Not Another Norway, but No Greece Either

Poland has economy problems, but it's nowhere near as bad as some EU neighbors.

WARSAW - A visitor traveling the highways or railways from Western Europe to Poland sees no indication of a border. There are no customs stations and no inspections of documents.

The 26 signatories of the Schengen Agreement on free movement, which Poland joined eight years ago, eliminated the walls between members of the European Union. But even without any physical obstacle, an invisible wall has blocked the financial crisis from entering Poland, which has kept its national currency, the zloty.

This doesn't mean Poland is a land of milk and honey. Gross domestic product is about $21,000 per capita, equivalent to the bottom rung of euro zone countries. Some people might think this nation of nearly 40 million spread over 313,000 square kilometers, from the Carpathian Mountains in the south to the Baltic Sea in the north, is another Norway.

But there are plenty of problems. Inflation is forecast at 3.5 percent for this year, and unemployment, which mainly affects young people with a higher education, is at around 12 percent. Many young people have migrated west to find jobs commensurate with their qualifications. Some have started families abroad, and it's doubtful they'll ever return home - even when Poland needs working hands.

The average wage in the large cities is about 800 euros a month, which ensures a decent existence but certainly doesn't let young couples buy a new apartment. The price per square meter for the most modest apartment starts at 1,100 euros, and annual interest on mortgages starts at 7 percent. Banks often condition the loan on linkage to the Swiss franc.

Still, the Poles are following with amazement the despair emanating from Greece, Italy and Spain. People find it hard to understand how a country with an ancient democratic regime and a long-established free market can fall into a financial abyss while Poland, which only 22 years ago cut loose from the communist system, has a stable economy.

Brotherly aid from the EU

Economists are split over whether this is true stability. The budget deficit, which was recently approved by parliament and signed into law by President Bronislaw Komorowski, remains within the limits permitted by the European Union, so Poland can receive grants from the EU. But payment is conditioned on matching investment by the recipient country, so the treasury is wondering whether to request the 300 billion euros it's entitled to this year.

Part of the grant money is earmarked for defined areas such as education; another chunk is fought over by businesspeople, especially developers of innovative technology. But most goes straight to the state coffers. Preference is given to infrastructure investments that help modernize the economy.

It is often said that Poland is a poor country. This is true if you forget all the assets the treasury can sell, first and foremost real estate left over from the communist regime. There are also factories that in a proper capitalist country would belong to the private sector.

In 2007 more than 500 government companies were put up for sale to the highest bidder, but privatization is proceeding at a snail's pace, and proceeds are only at around 200 million euros. The bureaucracy, which is stacked with officials afraid of losing their jobs, is one reason for the slow process.

So far 131 investors have shown interest in deals, but the negotiations are dragging - the sides are having a tough time agreeing on price. Among the potential customers are huge conglomerates with years of experience managing businesses in Poland.

At this stage there is no way of knowing how long it will take the sides to reach agreements. The crisis in the United States and many countries in the European Union isn't helping the negotiations any.

Copper and coal

But the sale of assets is not the only source of additional income. The state owns copper mines and factories for producing copper cables; this year they are expected to bring in dividends of around 650 million euros. The state also has a 27 percent stake in the giant Orlen oil refiner and stakes in a string of coal mines. All these resources yield hefty profits. Net income this year from the banks owned by the treasury is expected to come in at 1.3 billion euros, which will join the 800 billion or so that has accumulated from various taxes and fees.

Despite the bureaucracy that bites into profits and leads to management failures, this is a huge amount of money, even in rich countries.

And for whatever contingencies lie ahead, the International Monetary Fund has approved an emergency loan of about 16 billion euros. The IMF's Alexander Hoffmaister said in May he thought that Poland wouldn't need this money at all, but it's good to have it ready if there's an unexpected disaster.

Meanwhile, no one has precisely calculated how buoyant exports to the euro zone will be. Until last year, 17 percent of Polish production intended for abroad was sold to Germany. These were largely agricultural exports and 180,000 Fiat cars made in the city of Tychy in the south. This autumn a production line for a new Opel Astra model is scheduled to start up, and markets are being sought outside the euro zone as well.

In the first quarter of this year, Poland exported 34 billion euros worth of goods; this puts it in eighth place among EU countries. This happened even though the euro zone countries, some of whose economies are badly hurting, are a less sure source of income.

Exports to new markets increased considerably in the first quarter; by 33 percent to Russia, 17 percent to Ukraine, 63 percent to China and 70 percent to Brazil. Poland is also exporting more to the wealthy Arab countries; exports to Saudi Arabia jumped 50 percent in the first quarter.

So the general trend is clear: The economy is showing flexibility. And there's more good news: There has been no slowdown in domestic consumption.

Don't forget the soccer

In the run-up to the Euro 2012 soccer tournament that ended this month, hundreds of millions of euros were invested in paving highways, laying railway tracks and renovating airports. There was also the impressive renewal of the tournament's four host cities - Warsaw, Gdansk, Wroclaw and Poznan. And construction of Warsaw's 95,000-seat National Stadium cost 361 million euros.

It's not yet clear if these huge expenditures will be balanced by income from the event. But one thing is certain: The hundreds of thousands of soccer fans who came from all over Europe didn't get the feeling they were visiting a failed state.

Warsaw, with its new skyscrapers, green parks and wide streets, doesn't give the impression of a metropolis in distress. In other cities and towns, too, there are few signs of economic difficulties - mainly because the street people have magically disappeared from sight - with the authorities' encouragement.

The captains of the Polish economy didn't consider the soccer tournament a sporting event as much as an invitation to their counterparts around the world.

The numbers are impressive. Currently 740 foreign companies are operating throughout Poland in nearly every industry, notably banking, housing, office construction, food, clothing and manufacturing. The biggest investors come from the United States, Germany, France and Scandinavia.

Israeli entrepreneurs are also a presence in Poland. There is extensive activity by the Nimrodi family's Israel Land Development Company, which is building entire residential neighborhoods in cities and specializes in the construction of industrial parks.

It's hard to estimate the value of all Israeli contracting activity because many businesspeople prefer - because of Israel's high tax rates - to operate through shell companies registered in Luxembourg or the Netherlands. Israeli investments in the country are thought to amount to 2 billion euros.

To this must be added the 744 Israeli manufacturers active in Poland, among them Teva Pharmaceutical Industries, Haifa Chemicals, Comverse Technology, Rafael Advanced Defense Systems and Super-Pharm, which employs 1,000 workers in 24 branches and is reporting profits of 100 million euros annually. The Egged bus company operates 500 buses in Warsaw and seeks to expand to intercity lines.