adoption in poland needs to be periodically repeated in order to make sure that we take into account all important factors of the fast changing global economy. the national bank of poland is willing to play a key role in stimulating the public debate about the costs and benefits of the euro adoption. today ’ s panel is a good opportunity to contribute to this debate, and i would like to thank the american chamber of commerce for offering this opportunity. let me begin with the benefit side. economists typically concentrate on three sources of economic benefits related to monetary union. these are : - lower transaction costs, - lower interest rates, - trade creation. transaction costs is an issue of particular relevance for people who sit today in the audience. everyone exchanges currencies, knows what spreads are and could even possibly calculate how much his company would save on transaction costs if there were no exchange rates. this is also relatively unsophisticated for the whole economy, and has been estimated to be approximately 0. 2 % of gdp in poland ( nbp 2004 ). not much, but worth saving. lower interest rates induce investment, thus strengthening the productive capacity of the economy and making higher output and consumption possible. we expect that in the case of poland the interest rate adjustment after eurozone accession will reduce long - term rates by more than one percentage point. any estimation of the exact impact on investment, output and consumption is subject to several assumptions. nevertheless the nbp ’ s analyses show that an interest rate reduction will be the main source of benefits from joining the euro ( borowski 2003 ). the benefit we know the least about is related to trade creation. in a groundbreaking study rose ( 2000 ) estimated that joining a currency union may boost cross - country trade by over 200 %. most economists agreed with the direction and mechanism behind this – the single currency eliminates the uncertainty related to exchange rate movements and thus diminishes the risk related to foreign trade. however, the estimated scale seems to be much exaggerated. one problematic issue is related to the fact that before the eurozone, we did not have examples of currency unions between developed countries. so the rose study was based on data on currency unions involving poor and / or small countries. as noted by micco, stein and ordonez ( 2003 ), “ one does not need to be a eurosceptic to wonder whether such findings are directly applicable to europe ’ s single currency ”. follow - up studies ( e. g. rose and win

shock. additionally, there are also economic forces which can bring the economy back to equilibrium. the most prominent is wage adjustment – after a negative shock falling wages can help reduce the cost of production and as a consequence prices. this will increase demand and help the economy return to equilibrium. a crucial prerequisite for this channel to operate smoothly is a flexible labor market – only if wages adjust immediately can increasing unemployment and an economic slowdown be avoided. we know, however, that this downward wage flexibility is rarely seen in real life. regarding asymmetric shocks one thing seems certain. we are not able to foresee if serious asymmetric shocks are going to affect the polish economy after joining the euro or not. we can only speak in terms of probabilities, and given the data, it seems that the probability of huge shocks seems limited. the polish economy is strongly integrated with the eurozone, with a majority of exports going to the common currency area. moreover, most studies ( e. g. fidrmuc, korhonen 2003, eickmeier, breitung 2005 ) show a relatively high correlation of business cycles between poland and the eurozone. this substantially reduces, but does not eliminate, the risk of asymmetric shocks. looking ahead one can see potential risk factors. one of them is production clustering. if the recently observed trend for country specialization ( e. g. slovakia specializes in producing cars, india in business process outsourcing ) holds on, it may increase the risk of asymmetric shocks in the future ( de grauwe 2003 ). another example of a possibly distant future asymmetric “ shock ” is global warming. a recent report cited by financial times ( ft, 6 january 2007 ) shows that the northern members of the eurozone are likely to profit and the southern members to suffer from the climate change. nevertheless, whatever the likelihood of shocks, it remains of crucial importance to maintain a balanced fiscal perspective and flexible labor market which can absorb shocks, should they arise. now let me move to the possibility of rising micro - and macroeconomic imbalances. such imbalances can take the form of lending booms, current account deficits or increasing inflation pressure. such a set of symptoms in a monetary union member country reveals in most cases one common cause – real interest rates that are too low. economists have for a long time argued that each economy has an appropriate, long - run level of the real interest rate