World crisis: will bite Poland, but not devour

The thing with Poland and the current world crisis is that you could assume Poland should not be affected at all. Banking industry has been healthy, local regulations never allowed the American style sub-prime or similar derivatives. Mortgages were granted to those who met reasonable criteria. The banks are in good condition.

So how come it actually is somewhat affected? Like the Warsaw Stock Exchange loosing 50% on its main index, or Polish zloty loosing 40% to the euro…

The financial crisis turned into trouble of ‘real economy’ in the US, and especially Poland’s main trade partners: Western Europe and Russia. Bad news from over there quickly turn to even worse news for Eastern Europe, where export in almost every country in the region has a huge impact on their GDP. In the Czech Republic, for instance, export stands for 70% of GDP. Poland is in much more comfortable situation with just 30%. But still.

Again – compared with other countries in the region – Poland seems to be in good position. With low inflation rate, foreign debt under control, and – still – predictions of GDP growth (unlike many countries in recession).

Inflation rate - New EU

Inflation rate - New EU

Real GDP growth in % in the New EU. UK for comparison.

Real GDP growth in % in the New EU. UK for comparison.

So errrmmmm… what’s wrong then?
Large chunk of investment in Poland, is foreign investment. In times of crisis some foreign players might want to withdraw their money from the region. Especially – hearing about the trouble of other countries in the region, and assuming similarities with Poland. Or wanting to use their money to aid their own economies.
Many of Western governments plan to infuse their economies with loads of cash to get things moving. Of course they will borrow the cash. These countries are perceived to be secure and thus attract investors, who buy their bonds. Also with the money withdrawn from places like Poland. This might also cause a decrease of interest in the Polish government’s bonds, which will have to guarantee a higher profit to attract buyers. (Unless the EU will guarantee them as currently proposed).

Effects of the withdrawals? Warsaw Stock Exchange index fell 44% in the last 6 months shuttering dreams of many Polish families, as stocks have become a popular investment during the recent boom.  Some of the main companies at WSE, like Lotos – petrol and oil producer, experienced stock prices drop by 70%.

Another thing that is causing Poland a lot of headache at the moment is the euro (or the fact that we don’t use it yet). Polish zloty has weakened considerably (with Euro at 4,89 on Wednesday), as investors pulling their money from Poland, sell zlotys. High prices for Swiss Franc, in which most mortgages are denominated raised eyebrows. The rise of monthly payments and threat of mortgage problems urged the government to intervene and exchange unspecified amount of euro from EU structural funds. This reversed the trend, and weakened euro to 4,68 per zloty on Thursday. Although there are reports Poland would not have enough money to withstand a speculative attack and defend zloty – if such need occurred. Many point to the fact that if Poland were in the Euro zone, like Slovakia, this problem would not be. However the euro is a political issue for the EU-sceptic largest opposition party. And now there is no consent if this is the best moment to push this project ahead anyway.

Global speculation is out desperately hunting for profits. In times like these, they seek to make money playing where and how they can, for instance bidding lowering indices, and weakening currencies. Which worked for Poland’s loss this week.

There is however no cause for grave concern. In Poland business is as usual.  In the long run Polish economy has stable foundations. Current problems will only lower the speed of growth a bit causing some problems or needs for adjustments here and there. At the end of the day, comparing with others,  Poland seems to be the best place in the world to lie low and wait for the hurricane to pass.

UPDATE (same day afternoon)

Goldman Sachs investment bank admitted in a statement to its clients that it has  speculated with Polish zloty, and announced that it has finished trading with Central European currencies. It played to weaken them – but now, the statement says, this strategy cannot be used any more, as playing to weaken zloty has become too risky. According to the bank, zloty cannot be expected to weaken any more. Goldman Sachs says that Polish currency weakened much more than they anticipated, and they think it is now undervalued.


28 thoughts on “World crisis: will bite Poland, but not devour

  1. scatts says:

    NYTimes article.

