krzysztof rybinski : the euro adoption – assessing benefits and costs address by mr krzysztof rybinski, deputy president of the national bank of poland, at the panel discussion at the american chamber of commerce, warsaw, 17 january 2007. * * * only a few weeks ago the eurozone was enlarged for the second time. slovenia became the first of the ten new member states of the eu and the thirteenth country to share the common european currency. this seems to be a good occasion to return to the, once lively, discussion about the advantages and disadvantages of joining the euro. however, before i proceed, i would like to make two important points. first, i would like to note that views presented here are my own and they do not represent the official position of the national bank of poland. second, my economic background allows me to speak in terms of standard economic variables : output, consumption, prices etc. on the other hand, i do not feel competent to speak about highly immeasurable values like national pride. notwithstanding the fact that people might derive utility from the pure fact of having in their wallets banknotes with polish kings instead of european bridges, i have no idea how to measure this utility and how to compare it to the utility derived from more standard arguments of preference functions like consumption. for this reason i will speak in terms of standard macroeconomic variables, bearing in mind that this is certainly not the full story. if economists speak about the advantages and disadvantages of joining a common currency area, they ultimately end up comparing the costs and benefits of accession. this is also the way i would like to proceed. however, bearing in mind that what is known, has already been described in several voluminous reports ( nbp 2004 for poland, csajbok, csemerly 2002 for hungary, hm treasury 2003 for the uk ), i will try to focus on issues which are less familiar to the general public or which are potential risk factors. the nature of these issues is that they are mainly concentrated on the cost side of the analysis. thus, it might seem from my lecture, that i mainly care about the costs or that costs outweigh benefits. let me, in the very beginning, stress that this is by no means the case. as stated by the president of the national bank of poland, mr sławomir skrzypek, an in - depth assessment of the costs and benefits of the euro

paper 11856, 2005. although the key interest rate of the central bank has been raised from 1. 00 % in 2004 to 4. 75 % at present ( i. e. by 3. 75 percentage points ), long - term interest rates, which are more important from the aggregate demand perspective, have remained roughly unchanged 18. as a result, the effect of tightening the monetary policy on the aggregate demand has been significantly contained due to lack of response from long - term interest rates. in the world of global financial markets nobody seems to be surprised by the fact that during the session of the federal open market committee ( fomc 19 ) of the american federal reserve, the eyes of the entire financial market are fixed on its chairman. why is that? decisions made by the fomc in washington are equally as important for investors in new york as those in london, tokyo, rio de janeiro, shanghai or even warsaw. not only do the fomc decisions influence us economy, but also - via the financial markets channel - the entire global economy. an unexpected increase in interest rates in the usa may bring about a sudden outflow of capital from the emerging markets, and thus weaken the currencies of those countries and increase their bond yields. some economists 20 make the point that an important aspect of the growing internationalisation of financial markets is increased discipline, which is extorted by investors on governments and central banks in individual countries. according to this hypothesis, the financial markets, through their continuous valuation of securities, duly reward good and punish bad economic policies. however, the empirical results do not provide hard evidence to support the thesis on fiscal policy discipline. it may be stated, on the other hand, that financial globalisation may have contributed to the discipline of central banks and to “ forcing ” them to conduct a monetary policy focused on low and stable inflation 21. at the same time, a significant risk related to the financial markets integration is the possibility to shift economic problems of one country upon other countries, which is greater than before ( the contagion effect ). between 1997 and 1998, countries of south - east asia experienced this effect, when all of a sudden capital flew out, bringing about financial crisis in economy after economy, which could not be prevented by either the monetary or exchange rate policy. re 4 ) one of the vital dimensions of globalisation is the fast spreading of knowledge, technology and knowhow. the flow of know - how also applies to the public sector, including