Poland’s Former Finance Minister: Forget Greece — Watch Ukraine
WHY YOU SHOULD CARE
Because past economic successes don’t mean future successes.
Leszek Balcerowicz may be the best-known economist who hasn’t won the Nobel Prize. He’s known for the so-called Balcerowicz Plan, which helped rebuild Poland’s economy through a rigorous program of public spending cuts, currency controls and an easing of restrictions for both private businesses and foreign investors.
But that hasn’t always made him popular. Back in 1989, when Poland’s first non-communist government in 45 years took office in Warsaw, Balcerowicz was appointed finance minister and deputy premier. Yet because many Poles hated his fiscal dose of shock therapy, his party’s government was voted out in just a couple of years and replaced by post-communists who tried to soften the financial blows. Still, Balcerowicz has no regrets and credits the tough-love approach to helping Poland’s economy get to where it is today — the largest in Central Europe and sixth-biggest in the European Union. “You cannot abandon socialism by small steps,” Balcerowicz tells OZY.
Despite his popularity dip, Balcerowicz went on to become finance minister again (1997–2000), then president of the National Bank of Poland (2001–2007), where he limited the country’s inflation by controlling its currency and money supply. These days he’s a professor at the Warsaw School of Economics, a member of the prestigious Group of Thirty international economists and the most recent winner of the $250,000 Milton Friedman Prize for Advancing Liberty. He recently sat down with OZY to discuss navigating financial crises and why the West should be paying much more attention to Ukraine than Greece right now. His edited chat follows.
OZY: Among EU countries, Poland is at the top and Greece is at the bottom when you look at rates of growth. How did that happen when 25 years ago Poland’s economy was a basket case?
L.B.: We did not wait with stabilizing the currency. The Polish zloty was worth something like 36,000 to the dollar and declining by the day. We introduced lots of liberalism and privatization. It was radical and involved many reforms. Conservative money policy slowed down the economy, not allowing a radical expansion of credit. Since 2007 Poland has avoided economic booms, and therefore also busts.
Today Greece is an outlier. The euro currency is stable and the eurozone is making progress. But the media likes drama, so we keep hearing about crisis in the eurozone.
OZY: How does Poland’s economic success affect Eastern Europe?
L.B.: Successful countries attract attention, but the success has to continue because past successes don’t mean future success. You have to keep working at it — like what Ukraine is trying now. I’ve been in Ukraine three times this year, meeting with President Poroshenko, parliamentarians and many interesting journalists.
OZY: Are you an adviser to Ukraine’s government?
L.B.: No, but I am very interested in what happens there. The West should care much more about Ukraine than Greece. It is more than four times bigger, it borders Russia, and it is a test for the EU and NATO since President Putin’s takeover of Crimea and unofficial interference in eastern Ukraine.
OZY: President Obama has suggested that the Europeans should help Greece from leaving the eurozone. Do you agree?
L.B.: Pressing Europeans to spend more on Greece? No. If a country is very heavily in debt, it’s bad policy to spend more. If the Americans really believe that Greece should be financed, they should share the burden with Europe. The U.S. seems to be against any country leaving the eurozone.
When the Greek prime minister traveled to see Putin recently, that was a cheap trick. What did he want to say to the Europeans? Russia has seen a 40 percent decline in its GDP. Putin can’t afford to finance Greece. Russia is not a model for the EU.
OZY: Whatever happens with Greece, are you bullish on the eurozone and the EU?
L.B.: I don’t think that what happens in Greece is a mortal danger for the EU. Even if Greece leaves the eurozone, it will remain a member of the EU. One shouldn’t think of monetary union as states only. It is rather a group of regions that share the same standards.
To avoid crisis, financial markets have to operate without political interference, and voters have to be fiscally conservative. If not, they believe in Santa Claus. It’s a big, big confusion to think you can spend your way to growth. Try to please the masses too much, and you hurt them.