When Poland’s main business lobby hosted a debate on the pros and cons of euro membership last month, former central bank Governor Marek Belka surprised the audience by issuing a ringing endorsement for joining the euro.
For a man who resisted a switch to the single currency during the Greek crisis, his call for deeper integration now – echoed by attending executives – revealed how alarmed eastern Europe’s corporate elite is by the nationalism running through their governments and on the streets.
Eurobarometer, April 2017
It’s the same story in Hungarian business circles and in the Czech Republic, where premier-elect Andrej Babis rose to power by rejecting the French and German drive to make the currency union the engine of the European Union. Businesspeople worry about the economic costs of forgoing a seat at the table.
“We should take our EU membership, and EU affairs in general, very seriously,” Radek Spicar, vice-president of the Confederation of Industry a lobby group representing 11,000 Czech companies, told a business forum in Prague on Nov. 22. “If you’re so vitally dependent on something it’s good to be able to have maximum influence over it.”
Photographer: Piotr Malecki/Bloomberg
Given how heavily the three countries rely on the EU for exports, foreign investment and subsidies, there’s good reason to be nervous, especially against the backdrop of Brexit. Without the anchor of euro membership, some companies fret that the deepening wedge between their governments and the EU will leave the nations with less clout in making decisions that affect their economies.
This risk is becoming more pronounced as the 19 nations in the bloc prepare to lay the foundations for a more complete financial and economic union, including possibly a euro-zone finance minister, a budget and a monetary fund.
Poland – the EU’s biggest eastern member and largest net recipient of its subsidies – needs to have a strong voice in Brussels as this unfolds, Belka said on a panel about the future of the euro hosted by business group Lewiatan, which represents 4,100 companies. He said adopting the single currency would lower corporate financing costs, prod businesses to boost their competitiveness and drive up wages.
“Joining the euro would trigger an innovation drive on a mass scale,” said Belka, a former IMF director who ran the Polish central bank from 2010 to 2016.
Fellow panelist Leszek Skiba, a deputy finance minister, argued Poland is better off waiting until after the euro-area reform to make any decisions – a view common among the region’s populist politicians and their voters.
Like Babis, a Slovak-born billionaire who controls an agriculture and media conglomerate, Hungary’s Viktor Orban and Jaroslaw Kaczynski of Poland oppose yielding any more national sovereignty to the EU. They’ve refused to set target dates for euro adoption, a condition of membership when the countries joined in 2004.
Their hesitation partly stems from the economic crises that drove the euro to its breaking point in the past decade. They don’t want to be liable for bailing out countries like Greece, especially since they’re less indebted than many euro members. Having independent currencies also serves them well during crises because they can weaken them to improve export competitiveness — something Italy and Spain can’t do.
Beyond that, though, is the virulent isolationism and anti-immigrant sentiment that’s swept through parts of the EU’s east. Two out of every 10 Czechs favor joining the euro, while only a third say being an EU member is a “good thing,’’ according to Eurobarometer surveys this year. That’s worse than how Britons feel about the bloc. While the EU itself remains popular in Hungary and Poland, only 43 percent of Poles want to adopt the euro. Almost six out of every 10 Hungarians favor a switch away from the forint.
If Brexit showed business leaders anything, it’s that their interests can quickly be sidelined when emotions run high over issues like migration and, in Poland and Hungary, rule of law. In June, the EU launched legal proceedings against the three states for refusing to accept refugees. Poland’s ruling Law & Justice party is at loggerheads with the EU over its push to bring courts and state media under more direct government control.
“Euro adoption is so demonized right now that it’s hard to expect a move,” said Marcin Czyczerski, the chief financial officer of Poland’s biggest shoemaker, CCC SA, which has a lot of customers in Europe and even pays for rents at home in the single currency.
Czyczerski and other executives want the euro to mitigate currency risks that are inevitable when a lot of operational costs are in local currencies and revenue in euros. They’re also faced with losing competitiveness to neighbors along the eastern front — namely Slovakia, Slovenia, Lithuania, Estonia and Latvia — that have already switched. Popular approval ratings for the common currency are around 75 percent in these places.
National statistics offices
“If Babis was solely a businessman, he’d be on the side of supporting the euro,” said Milan Pasmik, the chairman of McCarter AS, a Slovak company that sells its high-end fitness drinks across central Europe and invoices suppliers and buyers in Hungary and Poland in the single currency. “People who usually talk like that don’t have companies to run. It’s politics.”
Some executives say politicians are more willing to join the euro than they’d like to let on. When push comes to shove, Hungary won’t be left out of deeper integration, according to Sandor Csanyi, the country’s richest man and the head of its biggest lender OTP Bank.
Businesses have been quietly preparing for that to happen. Czech companies more than doubled the use of the single currency to pay local suppliers in the past five years to 18 percent, central bank data show. Most big property deals in Poland are already done in euros.
“We’ve already had to learn to live with it, we’ve already been preparing our accounts in euros for years,’’ said Barna Erdelyi, chief financial officer of Hungarian truck operator Waberer’s International Nyrt.
Apart from the economic rationale, Spicar of the Czech Confederation of Industry said refusing to join the “exclusive euro-zone club” when the country sends 84 percent of exports to the EU would be a costly mistake politically, too.
“A new core seems to be crystallizing within the EU of countries that are more willing to further integrate, that are more active and less euroskeptic,” he said. “We need to keep careful watch and make sure we don’t miss the train.”
— With assistance by Radoslav Tomek, and Gabriella Lovas
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