Money matters

While Deputy Prime Minister and Finance Minister, Leszek Balcerowicz, not notoriously coy about such things, privately says that it is far too early to put a date on Polish accession to the single currency there is some evidence that monetary policymakers already have one in mind.

There is a broad consensus in Warsaw that sufficient sustainable progress on inflation is unlikely to mean Poland will be ready in time for simultaneous accession to the euro in 2003 when the Government hopes to join the Union.

But the publication in mid-October by the National Bank of Poland's Monetary Policy Council (RPP) of its mid-term strategy for the period until 2003 appears to signal clearly that accession to the single currency should be possible in 2005-2006.

The RPP hopes to reduce current levels of inflation of 9.5 per cent to 4 per cent by 2003 and makes its purpose clear. "It's the first document of the central bank that clearly states that Poland's membership in the European Union and eventually European Monetary Union is the ultimate goal of monetary policy," says Citibank chief economist, Pierre Bergeron.

Crucial to joining is "convergence" with the euro currencies by meeting the infamous "Maastricht criteria".

To become part of the single currency a country does not have to show that it is rich - there is no theoretical reason why a deeply poor country should not be able to sustain a stable currency. What has to be demonstrated, the EU decided at Maastricht, is fiscal discipline, a manageable debt, low inflation, a stable currency, and low interest rates.

In Poland's case the budget deficit this year, helped by privatisation receipts, is likely to turn out below the Maastricht 3 per cent at 2.7 per cent, although some observers say the figure may be artificially low.

The national debt's level of foreign exposure has been falling dramatically and the overall level is "quite manageable", says Edward Ward, the Irish deputy general manager of Citibank. And the zloty is both largely stable and extremely strong, too strong exporters say.

Yet inflation at 10 per cent is still well above the 2 per cent level it will have to reach to meet the Maastricht target. Balcerowicz says he can get price rises down to 8 per cent next year.

And a recent cut in interest rates by the National Bank is expected to be followed by another before the end of the year and further next year, say both Ward and John McCormack of ABN Ambro. The central bank discount rate is currently 21.5 per cent.

Yet monetary convergence is likely to happen well ahead of social convergence.

When Ireland joined the EU in 1973 its per capita income was two-thirds of that of the EU average. Today, a quarter of a century later, it is on a par with the Union average, a catch-up rate that has far surpassed that in any other member state.

Poland, whose GDP has doubled since 1991, nevertheless has a considerable gap it must close before it meets the average GDP of European Union countries.

In terms of purchasing power (PPS) the picture is less gloomy. Cheaper prices in the Polish market mean that the zloty goes further and the average Pole has - at £7,500 - some 40 per cent of the economic clout of Mr Average European. Since 1993 that figure has risen from 33 per cent, reflecting the country's rapid advance not only in absolute terms, but in its relatively far better performance than all other applicant countries.

In PPS terms, given a likely decline in growth to 5 per cent and continued sluggish growth in current EU member states, Poland is still going to take until 2017 to catch up with Portugal or Greece and could take 42 years to overtake Germany or France.

If, however, Polish growth were to return to the 1994-97 average of 6.3 per cent the country could see itself reaching EU average per capita purchasing power within 25 years - by a strange coincidence, exactly what it took Ireland from accession.

Of course such figures conceal wide differences in living standards. Some 15 per cent of the population are regarded as affluent, enjoying lifestyles comparable with those of EU middle classes - in the last two years since the introduction of mobile phones, over one million have been bought. Warsaw's exorbitant restaurant wine lists and many fine cars - indeed, its traffic jams - are testimony to a substantial class of new wealthy.

But although unemployment in the capital is now down to 2.4 per cent, there are beggars in the streets and much of the housing stock is dilapidated. In the east of the country and in rural areas millions live on the brink of real hunger.