    Also, the Financial Times seem particularly convinced that Central Europe is doomed – –

    Central and eastern Europe faces a classic emerging markets crisis and, like all such crises, its troubles spread afar. The pattern is familiar. It starts with a credit boom and large private borrowing in foreign currencies. Then comes a shock – in this case, the credit crunch. Confidence evaporates and local currencies fall. Local depositors, worried about the rising cost of their debts, rush into other currencies, like dollars or euros. This weakens local banks. The panic accelerates into a vicious cycle. Government finances collapse. A crisis is born.

    This is what happened in Asia in 1997 and in Argentina in 2000. But then the global economy was booming, limiting the fallout. The world is far more vulnerable to a full-blown crisis in central and eastern Europe today. Top of the list is Europe, tied to the region through its banks. Defaults on euro or Swiss franc loans taken on by Hungarian or Polish borrowers are certain to rise as the forint and zloty plummet. The crucial question is how fast.

  2. Pawel says:

    That’s when journalists don’t bother to look closely:) Hungary has four times the foreign debt of Poland as % of GDP. Poland has a different situation than other Central and Eastern European countries – I wouldn’t take them all as one, as “Central Europe” as FT does here…

    Plus the foreign debt of Eastern European countries now is still much lower then of the Asian countries in the times of their crisis.
    Plus the debt that Polish banks have they have at their mother-banks in Western Europe – unlike then in Asia. Some worry that the mother-banks will cut their credit action for Poland. But that is not very likely. As any problems of the Polish branches of foreign banks would hit them back really hard.
    What is more Central and Eastern Europe has higher currency reserves than Asian states in that time, but what is more important: they have the backing of European Central Bank and its loads of cash. (Apart from Ukraine).
    And – worth mentioning – the control over banking sector has been much better here, than in Asia, or especially USA or Western Europe.

    Government also announced it will pay mortgage payments, for those who will have lost their jobs, for a year.

    If I were suspicious I would think that such gloomy predictions were prepared for an order of those financial institutions, which now play to weaken zloty and profit from it. If its in the press, and if people start to believe something, and talk about something – they will make it happen.

  3. Steven Woodruff says:

    Poles are so used to financial crirsis and termoil that it seems to really make little difference as far as lower and middle class wage earners are concerned. Just as in the “good times” when a dollar cost 2 złoty, and in bad times like now, and in 1996 when a buck costs almost 4 złoty. Middle class Poles are always in the same dilemma. Work close to family and friends for crappy wages, or work far from home for 3 to 4 times better wages. Nothing ever seems to really change much in Poland since 1989. Those with any real skill leave and find work elsewhere. Good times or bad. It always amuses me very much to see these huge villas being built with steep roofs like a church, and yet the rich Polish investor would very much like a Polish carpenter to put the huge fancy roof on for about $5 per hour. It matters not what is happening at the stock market. Nothing much changes for a Polish carpenter.

  4. guest says:

    smalec and wodka will save the Poles one again.

  5. Bob says:

    Wrong place to post but funny:

    The mystery of Ireland’s worst driver

    Polish driving licence (generic)
    Poles are Ireland’s largest immigrant population
    Details of how police in the Irish Republic finally caught up with the country’s most reckless driver have emerged, the Irish Times reports.

    He had been wanted from counties Cork to Cavan after racking up scores of speeding tickets and parking fines.

    However, each time the serial offender was stopped he managed to evade justice by giving a different address.

    But then his cover was blown.

    It was discovered that the man every member of the Irish police’s rank and file had been looking for – a Mr Prawo Jazdy – wasn’t exactly the sort of prized villain whose apprehension leads to an officer winning an award.

    In fact he wasn’t even human.

    “Prawo Jazdy is actually the Polish for driving licence and not the first and surname on the licence,” read a letter from June 2007 from an officer working within the Garda’s traffic division.

    Map showing Poland

    “Having noticed this, I decided to check and see how many times officers have made this mistake.

    “It is quite embarrassing to see that the system has created Prawo Jazdy as a person with over 50 identities.”

    The officer added that the “mistake” needed to be rectified immediately and asked that a memo be circulated throughout the force.

    In a bid to avoid similar mistakes being made in future relevant guidelines were also amended.

    And if nothing else is learnt from this driving-related debacle, Irish police officers should now know at least two words of Polish.

