaller (but the latter was in power in 2001). In the parliamentary
elections of September 25, 2005, the ruling center-left coalition government of the
Alliance of the Democratic Left (SLD) and a party called ‘Labor Union’ (UP) led by
Prime Minister Marek Belka was defeated following a turbulent political period tainted
by scandals and during which time the ruling coalition disintegrated and new parties were
being created. The 2005 elections resulted in a major victory for two parties of the centerright, the PiS and the liberal-conservative PO, together winning more than sixty per cent
of the votes 460 seats, with the SLD left with 11 per cent of the seats. PiS won 155 seats
while PO won 133, making PiS the winner. PiS leader, Jarosław Kaczyński, declined the
opportunity to become Prime Minister so as not to compromise the position of his twin
brother Lech Kaczyński’s chances in the Presidential race. PiS instead nominated
Kazimierz Marcinkiewicz for the post. In the October 2007 elections the tables turned
when PiS won 32 per cent and PO won 42 per cent of the vote. A new government was
formed under the leadership of Prime Minister Donald Tusk.
As far as the euro adoption strategy is concerned, the left-leaning government of
the early 2000s (SLD-UP-PSL) formed a very motivated plan for euro accession in which
the euro adoption date was set for 2007 (Zubek, 2008: 299). This plan was not successful
since it failed in mid-2003 and did not gain support from labor unions and other business
organizations—in part because it was launched during a time of relatively low economic
growth (Zubek, 2008, 300). The PiS government was much less favorable to euro
adoption. Prime Minister Jaroslaw Kaczynski has continuously uttered suspicions about
fast adoption of the euro. He argued that Poland has to join the euro “but there’s no fixed
deadline, so we can do it when the levels of economic development in Poland and the
euro zone are closer than they are now” (Deutsche Welle, 2007). However after the 2007
elections, the government of PM Donald Tusk is once again more favorable to euro
adoption and aims to move Poland into the euro sooner rather than later. However, in
order to do so, it needs to pass a change in the constitution, which requires a two-thirds
majority (see Chapter XII, article 235) of the 490 Sjem members. Thus, with the current
15
seats in parliament, a decision to amend the constitution needs the votes not only of the
ruling party, but also the opposition (especially PiS). The opposition, in addition to some
left-leaning politicians, do not favor adopting the euro with the beginning of 2012.8.
On September 10, 2008 Donald Tusk made his announcement to aim at joining
the euro by 2012 – a day after European Union finance ministers ordered Poland to do
something regarding the deficit which was forecasted to exceed the 3 per cent of GDP
ceiling in 2008 (Polish Ministry of Finance, October 2008; The Economist, 2008).
However, with the fall-out of the financial crisis, the needed decline in the deficit might
be hard to obtain. There are larger domestic obstacles that may frustrate the government’s
ambitious plan. PiS made it clear that the only possible way to accept the constitutional
amendment is if the current government calls for a referendum and has the decision be
approved in a popular referendum. However, going the route of a referendum is very
tricky because according to the Polish Constitution a referendum is valid only if there is a
turnout of at least 50 per cent. The opposition knows that it is challenging and unlikely
that 50 per cent of the eligible voters will participate in a referendum. Furthermore, it is
unclear what question would have to be posed to the electorate in such a referendum.9
The position of the opposition should change following the European Parliamentary
elections on June 7, 2009 in which PO won 25 seats while PiS got only 15 seats, showing
that the public are still in favor of the current ruling party.
The euroskeptic President Lech Kaczynksi at first supported the new fast-track
plan but then changed his mind (EUObserver October 31, 2008). With presidential and
parliamentary elections to be held before 2012, a fragile coalition government between
PO and PSL that might not continue after the parliamentary elections in 2011, in addition
to the fact that regardless of the solid majority that the coalition has in the parliament, it is
not enough to turn over any presidential veto nor pass a constitutional amendment
without the support of the opposition parties. All these issues affect the possibility of the
current government to take major economic and monetary policies’ changes. In fact, on
November 14, 2008, a day after having met with ECB President Jean-Claude Trichet,
Tusk declared that there might need to be a delay to the 2012 date – quoting the need to
avoid a referendum demanded by PiS (FT November 14, 2008). This likely delay was
further signaled in spring 2009 (FT April 2, 2009).
6.3 Central bank
8
Former left-wing finance minister and former member of the Monetary Policy Council Dariusz Rosati
thinks that this plan to join the euro by the end of 2011 is not realistic and that “the earliest realistic date is
the beginning of 2012-on condition that the government gets down to work right away” (check Warsaw
Voice, September 24, 2008).
9
When Poland joined the EU, it committed to joining EMU, so effectively Poland has already committed
itself to adopting the euro at some point. Thus a question such as “Are you in favor of joining the euro or
not?” would not be appropriate. Another problem regards setting a date for joining the euro for instance
“Do you want to join the euro in 2012?”. After all, what would it mean if the population voted no to this
question? Would it be OK to adopt it the year after? And even if the population voted yes to such a
question, it might be that due to certain incidents or missing the criteria the decision by the Commission
was against Polish euro adoption in that year, what would that mean for the government mandate?
