Poland’s deficit (The Economist, December 14th, 2002)


SIR — Recently, I proposed to Ecofin, the council of European finance ministers, that euro—zone budgetary constraints should apply to the aggregate deficit in the area rather than to each country (“What convergence?”, December 7th). The reported Dutch response, that “profligates would be ‘free—riding’ on the backs of more frugal countries”, neglects the essence of my proposal. This is that deficits should be treated like pollution, with rights to spend being transferable across countries without prejudice for the total amount of deficit.

In 2001, the overall euro—zone deficit was only 1.1% of GDP, which is what matters for the stability of the euro. You say that my words “would carry more weight if Poland’s awesome budget deficit was itself designed to stimulate economic growth”. For the record, the 2003 deficit will be only 3.9% of GDP; it is falling and on course for convergence with the Maastricht reÄ…uirements in time for Poland’s earliest possible entry into the EMU. That our deficit is indeed a stimulus to growth is proven by Poland’s current pace of growth, which is already exceeding 2% and is heading for 3.5% in 2003. All the other Maastricht conditions have been met — from public debt to inflation, from exchange—rate stability to interest—rate ceilings. Here Poland is not just converging, it is already there.