    As for the seemingly elusive Mr Prawo Jazdy, he has presumably become a cult hero among Ireland’s second largest immigrant population.

  6. Steven Woodruff says:

    Now I know where all the “Irish jokes” come from. Not the brightest spoons in the silver ware drawer are they?

  7. Bob says:

    Steven – funny – the same story was in the Polish press today (in Polish of course). One take on it from someone I spoke to was that the elusive “Prawo Jazdy” chap was 1 person, another take is that it was a number of people and the irish police were a bit ‘slow’ – what is your take?

  8. Steven Woodruff says:

    I really have no take at all on it, I really was wondering where all the Irish jokes in Europe come from. In reading about these guys, now I know. Though I doubt Irish in general are slow. I in general find most cops in most countries to be a bit obtuse and your average street patrolman a bit stupid.
    In America, for example, you can get on most ploice forces in most states with no more than a high school education. Hell, even a carpenter has to go through a four year apprenticship program. .

  9. Pawel says:

    This post has just been updated with fresh news.

  10. michael farris says:

    I think it’s pretty clear that everybody in a position of authority in the world economic system is a fool with a bucket of flaki for brains.

    I think the current crunch is just going to get worse and it’s going to be painful everywhere but Poland will not be the worst place to be by any means.

    With any luck, one small upside is between this and his mid-life bimbo crisis, the political career of MArcinkiewicz is pretty well dead in the water.

  11. stefonic says:

    michael, if bullshit were music, your computer key board would be a BIG BRASS BAND.

  12. Pawel says:

    stefonic – Polandian is not a place to insult people! If you don’t agree with something – use arguments please.

  13. michael farris says:

    stefonic, you talk write pretty well for someone who’s afraid to use their real name.

  14. stefonic says:

    Steven A. Woodruff

  15. stefonic says:

    Ok here is my argument.
    Most Poles though educated and/or skilled, are in fact working lower to middle class. And in the best and worst of financial times are stuck with only two choices. Work close to home for rediculous wages, or far from home for a fair wage. This fact has not changed since the 1980’s. It is a fact that Poles in both good and crisis times get only those two choices. To the average working Pole both in and out of country the stock market is a page in the newspaper that is useful for placing at the bottom of thier bird cage.

  16. […] [Comments for Polandian] Comment on World crisis: will bite Poland, but not devour by stefonic […]

  17. DC says:

    Hey Pawel – What do you bet with Goldman’s announcement that they are now currently hedged for the złoty to rise? Maybe if you had a few million more hits on your post you could argue for a small share of the profits for spreading the news? ;-)

  18. Pawel says:

    I’m sure this time Goldman Sachs made an honest statement as to their future actions:>

    PS. PR is what I do – don’t ask who pays me;-)

  19. adthelad says:

    What follows is a comment posted on a forum which I have attempted to translate, bar the last two paragraphs – which wonder as to what means are open to annulling these toxic option contracts. (I might add the views within the ‘translated’ post are not mine or those of Polandian).,63,8,53808142,144412299,6170494,0,forum2.html

    a similar point was made by the financial analyst Gwiazdowski on his blog

    It seems that Polish law or european law may be used to annul then if they are found to have broken fair business practice (the contracts limited the banks losses to 6% but not visa versa).

    The present estimate for losses is around 60 bln zl. I’m told on good authority that although this sum is not insubstantial it is not major with regard to Poland’s GDP . However it is only the present estimate. The World bank estimates Poland will have 2% growth next year

    This is allegedly what happened on the currency options front:

    As a result of currency option dealing, an attack on on the zloty exchange rate as well as substantial dividends paid out by banks, as much as 20-30 billion PLN could have departed from Poland last year. A major role in this procedure was (allegedly) played by companies connected to Cezary Stypułkowski and Jan Krzysztof Bielecki.
    A recession in neighbouring countries, rising unemployment, a marked slowing of production, pay restrictions by government – these are not the only problems for business entrepeneurs in Poland. The nail in the coffin for the national economy might turn out to be so called currency options, sold by banks to hundreds of firms between July and October 2008. On the basis of these contracts those companies have to hand over most of their profits overseas.