16
The legal framework of today’s NBP dates back to August 1997.10 With the new statutes
a new ten-member body was created – the Monetary Policy Council – responsible for
monetary policy. Maintaining price stability, supporting government policies, and
looking after the Polish national currency, the zloty, and guarding the stability of the
financial system were other objectives of the Polish central bank.11 With these changes
the NBP followed the structure of many national central banks in Europe and across the
globe (Johnson, 2002: 20), and was in line with the ESCB basis and provisions (Polański,
2004a: 281). However, the NBP was not fully independent and fulfilling the EU
legislation until its act was amended in 2003 and the auditing of the NBP has to be
conducted by an independent external auditor and not, as previously, by a commission
assigned by the government (Polański, 2004b: 9).12
Over the past decade, the NBP has been split over whether or not the euro should
be adopted fast or slow. The euro enthusiast group has as a focal advocate the former
NBP governor Leszek Balcerowicz (2000-2006), some financial institutions, current
coalition government. As for the euroskeptic group—represented mainly by the current
NBP governor Slawomir Skrzypek13 (2007-present), PiS and the SLD—it prefer the slow
track. Following the Tusk government announcement in fall 2008 to target 2012 for euro
adoption, the euroskeptic governor has had reservations about its wisdom.14 Over the
course of the spring and summer of 2009 others in the central bank also became
convinced that the government’s fast-track simply was not sustainable (central bank
officials, April 2009 interviews with the authors).
The Polish road to EMU was delayed due to this conflict within the NBP over
euro adoption, since the NBP was blamed for causing an economic slowdown due to its
monetary policy. The SLD-Labor Union (UP)-Polish people’s party (PSL) entered into
conflict with the NBP convicting it of adopting bad policies leading to slow growth and
shy economic regains (Zubek, 2008: 298). The Miller government put all the blame on
the NBP and mainly its governor Balcerowicz (see Zubek, 2006, 2008). The government
publically called upon the NBP to assist with increasing growth. Following the failure of
the Kolodko plan for fast euro entry, Jerzy Hausner (Economic and Labor Minister at that
time) proposed an alternative plan in which the viable date for euro entry was postponed
to 2009. Although the plan helped the government absorb the EU pressures, the domestic
implementation of the plan was not that successful. The main reasons behind the
domestic problems were the problems within the SLD ruling party resulting from Prime
Minister Miller’s support for Hausner. Political calculations were more important for
SLD than the overall benefits. One of the SLD leaders stated at that time that the Hausner
plan is beneficiary for Poland but harmful for SLD (Zubek, 2008: 301).
10
The Act on the National Bank of Poland of August 29, 1997 as published in Dziennik Ustaw (the Journal
of Laws) of 1997 no 140, item 938. It came into effect on January 1, 1998
11
Article 3, § 1 of the Act on the National Bank of Poland of August 29, 1997 states “The Basic objective
NBP activity shall be to maintain price stability, and it shall at the same time act in support of Government
economic policies, insofar as this does not constrain pursuit of the basic objective of the NBP”.
12
This does not mean that some incompatibilities do not exist (Zubek, 2008: 298; see also ECB
Convergence Reports for 2004 and 2006).
13 He was appointed while PiS was in power in 2007.
14
Others, such as Marian Noga (member of the Monetary Policy Council), were unconvinced that delaying
euro accession would have negative effects on the country or that it will suffer due to delaying the process
(Reuters, January 15, 2009)
17
The struggle between the government and the NBP increased following the 2005
parliamentary elections. The new PiS, Samoobrona RP (SRP) and the League of Polish
Families (LPR) coalition appointed a committee in the Sejm (Polish parliament) to
inspect the actions of the NBP regarding the financial institutions’ privatization process
that started in 1989, in addition to the actions of the Banking Supervision Commission
(KNB). This act by the new government was clearly considered an attack on the NBP
governor at that time—Leszek Balcerowicz (Warsaw Voice, March 22, 2006; see also
Zubek, 2006; 2008).
6.4 Public opinion and the media
Prior to the financial crisis, Poles were enjoying a strong zloty in terms of its exchange
rate strength and purchasing power. This situation gave Poles a feeling of satisfaction
with their own currency and dampened enthusiasm for a rush towards adopting the euro.
