As a consequence, products manufactured in these countries become more expensive and such countries loose competitiveness (e.g. Estrada, Lopez-Salido 2001). It is relatively difficult to foresee how the Polish economy will react to demand pressures once in the euro area. However, as in the case of asymmetric shocks, labor market flexibility is probably the best answer to the described phenomena. It allows a smooth and relatively painless adjustment if the economy looses competitiveness. Summing up, I have discussed selected aspects of the cost-benefit analysis of Poland’s adoption of the euro, with a special focus on issues which are less familiar to the general public. As I argued, some costs will materialize if asymmetric shocks hit the enlarged eurozone. We do not know the likelihood of such shocks though, so it is impossible to calculate the expected value of costs related to these events. We know, however, that the probability of asymmetric shocks declines with rising similarity or progressing real convergence of the EU economies. Let me also stress that the magnitude of costs depends crucially on domestic policy – prudent banking sector supervision, labor market reforms and sound fiscal policies to name a few. Adoption of proper policies reduces future potential costs related to euro-zone membership and, at the same time, enhances future benefits. In my view, given the evidence that reforms have been halted in many countries after entering the eurozone, these measures should be taken before the euro area accession. Thank you for your attention. References: 1. Borowski J. 2003.

•  The emerging market economies need to deal with a weak external environment and incipient domestic cost pressures especially in the context of volatile capital flows and asset market pressures. •  And both advanced and emerging market economies must undertake structural reforms to boost their economies’ potential and create jobs for their people. Let me elaborate on each of these three themes. Advanced economies: restoring time-consistent macroeconomic policies 19. First, the advanced economies need to restore time-consistency in their macroeconomic policies. Governments are borrowing money and central banks are printing money. This is unsustainable. Implementing growth-consistent fiscal consolidation 20. The choice in Europe and in America is not between growth and austerity. Debt sustainability requires both a reduction in the numerator, by reducing deficits and borrowing, as well as an increase in the denominator, by restoring economic growth. Focusing excessively on the former will lead to an ever-deepening recession that will only make the debt trajectory unsustainable. Equally important, fiscal consolidation should not compromise long-term growth potential. 21. The debate on fiscal policy should focus on the pace and composition of fiscal consolidation and not just its scale. 22. Pace matters. It is more important to reduce the fiscal deficit of 2016 than of 2013. But it is equally important that something be done in 2013 that will reduce the 2016 deficit than to leave it to 2016 to do so. Only then will markets have confidence that policies are time-consistent.