    How did this come about? Every indication is that Polish businessmen fell victim not so much to their own recklessness than to the brutal actions of international investment banks.

    Poles working for the benefit of bankers:

    In the most basic terms – a currency option is an instrument thanks to which an exporting company can mimise exchange rate risk. The main provider of this service on the Polish market – JP Morgan – however offered ‘packages’ comprising PUT and CALL options. Purchase by companies of the former meant acquistion of the right to sell banks euros or dollars at a set exchange rate. It was therefore a straight forward formof insurance against a strong zloty.

    The problem however, that together with the safe PUT options the banks offered firms ‘toxic’ call options. Thanks to these foreign financial institutions gained the right to take payments if exchange rate of the currency relative to the zloty was greater than that stipulated in the contract.

    According to a report by dr Mariusz Andzejewski of the Economics University in Kraków – a decidedly major ammount of packages sold to firms comprised of PUT and Call options of varying nominal value (eg a PUT option of 200K eur and a CALL option of 600 K euro), the risk therefore not being evenlt distributed. The companies could therefore gaing little but lose an unimaginably large amount.

    A contract structured in this way is most easily compared to plating the Lottery on radically different conditions. It would look more or less like this: the client spends his own money on a lottery ticketin which he’s chosen six numbers out of forty nine. If he manages to get two, three or four numbers ( a strengthened zloty), he collects a moderate sum from the lottery. If however he picks five or six (the zloty weakens substantially), he must give the lottery all that he earns over the next few years. But in this case the organiser of this bet knew very well, what the result of the lottery would be – says GP a shareholder in a large Polisjh company, which already has to transfer half it’s profits overseas.

    There are hundreds of similar companies in Poland. The magnet manufacturer ‘Ropczyce’ will have to, according to the option conditions, pay Bank Millenium 12 mln zl, ‘Ciech’ has lost over 100 mln zl. up to now (and this is just the start), the falling Krosno Glass works have counted losses of up to 39 mln zl. as a result of such option transaxctions. Debts arising from options have caused the collapse of Odlewnie Polskie and Elwo (producing electrofilters) with debts of 100 mln z land 120 mln euro respectively. According to businessman Zbigniew Jakubasa – losses by our companies on options could soon reach as over 50 bln zl.

    Disinformation full of ‘miraculous’ coincidences:

    The foremost sellers of currency options In Poland are JP morgan and UniCredit – the main shareholder of Pekao S.A. (although according to the spokesman of the latter there is no problem with Pekao options, as these were solely an insurance against ‘risk resulting from the client’s business). In the last few months the ex communist Anatolim Czubajs has been on the internatonal board of the former, one of the ‘fathers’ of Putin’s political career. The boss of JP Morgan’s investment bank for Ekstern Europe is Cezary Stypułkowski – the famous expresident of Bank Handlowy involved In the FOZZ affair. In Polish companies belonging to UniCredit there work or have worked a great number of people connect with P.O. and KL-D, e.g. Jan Krzysztof Bielecki and the present Minister of Finance Jacek Rostkowski.

    However – although the hypothesis that the international holdings knew the future exchange rate of the zloty and influenced it might seem like conspiracy theory – it it worth taking a closer look at certain ‘miraculous’ coincidences accompanying the signing of ‘toxic’ options contracts. As a result of trading in currency options and the attack on the zloty exchange rate, as much as 20-30 bln zl. could have left Poland last year. Companies connected with Cezary Stypułkowski and Jan Krzysztof Kielecki played a major role in this procedure.

    Significantly the majority of finacial analysts – and especially those economists from banks dealing in options – during summer and autumn were persuading that the zloty would strengthen with respct to the euro and dollar. Towards the end of June 2008 Pekao anatyst marcin Bilbin claimed foe example that ‘the strengthening of the zloty will continue’ and that the ‘growth trend for long run was clear and that nothing should change in that respect’ (Rzeczpopolitsa 27.06.08).