According to a Eurobarometer report, a larger percentage of Poles (46%) are dissatisfied
with the overall prospect that the euro will eventually replace their currency than those
who support the transition to the euro (41%) (European Commission, 2008). Following
the crisis, there was some pressure from some Poles, especially those who have loans in
foreign currencies, for adopting the euro soon. This pressure mainly came from those
worried about the depreciation of the zloty due to the effects of the financial crisis. These
advocates for early euro adoption, however, only constituted a minority since the
percentage of Poles who want the euro to be adopted as soon as possible is low (only 18
per cent) compared to 41 per cent who want it as late as possible (European Commission,
2008). These voices are still not strong enough – and definitely if one were to call a
referendum it would most likely not pass. Add to this that Poland does not meet the
criteria during the foreseeable future which will affect its plans to join the ERM-2
anytime soon.
One of the problems is the lack of knowledge among people about the euro. In
2008, 66 per cent of the population is not well informed about the euro while only 33 per
cent believe they have enough information (European Commission, 2008). These
numbers, taken from Eurobarometer reports, have not changed much since 2004 in which
those were not well informed were 64 per cent compared to 35 per cent who were well
informed. Moreover, 93 per cent of the Poles care about the implications of the euro with
respect to their salaries, pensions, and bank accounts. Nevertheless, in 2008, 47 per cent
think the euro will have positive effect while 39 per cent think the euro adoption effects’
will be negative (European Commission, 2008: 37).
As a result of the current financial crisis, some Poles more enthusiast regarding
the euro, especially with the depreciation of the zloty and its instability. Most of these
people are those who have loans and mortgages. Most of the loans are in foreign
currencies and mainly the euro and the Swiss franc. With a strong zloty, they were able to
easily pay their payments, but with a weaker zloty, things are hard on them. However,
Poles who are in favor of the euro are still not a majority and do not form a strong lobby
group that can push in that direction any time soon.
18
7
CONCLUSION
Regardless of the fact that the long-term economic benefits outweigh the costs of euro
adoption, the Czech Republic, Hungary and Poland are still outside the euro area. In this
paper we offer an alternative explanation to the cost/benefit analysis and the
predominantly constructivist approaches in political science to understand why three
countries have not joined the euro yet. Although we agree that an economic analysis and
a constructivist approach offer useful insights, they fall short in explaining what actually
happens in nation states regarding the euro adoption strategy. While macroeconomic
analysis points to the point of departure (the extent to which the countries are already
close to meeting the convergence criteria, openness of the economy, etc.) it does not
explain why some countries, such as the Czech Republic and Hungary, who were close to
meeting the convergence criteria in the early 2000s ended up diverging from them. By
contrast, Poland, which is not at all close to meeting the convergence criteria, has a
government keen to try to meet the criteria as soon as possible so as to join. Yet in Poland
a major obstacle is the relationship between various domestic actors, the difficulty of
having to change the constitution to adopt the euro and so on. In this paper we have
argued that a closer look at domestic politics helps understand the process and in
particular the timing of euro adoption. All three countries went through the socialization
process and transfer of ideas. In all three countries we saw more movement in the
direction of cutting the ties with the communist past and moving in a full speed toward
market economy and democratization. These developments were simply insufficient for a
speedy and successful euro adoption strategy.
An important finding is that no clear political consensus existed in the Czech
Republic, Hungary or Poland. All three countries have had domestic problems and
internal struggles. The Czech Republic experienced a long-time conflict between the
CNB (early euro adoption) on one hand and the government and the president
(euroskeptic) on the other one. Hungary had a macroeconomic situation that would have
made it easy to adopt the euro sooner rather than later but the government did not pursue
the policies needed to enable early euro adoption (in fact totally opposing policies were
pursued that sought to appease the electorate in which government and opposition were
each trying to hand out funds to the electorate). As for Poland, the domestic problems
leading to euro accession delays are several: struggle between the NBP and the
government during the years of Balcerowicz (when he was the Governor); struggle
between the government (euro enthusiast) on the one hand and the current NBP’s
governor and the president (both are euroskeptic) on the other; a struggle between the
current coalition and the opposition (euroskeptic); and some legal issues that need to be
resolved before joining the euro (changing the constitution). In so far as public support is
concerned, we were interested in seeing to what extent a clear call from the public would
influence the domestic arena. In the Hungarian case we observed a political battle among
the main political parties to try to win over the voters, which manifested itself in major
electoral commitments that cost the public coffers considerably. The result of this bidding
process was a mounting budgetary deficit and public debt, which pushed Hungary further
away from the prospect of joining. What we found is that the public salience of euro
adoption in the three countries is the highest in Poland, where the media and the public
care more about the euro than in the Czech Republic and Hungary. From our interviews
19
with key informants in these three countries, we understand that should the population
have been more ‘needy’ and more clearly in favor or against, these circumstances would
have affected the political stance of government and opposition.
If we reflect on these three cases on the whole question of euro adoption we
conclude that in order to understand euro adoption strategy one needs to take a domestic
politics approach. Simply examining the pros and cons from a cost benefit analysis
perspective is unsatisfactory, as is the broader scope of the constructivist approach. The
latter is unable to examine the day-to-day politics, and hence the developments on the
ground that lead to the policies that eventually determine whether a country is ready to
adopt the euro.
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