You remark that competitiveness based on cost, as opposed to innovation, makes an economy vulnerable. If the national currency appreciates, cost competitiveness is lost. From this, you conclude that Poland should be very cautious before it joins the ERMII, as the zloty might appreciate.



If what we want is genuine competitiveness however, based on true structural change and a leap to new innovation frontiers, then maybe joining the euro area is exactly what we need. Once inside the single currency, we are not tempted to use exchange rate policy to artificially become more 'competitive'. Instead, we have a commitment device which makes us go for genuine structural reforms. The challenge is of course to navigate the ERMII period successfully. If the right timing is chosen however, I don't see why this should be a problem.



Taking an excessively long-run view of joining the ERMII and then the euro can be dangerous. The risks abound, from becoming being left behind by current euro area reforms, not having a say in the change of the economic monetary union, to potentially losing the confidence of investors and not to mention a lack of access to the ECB's non-standard monetary policy measures. These are risks we cannot afford to take.