    In July Bilbin was even more optimistic: ‘True that recently the zloty has strengthened faster than fundamental conditions would have indicated, but many factors including the perspective of Poland’s entry into the Eurozone indicate that, for the long run, the zloty will be a strong currency (GW 24.07.08). On the same day – and this was a peak trade period – the Pekao analyst unfolded a bright vision of the zloty also in Rzeczpospolita ‘Given the solid foundations of the economy the pisk of the zloty weakening is small […] The majority of bank forecasts indicate, that the zloty will remain strong. True it is difficult to expect that it wil continue to strengthen as quickly as til now, but in the worst case the Swiss franc should not increase in value by more than few percent’.

    Other bank economist behaved similarly. Even in autumn 2008 BPH analysts (where UniCredit has shares) continued to reassure that ‘shortly the market will appreciate the solid foundations of our economy and the zloty will begin to gain’ (GW 9.09.08). ‘Everything here will slowly settle down and the zloty will begin to strengthen. This will be influenced by our country’s endeavors to enter the eurozone.’ Added Alfred Adamiec, investment advisor for noble Bank (‘GW’ 310.10.08). Interestingly – in November, when the contracting of currency options ended – the optimistic voices of the specialists became silent.

    JP Morgan and UniCredit attack:

    Banks, which six months earlier had foretold (through the mouths of their analysts) the strengthening of the zloty, whilst at the same time selling asymmetric currency options, knew with certainty, that the record high rate of the zloty during the holiday period was the result of a cold blooded game of speculation. Even the earlier mentioned Marcin Bilbi of Pekao SA admitted cautiously in July 2008 that behind the record zloty position stood ‘ the increased activity of london and american banks in our market’. Were these speculators by any chance the sellers of currency options?

    This we do not know at present – we have however the right to assume, that in autumn 2008, when the zloty began to suddenly fall in value, that these falls were assisted by precisely…JP Morgan and UniCredit. The first of these institutions, selling options in Poland mainly through local banks, published towards the end of October a uniquely dishonst report on the sublect of Poland’s finances. It included mong others the suggestion that our country awaited an even greater crisis than in Hungary, and that the zlot is a much weaker currency than the forint. The report, which investors throughout the world could read, could only affect thezloty negatively.

    Another tactic of JPMorgan was so called fixing miracles on the Warsaw stock exchange. People connected with this company, artificially hiked up the shares market, in order to earn at the same time by betting on falls in the futures markets and causing confusion on the stock exchange (the matter has gone to the prokuratura). If this wasn’t enough, a the same time (10th Nov.) a following JP Morgan report was issued, containing disasterous forecasts for the Polish economy. The next document, which did not bode well for the zloty, was published in December – and contained a completely unreliable prognosis, that in a year the euro will be worth 2.81 zl ( a few days later Morgan’s analysts explained that …they’s misteken the euro with the dollar). It isn’t necessary to ad, that every weakening of the zloty meant ( and continues to mean) income in the millions for JP Morgan – from profits ofcourse produced by Polish companies…

    As a result of dealing in currency options and the attack on the zloty, as well as substantial dividends paid out by Polish bank, as much as 20-30 billion PLN could have departed from Poland last year. A major role in this procedure was allegedly played by companies connected to Cezary Stypułkowski and Jan Krzysztof Bielecki

    The strengthening of the Polish zloty was also not in the interest of the holding UniCredit, whose analyst without cause in November 2008 reduced the target price of Lotos shares from 25 zl. to zero. According to Andzrej Szczeniak, fuels expert, this was a speculatory attack on Lotos, aimed at reducing its price. Lotos, let us remind ourselves, is one of the few strategic capital groups in Poland – weaking its market position would cause a rapid fall in the value of the zloty.

    Let’s save the Polish economy:

    The main beneficiaries from dealing currency options are its primary sellers (JP Morgan, UniCredit, and also – as established by ‘Parkiet’ – Citigroup), and not the intermediary in the procedure – the Polish branches of western banks. It cannot be excluded therefore, that the whole action was the second phase of transfering Polish money to western banks, greatly weakened as a result of the worldwide crisis.

