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Positive effects of the crisis

Published on March 8, 2012 by: in: Economy

The economic slowdown that currently takes place in Poland has also some advantages, as it is the time when more traditional strategies work, all hooray-optimistic plans will fall apart and when the 100% mark-up has to be reduced. Fortunately, what we deal with in Poland is only an economic slowdown and not the recession, such as the one in some Southern European countries. However, taking into consideration the last decade, it becomes clear that in these countries all the latest deep reforms, which often draw protesting crowds to the main streets of the European cities, are the aftermath of overrating the recent economic growth or, more precisely, better living standards.

photo: epSos.de

photo: epSos.de

Crisis forces reforms both of companies and of countries. However, they have not been implemented in recent years. In this sense the crisis is salutary, though painful to those who got accustomed to the old way of living. Undoubtedly, the example of Greece is extreme – the improvement of living standards of an average Greek was a long-term effect of living on credit and accepting the lack of competition, which resulted in growing current account overdraft. In other words, development of Greece was more and more dependent on foreign capital which made it possible for the Greeks to purchase more goods and services from abroad. So long as the world accepted this situation, the permanent improvement of the living standards of the Greeks was possible. Now, however, the country is suffering due to the correction of the growth that has lasted for the last two decades. In such an extreme case as the Greek one, it is one of the main causes of the recession that has lasted for yet another year. An additional factor destroying the Greek economy is its fiscal therapy consisting in raising taxes.

Unfortunately, the so-called “economical actions” are said to be to blame for the Greek slowdown, which is a huge generalization. Firstly, because the current growth correction results from living on credit during the previous decade and secondly, because the saving therapy boils down mainly to raising taxes, which always has the anti-growth effect. Nonetheless, it is easier to raise taxes, at least temporarily, than to introduce saving policies which will always meet with opposition from the affected social groups. Such a strategy, however, sanctions numerous accrued social rights which are simply unaffordable to a country at such level of development as Greece actually is at. It is hard to explain it to the society but if it is not done during the next decades, Greece will be doomed to slow pace of development and low competition due to high economy taxation.

A different way has been chosen by Italy, one of the richest countries in the world. Obviously, the economic situation of this country cannot be compared to the one of Greece. The latter is bankrupt, whereas the former risks losing liquidity. Nonetheless, both countries share some of the features, low competition in particular. Some of the steps undertaken lately by the prime ministerial government of Mario Monti aim at regaining competition advantage by liberalization of the access to occupations or of trade restrictions. The first effects of that can already be observed – some of the shops in Italy open on Sundays.

Other countries, such as Spain and Portugal, have their holidays reduced, which has a similar effect to the liberalization of Italian trade. Personally, I support supply reforms which increase vocational activity, concurrently increasing economy’s potential. Since if we concentrate the efforts on raising taxes and we call it reform, what we will get is not improvement but lethargy.

Poland takes full advantage of the backwardness allowance. We have admittedly run out of simple reserves but the technological, infrastructural and know-how backwardness is still rather substantial in comparison to the world leaders. It still gives a huge potential of growth in the prospect of the new decade. However, each year the influence of these factors will decrease. Therefore, it is important to draw upon the experiences of others and, in particular, to learn from mistakes – not necessarily of Greeks’ but particularly from the mistakes of those countries which few years ago were not generally thought of as Europe’s difficult cases, that is Italy, Spain or Ireland. For that reason, raising taxes should be done carefully and the pace of raising the retirement age should be more dynamic. Do not succumb to the magic of state capitalism and do not be afraid to revise state holidays with the aim of reducing them. This is the lesson to be learned from the current stage of the economic crisis, which is not the crisis of Euro but merely of the Eurozone countries which have lead an irresponsible economic policy.

Translation: Marta Gajda

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About Ryszard Petru

Economist, until recently director concerning strategy in BRE Bank. He was also an advisory to Leszek Balcerowicz and a specialist of the World Bank.

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