Leszek Balcerowicz appeared last night on the political chat show hosted by Tomasz Lis, where he repeated his long-held mantra that only further liberalisation and austerity could ensure Poland's long-term economic success.
In the interview Balcerowicz repeated two old myths, that are used to show that there really is no alternative to the policies of economic liberalism:
- Firstly he argued that one of the biggest threats to the Polish economy is its high level of public debt (presently around 54% of GDP) and budget deficit (over 7%). He explained that 'despite' Poland's positive economic growth over the past few years, its deficits and debt have continued to grow.
Perhaps we could turn this around, and state that Poland has grown because it has allowed some expansion of its debts/deficits? These are still way below the European average, and the ticking of a debt time-bomb sounds loudest in the heads of those who are focused almost entirely on this one aspect of economic policy. During the past few years public investment has risen from 4.2% of GDP to 5.6% and the government has avoided an all out policy of austerity (much to the disgust of Balcerowicz) similar to that being pursued in other European countries.
With Balcerowicz ruling out any return to more progressive taxation policies in Poland, his anti-deficit programme relies almost entirely upon cutting public and social spending. This policy would lead to social and economic regression, not development.
- The second myth being spread by Balcerowicz is that if the country does not act fast and decisively, then the bond-markets will punish Poland and the cost of its borrowing and thus overall level of debt will rise. The assumption is that bond-markets reward public spending cuts and punish over-spending. However, when we move away from the text-books of dogma, we find that this is actually not the case. For example in France since the election of Francois Hollande, bond yields have actually fallen; as they have in Germany that itself has diverged from the policies of austerity. In contrast the GIPS economies (Greece, Ireland, Italy, Portugal and Spain) the bond markets have fallen (causing their interest rates to raise) after introducing harsh austerity programmes.
A programme of austerity in Poland would most likely lead to an economic contraction that in turn would see the country's bond markets decline.
For more on the bond markets in Europe, see this interesting article from Socialist Economic Bulletin.