Historic History Of Poland And Its Evolution

Historic history of Poland and its evolution

Introduction.

Poland is the only EU27 country in which GDP grew in 2009, so far the worst year of the crisis. While EU27 production was containing, on average, 4 % (with –13 % peaks in Latvia, –10 % in Estonia, –9 % in Ireland), Poland grew almost 1 %. Why was Poland different? We are looking for an answer by comparing Poland with a country that is in many relatively similar aspects: Hungary.

 While Poland was growing in the middle of the crisis, Hungary contracted 6.5 %, as a consequence of the abrupt fall in household consumption. The IMF extended a credit line to both countries. In any case, the credit that Hungary received was greater as a percentage of his GDP (the relationship between Pib from Poland and Hungary is 2.5 to 1). The IMF cannot be the explanation. Can the difference between macroeconomic policies (both monetary policy and internal fiscal policy)? The answer is affirmative.

Developing.

Poland responded to the crisis with a fiscal expansion: in relation to the year the crisis began, the budget deficit increased 3.4 percentage points of GDP. The fiscal stimulus consisted of a reduction in taxes that allowed consumption to continue growing. But the fiscal stimulus may not have resulted if the Central Bank had not accompanied the reduction of taxes with a monetary expansion. 

The money supply expanded and the exchange rate depreciated (15 %). Depreciation of the exchange rate was a fundamental part of the measures program.

By raising the relative price of imported goods, the demand for imports to internal products displaced. This displacement was important, otherwise the increase in consumption induced by the reduction of taxes would have fallen (at least in part) in imports without hardly affecting internal production. 

Therefore, the flexible exchange rate regime has come good to Poland by facilitating the adjustment of the economy to external disturbance. Hungary did the opposite: he tightened fiscal policy and maintained the relatively stable exchange rate. The consumption sank and its fall translated into the corresponding fall in production, since the exchange rate did not displace the demand for imports to the goods produced inside.null

Conclusions.

The explanation lies in the situation in which the two countries were when the crisis hit them. As Poland entered the crisis with relatively solid foundations, the government was able to cushion the recession. Hungary, which entered the crisis with a budget deficit of no less than 9 % of GDP (2 % in Poland) and a current account deficit of 8.5 (3 % in Poland), did not have this option. In addition, Hungarian households had requested loans in euros and not in the national currency (El Florín). If I had followed Poland and let the florin depreciate in relation to the euro, the load on these loans would have increased, which would have reduced consumption.