Poland’s public debt has exceeded PLN 2.3 trillion, and the country is launching its largest armaments programme in decades, partly financed in euros under the SAFE instrument. This shifts the debate from whether Poles like the single currency to how much it will cost to keep the zloty.
Polish public debt has crossed the PLN 2.3 trillion mark. Servicing it is among the most expensive in the European Union, and the state has just started the biggest military modernisation since the Cold War, with funds from SAFE denominated in euros. Under these conditions, the question of adopting the common currency ceases to be an ideological dispute and becomes a hard economic calculation.
For years, the euro debate in Poland followed a familiar script: sovereignty, symbolism of the zloty, political emotions, and fear of losing control over monetary policy. Now fiscal reality is shifting the focus. According to the Ministry of Finance, general government debt has exceeded PLN 2.3 trillion. Just a few years ago crossing PLN 1 trillion seemed historic; today the second barrier has been breached almost unnoticed.
The cost of capital becomes the key argument
Simultaneously, Poland has launched a defence modernisation on a scale unseen since the end of the Cold War. Purchases of F-35 fighters, Apache helicopters, Abrams and K2 tanks, Patriot and Narew systems, and military satellites are not one-off expenses. They mean multi-year commitments covering servicing, spare parts, upgrades, training, and further financing stages. This implies operating for decades with elevated borrowing needs – and here the euro debate begins, not as a political project but as a question of the cost of capital.
The SAFE programme is presented as an instrument supporting European security. At the same time it becomes a financial test. The European Commission raises funds on the market thanks to the credibility of the entire Union and then makes them available to member states for defence spending. For Poland this means access to capital raised more cheaply than in some domestic issuances. This element may prove politically and economically significant. For the first time on such a scale, a direct comparison emerges between the cost of financing domestic debt and the cost of financing based on the Union’s credibility. It is not only about the interest rate differential; exchange rate risk also appears in the background.
Piotr Soroczyński, former deputy finance minister and now chief economist of the Polish Chamber of Commerce, notes that with SAFE Poland enters a new phase of public debt management. – We are entering a phase of significantly increased exposure to foreign debt denominated in euros. Two natural concerns arise – he stresses. The first concerns the interest rate level on funds raised by the Commission for the programme. – The EU issues bonds on an ongoing basis, and conditions at higher interest rates may be worse than those assumed in recent calculations – says the KIG economist. Although in his view the risk of a sharp rise in financing costs is not the greatest threat, it cannot be dismissed. The second source of uncertainty is the exchange rate. – With international turbulence, but also with a simultaneous rate hike in the euro area, the zloty may weaken. So servicing the debt – paying interest and in a few or a dozen years also the principal – may cost us more – Soroczyński adds. As he notes, in normal conditions these changes would probably be limited, but history shows markets can abruptly revalue.
Strategic decision vs. fiscal necessity
Marcin Mrowiec, chief economist at Grant Thornton, emphasises that joining the euro area is a strategic decision, not an effect of successive debt issuances. He admits that larger debt in the European currency may strengthen the argument for reducing exchange rate risk, but warns against overestimating the benefits. – Our cost of servicing debt depends on the state of our public finances – and adopting the euro is not a magic way to change that – he stresses. As he recalls, after the Greek crisis it became clear that mere membership in the euro zone does not guarantee cheap financing. Therefore, in his view, reducing the deficit and putting state finances in order is more important than the debate on the common currency.
For former Prime Minister, finance minister and NBP president Prof. Marek Belka, the problem has a deeper dimension than just the exchange rate risk related to SAFE. In his view, Poland is entering a period where military security, fiscal situation and the country’s place in the European economic architecture begin to intertwine more and more strongly. – The security of the state rests on several fundamental pillars. First, an efficient army. Second, a strong economy. But there is a third factor of security, which Polish history makes us treat as particularly important: alliances – Belka listed during a March conference. In his opinion, the common currency has ceased to be solely an economic project and has become one of the elements building the durability of these relations. He pointed out that Poland’s public debt, while still lower than in many Western European countries, is growing very quickly. Moreover, its servicing costs are about two and a half times higher than in France, for example. – This means the mechanism of debt accumulation – the snowball effect – may work much more strongly in Poland than in euro area countries – argued the former prime minister. He also dismissed the argument about the advantages of an independent monetary policy. – When I analyse the last 25–30 years of Polish monetary policy, I see only one period when we actually conducted fully sovereign policy. It was the time preceding the parliamentary elections in 2022–2023. If that is to be an argument for maintaining sovereign monetary policy, it is worth considering whether it really is a benefit – said the former central bank chief.
Piotr Arak, chief economist of VeloBank and former director of the Polish Economic Institute, disagrees with such an approach. In his view, identifying the SAFE programme with the beginning of the road to the euro leads to wrong conclusions. – The loan from SAFE is denominated in euros, but it is a debt instrument, not a political declaration or a procedural step towards ERM II – he stresses. He reminds that Poland has previously used financing in the European currency. – Poland has been incurring euro-denominated liabilities for years – through foreign bonds, the SURE programme or REPowerEU – and this has never been treated as a commitment to join the euro area. SAFE does not change the convergence calendar, does not trigger the ERM II procedure, and does not tie the NBP’s hands – Arak lists. At the same time, he admits that the common currency would mean tangible financial benefits. – With debt of PLN 2 trillion, reducing the average bond yield by 1.5–2 percentage points after full portfolio rolling gives savings of PLN 30–40 billion per year – he calculates. However, he warns: – The thesis about debt servicing costs is too journalistic. Poland is not Greece. Debt is approaching 65% of GDP, but market pressure is not dramatic today. He also notes that a domestic currency acts as an automatic stabiliser. – The zloty’s depreciation in 2020 and 2022 cushioned external shocks. Joining the euro without proper real convergence and without an exchange rate buffer is a recipe for the problems we know from southern Europe – he warns.
Paradoxically, all three economists agree on one point: the SAFE programme itself does not determine Poland’s entry into the euro area. They differ on what conclusions should be drawn from the rising debt, financing costs and scale of future defence spending. Belka argues that staying outside the euro zone generates increasing economic and geopolitical costs. Arak believes that lower financing costs will not replace structural reforms or solve the problems of economic competitiveness. And that is why the question of the euro may return to Polish debate sooner than most politicians currently assume – not because Maastricht requires it, not because Brussels demands it, but because with debt already measured in trillions of zlotys and defence spending rising to levels unseen for decades, it will become increasingly difficult to ignore the question of the price of capital.
Źródło: WNP.PL, Fot. Dax / Shutterstock
