There is no such thing as an unavoidable conflict in the process of bringing down inflation and fiscal policy, as the examples of other countries might suggest, but only irresponsible governments, who show a reluctance to endorse fiscal discipline, said Leszek Balcerowicz, chairman of the National Bank of Poland and a former minister of public finances. Balcerowicz is a highly respected reformer of former communist economies.
At a recent forum organised by Euromoney magazine, Balcerowicz argued there was no instance of a country suffering due to austere fiscal policy. Rather, said Balcerowicz, there were many experiences of imbalances created by overly relaxed policies, which had led to costs that were too high to be rectified.
Balcerowicz took over management of the Polish central bank after long experience as a finance minister and, as a result, has a very complex view of the relationship that should exist between the two institutions that play essential roles in the reduction of inflation.
"It would be bad for smaller countries not to agree to fiscal constraints just because larger states have been late to do so".
Balcerowicz does not believe integration in the European Union is a guarantee of success.
"When economic policy endorsed by a newly integrated state has been wrong, there has been a divergence from, rather than convergence with community standards. Progress has only been triggered by fiscal consolidation," said the Polish economist, recalling the example of Greece, which encountered difficulties in bridging economic gaps, a task it only fulfilled in the 1990s.
"Being a member is a chance to move ahead at a faster pace, as structural funds can speed up the process, but the final outcome really depends on the quality of internal policy. Indeed, a state enjoys higher credibility as a member of the EU, but this cannot be a substitute for following the right policy".
According to Balcerowicz, the success of a new EU member depends on price stability, its capacity to compete on the common market, domestic reforms and the limitation of state aid. "The myth of major companies, so-called national champions, which are so successful that they need subsidies to stay afloat, must be done away with".
He concedes, however, that in all countries fiscal policy is "highly politicised". So what is the solution he suggests? "Public opinion should be mobilised to support the idea of fiscal discipline".
On a macroeconomic level, says the chief of Poland's central bank, it is bringing down of inflation that is the most important task.
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