    The exceptionally high dividends, which branches of these banks in Poland paid out to their main shareholders, i.e. their mother companies, can be acknowledged as the first phase of the operation. For example: 23 April 2008, contrary to the opinion/ position of the Komisja Nadzoru Finansowego (KNF), Pekao S.A. paid out rekord dividends to the sum – attention – 2.5 bln zl. The majority of this gigantic sum, which exceeded the net profit of the bank (!) for 2007, of course went to UniCredit which was going through serious financila problems. The Italians, and also the Pekao SA president Jan Krzysztof Kielecki, were concerned b y the fact, that after paying out the dividend the shares of the Polish company dropped in the space of two months by as much as 22 %. Representatives of the treasury also behaved strangely, voting for the dividend knowing that its payout was to the detriment of smaller shareholders (and hence also to the exchequer).

    This carefree approach by government officials, both with regard to the Pekao dividend and the options dealing – requires us unfortunately to judge, that western investment banks will continue to drain Polish firms for several months. The only chance that businesses, which lost out on option contracts, have for survival is their annulment – either by way of the government or the courts (some companies have already lodged cases against banks). Otherwise we will lose hundreds of profit making firms, and our economy – already weakend by the crisis – will quickly find itself on the edge of a precipice.

  20. Steven Woodruff says:

    Cool, my bird cage has paper for months…

  21. woody woodpecker says:

    You could use sawdust instead it seems.

    Let Steven Woodruff and his fine team of skilled Polish craftsmen handle any of your home improvment needs in Norway. When you have had enough of slow work at outrages prices. Call me, Steven Woodruff. We are reasonable and skilled.

    Steven is a born and trained American carpenter with 15 years experience. And has a crew of fine Polish workers that get the job done at a comfortable price. Carpentry, gyps,paint,repair,restore,carpet,almost any home improvment you may need at REASONABLE prices

  22. […] [Comments for Polandian] Comment on World crisis: will bite Poland, but not devour by woody woodpeck… […]

  23. adthelad says:

    crap – in second last paragraph should read ‘were not concerned’.

    Oh my God!! Steven – you go to all the trouble of first printing out my rubbish and only then using the paper for your birdcage? And I thought I was daft!! :)

  24. stefonic says:

    Woody wood pecker: thanks for the free ad plug, but use one of the ones in Poland if you really want to help my Polish friends find work. Or better yet the Croatian one it’s windy up here in Stavanger at the moment

    adthelad: not daft, and not rubbish, just very out of touch with the every day realities of Polish people that work all over the EU and the US and Canada, becuase even when a dollar only costs 2 złoty, the wages in Poland are always very low. Just as woody wood pecker pointed out, my Polish friends and I have wife’s and children in Poland, but work all over Norway, Holland, and other places where carpenters are paid a fair wage. And this has never changed no matter what the lines and graphs show on page 23a of the financial times. I have lived in Poland off and on since the Russians left and nothing has really ever changed for the average Polish skilled and semi-skilled worker…….nothing …..thus my birdcage analogy

  25. adthelad says:

    Not entirely true – Income after the change was very low per capita compared to the rest of Europe. Infrastructure was crap and corruption was rife. The cost of living in Poland was much lower and has been for years – even imported goods were less expensive although also not of the highest quality. That has changed with time whilst top goods are often more expensive. Wages in cities still have some way to go to match those abroad and those in the provinces are still low, but the inflationary pressure of higher wages had to be kept down – pure business and market sense, especially given the high cost of social safety nets. The economic foundations of Poland are far more solid as a result and more has changed than you give credit for. owever the previous post communist governments haven’t done us many favours, selling of road building rights to their cronies, only for them to sit back and wait for those rights to be bought out.
    A weak zloty fueled export as well as encouraging people to leave to take advantage of this. With more and more foreign investment and foreign currency entering the country it is suspicious to hear banks reporting on the weakness of the Polish economy.
    Maybe the average Pole knows diddley squat about the markets but my sense is they are more aware than your average Brit or American.

  26. MaterialGirl says:


    In 1997 the prognosis for 1$ were 5 złoty after 2000.

    It’s still far to 5 złoty. :D

  27. scatts says:

    Cezary Stypułkowski? Interesting.

    Had a few meeting with him when he was the boss at Handlowy. Not about anything dodgy, I hasten to add!

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