Dr. Leszek Balcerowicz | The Lithuania Tribune
There is not a Euro-crisis as such, the crisis is taken place in some Euro members in Southern countries, and one of the remedy for this crises is in the hands of voters, people should stop electing populists, Professor of the Warsaw School of Economics, Dr. Leszek Balcerowicz said. According to the Professor people who are for fiscal discipline are credible, they are good in government. Those who promise more spending are dangerous. Read the interview with the former Deputy Prime Minister and Minister of Finance, former President of the National Bank of Poland (NBP). Professor Balcerowicz is the architect of Poland’s economic reforms initiated in 1989; he has been at the centre of Poland’s economic and political life since the fall of communism in Poland in 1989. The interview was conducted during the Riga Conference 2012 on 16 October.
We talked about the Euro crisis and you mentioned during the conference there were five points as to why the crisis happened…
Leszec Balcerowitz: First of all, the crisis happened only in some countries of the Euro zone, not in others. In the Southern countries like you know, the PIGS (Portugal, Ireland, Greece, Spain) but in the so-called Nordic countries are in a much better situation. This is why I am reluctant to use the word “Euro-crisis” which implies that everybody is in crisis,
There’s a crisis and of course there are some solutions to the crisis. The European Union and the Euro-zone countries are trying to get a solution, trying to solve the problem. Where do you think the officials of the European Union are going wrong in trying to solve the Euro-crisis, the crisis of problematic countries?
Policies are like medicines. First, you have to make a diagnosis. Then, based on that, identify what problems, what countries can do to handle these problems in the Euro zone. Those countries that are spending, financed by credit, there are two types of spending, fiscal, too much spending like in the US or like in Greece and then Portugal. The second group, private credit boom, the housing boom, like in Spain or in Ireland, too much spending and too much credit. Of course, you have the question, what has interest rates have to do with this problem? And I would say yes, interest rates set by the European Central Bank (ECB) are too low for such countries like Ireland and Spain, also for the Baltics, which are linked. Is this a fatal disease? I would say no, because there are instruments, which to slow the credit boom. This has to do with special regulations. The government spending….people should not elect populists. This is not a solution. Do not elect Santa Clauses in politics. They are very dangerous.
I hope some of the Lithuanian voters would listen to you because we have elections soon.
I will even repeat. People who are for fiscal discipline are credible, they are good in government. Those who promise more spending are dangerous.
We’ll pass that message. The European Union, the Commission has issued a proposal for banking regulation, creating some central authority which will supervise the banks of the European Union. Do you think this is going to work?
Of course one needs specialists in the field. To execute an idea such as this without specialists would never be successful. The basic questions would be, what banks would be supervised by the European Central Bank? And, what would be the difference between the proposed situation and the existing situation? Remember that a year ago, a new institution called the European Banking Authority was created. What’s new? Let us see. I think that when a European solution is adopted, one should respect the competences of national supervisors. It should not be complete centralisation. National supervisors know better about the conditions of the banks in which they are located, in their countries.
It is said that one of the reasons why the Finns are quite keen on still remaining in the Euro-area is not economic, it’s political. In various publications, it is said, that in this way, they (the Finns) feel safer, politically, from Russia. Do you think that despite the terrible predictions for the Euro, the Baltic states, the remaining Baltic states, should join for political reasons?
First of all, remember that there are two groups of countries in the Eurozone. The strong ones and I think they benefited so far from the Eurozone, Germany, Finland, the Netherlands, Austria. And those who have conducted worse economic policies, so it should not be said that everybody is lost. That’s not true. First, regarding the reasons why the Finns want to stay, I just can’t comment but I think that if you have proper policies meaning that you’re disciplined and you have flexibility, including in the labour market, you can benefit, if you are like a Nordic. The Baltics are like the Nordic countries.
Do you think that at some time, Poland should join the Euro?
Again, it depends whether we will be strong enough. So, I think in Poland we should not worry now about timing. We should focus on reforms, which are needed, regardless of Euro. We need more fiscal discipline, we need to reduce budget deficits via reducing spending, not including taxes. We need more flexibility, this is our mission.
Coming to the next questions, about Polish success. It is one country which did not suffer drop in GDP. What did the Polish politicians and economists do right in order to keep their country on the green?
Probably, we should look back for 20 years. Then, we had a lot of structure reform but the Baltics had done the most, I think. For Estonia, Lithuania, they are not worse than Poland. In some respects, they are better. So, this is not the main explanation. The main explanation is that Poland has avoided recessions and why? In 1998, we were not affected very much by the Russian crisis but we are still dependent on the Russian market. In 2008, we avoided a recession because we had avoided the credit boom, because our monetary policies, we had introduced special regulations to slow down the growth of housing credits.
In short, it was not the growth of 15% per year, it was not this inflated….
Well, look at the….it was growing at 30%, like crazy. So, in Poland it was slower. Perhaps, it it lasted longer, we would have problems but we started to slow it down.
Do you think Lithuania and Latvia’s peg to the Euro was or is a problem? Or, was it a part of the solution for the recovery?
Part of the solution, perhaps. First, small countries are better suited to have a strong peg with the main currency. And if they’re disciplined, as I said, you could benefit from it. Also, fluctuating interest rates. When Deutsch Mark existed, some countries were linked to the Deutsch Mark. This was Austria and the Netherlands. They followed strong discipline. So, I think it’s the correct solution. It was the correct decision to maintain Euro-based currency peg and to engage in internal devaluation. I always strongly disagreed with Krugman. I think he just does not look at the data and thus speaks without much empirical justification.
Today, you mentioned the PIGS countries but also the BELL countries…
Yes, Bulgaria, Estonia, Lithuania and Latvia
Do you think this new term will stick..?
We’re trying to spread it all over the world.
Transcribed by Jorge Marcano
Edited by Rachel Croucher
Interview by Ruslanas Iržikevičius