“It’s no secret the single currency has serious structural problems,” Jan Vincent-Rostowski told a press conference Monday.

“The security of the euro zone today looks better than three to four months ago, but nevertheless we can’t say the architecture there is satisfactory.

“The European Central Bank still doesn’t have an adequate role as an institution to guarantee cohesion of the [single currency] area” and to protect individual members countries from contagion.

“Therefore at this point a lot remains to be done and until the euro zone is fixed, there’s nothing to talk about,” he said when asked about Poland’s prospects of joining the single currency.

Meanwhile, Polish companies are more confident about their prospects for the second quarter on stable foreign orders, slower growth of export costs and higher capacity utilisation, a survey by the Narodowy Bank Polski showed.

The business outlook index rose to 9.1 points, up 3.7 points from the previous quarter and 7.7 points below its level a year ago, the Polish central bank in Warsaw said today on its website.

The bank surveyed 1,267 companies, of which 74.4 percent described their situation in the three months through March as “very good or good,” down from 75.7 percent in the fourth quarter of last year.

Tusk will probably miss his budget-deficit target of 3 percent of economic output this year, Reluga, a member of Tusk’s council of advisers, said in a March 9 interview in Warsaw. Investor unease over Europe’s handling of its debt crisis may spark a sell-off before parliamentary elections in Greece and a presidential vote in France, he added.

The zloty weakened 0.6 percent against the euro to 4.1130 as of 4:57 p.m. in Warsaw. Poland’s currency is the world’s best performer against the EU’s common currency this year, having gained 8.6 percent after it slumped 11.2 percent in 2011 as investors shunned riskier assets. Poland’s deficit widened to 7.8 percent of gross domestic product in 2010.

“We’re running out of reasons for appreciation to continue,” Reluga said. “It’s very hard to believe there’s any chance of” meeting the deficit target. “Polish officials repeating that the deficit will be below 3 percent this year may create unnecessary expectations among investors, while it may be really difficult to deliver such a target.”

Last week, Greece pushed through the biggest sovereign restructuring in history, with private holders forgiving more than 100 billion euros ($132 billion) of debt, a condition for the nation to win the bailout it needs to repay about 14.5 billion euros of debt coming due next week. German Finance Minister Wolfgang Schaeuble said last week it would be a “big mistake” to consider the region’s debt crisis ended.
Growth Outlook

The Polish economy, the biggest among the EU’s eastern members, will probably grow 2.5 percent this year, the fastest pace in the trading bloc, after expanding 4.3 percent in 2011, the European Commission said last month. The euro area buys 54 percent of Polish exports.

After becoming the first Polish prime minister since the collapse of communism in 1989 to win a second consecutive term, Tusk pledged to increase levies and cut pension privileges to combat the budget gap.

Focusing on the deficit risks strangling the economy as consumer demand wanes, Reluga said. Individual consumption increased 2 percent in the fourth quarter of 2011 from the year- earlier period, slowing from a 3.7 percent pace in the first quarter.

“For the financial markets, for investors, it’s the direction that’s important,” Reluga said, adding that narrowing the deficit to 3.3 percent or 3.4 percent would be sufficient. “The measures Tusk proposed last year are enough if they’re put into practice. Any tougher steps would be mistaken at this stage as they could endanger economic growth.”

The government’s plan to raise the retirement age to 67 from 60 for women and 65 for men sparked a dispute with the parliamentary opposition and its own junior coalition partner. Tusk will probably reach an agreement “in the end,” said Reluga, who is also the chief economist of Bank Zachodni WBK SA (BZW), a Polish unit of Banco Santander SA. (SAN)

“There’s no point in watering down the government’s proposals to increase the retirement age,” he said. “We’d just have to change the rules again in a few years.”

The government executing its plans may help Poland’s chances of a credit-rating upgrade next year, according to Reluga. The country’s debt is graded A2, or the sixth highest, at Moody’s Investors Service and one step lower at A- at Standard & Poor’s and Fitch Ratings. The outlook is stable at all three companies.

“I can imagine a change in the outlook to positive, which would already be doing quite well, considering that so many countries have been downgraded lately,” Reluga said. “For a change in the rating, Poland will have to achieve the reforms that have been proposed, and not just talk about them. If they’re introduced, we’ll have a chance of an upgrade next year.”

Poland also faces the risk of foreign investors pulling out of the country’s bonds if concern rises that Europe’s debt crisis will worsen, Reluga said.

Greek credit default swaps rose to 25,423 basis points on March 9, compared with Poland’s 184 basis points basis points, according to CMA, which is owned by CME Group Inc. (CME) and compiles prices in the privately-negotiated market.

Poland’s benchmark five-year bond has outperformed comparable German debt in the past three months as Tusk’s government reiterated its commitment to budget cuts. Foreign investors participated “substantially” in a bond sale at the lowest yield in six years last week, the Finance Ministry said.

About a third of domestic Polish debt is owned by foreign bondholders, compared with 12 percent in the neighboring Czech Republic. As much as 44 percent of domestic Polish debt maturing this year is owned by foreign bondholders, according to data, with almost a third due next month.

“When risk aversion reaches a certain threshold, we’re not immune,” Reluga said. “There’s a risk of capital outflow from Poland, which could be dangerous for us now, because there’s a lot of foreign capital in the fixed income market, and a lot of bonds maturing in 2012 are in the hands of foreign investors.”

The zloty lost 0.4 percent to 4.1344 per euro as of 9:12 a.m. in Warsaw, after rising to the strongest level in almost seven months yesterday. Its decline was the second-steepest among 25 emerging-market currencies tracked by Bloomberg.

The purchasing managers’ index, a gauge of manufacturing, fell to 50 from 52.2 in January as employment and export orders fell, HSBC Holdings said in an emailed statement summarising the results of a survey by Markit Economics.

The median estimate of 17 economists in a recent survey was 51.1. A reading above 50 indicates expansion, while a figure below 50 shows a contraction.

Poland is co-hosting the June 8 to July 1 Euro 2012 tournament with Ukraine.

Poland’s centre right government said on Tuesday it would push through changes giving conditional clearance for cars to drive on highways missing non-essential facilities, including petrol stations or sound barriers, as long as they are deemed safe.

The builders would also be temporarily spared the need to get the green light from environmental authorities, which often takes months or years to secure.

Poland’s efforts to upgrade its dilapidated infrastructure before the soccer tournament it hopes will highlight its economic success, have encountered numerous bumps in the road, including red tape and financial troubles of some contractors.

In the most high-profile case, Polish authorities scrambled last year to find a new builder for a section of a key highway linking Warsaw to its western neighbour Germany after cancelling a deal with China’s COVEC over unpaid sub-contractors.

With less than four months to go before Euro 2012 kicks off, Poland has 1,065 kilometres (662 miles) of motorways and 580 km under construction, with several other projects put off indefinitely.

Poland’s sports fans breathed a sigh of relief earlier in the day after authorities cleared Warsaw’s National Stadium to stage its first match after delays had raised questions over the readiness of the venue that is scheduled to host the opening match of Euro 2012.

“There’s nothing odd in the zloty’s appreciation this year,” Jan Krzysztof Bielecki, who heads Tusk’s council of economic advisers, said yesterday in an interview in Warsaw. “It was undervalued and now it’s just returning toward the correct level.”

The Polish zloty plunged 11 percent against the euro in 2011 as Europe’s debt crisis threatened to infect Poland. It’s up 7 percent this year, the third-best performer among currencies tracked by Bloomberg.

The European Central Bank’s emergency lending program has had a “stabilizing effect” that helps “strengthen currencies like the zloty,” Deputy Finance Minister Dominik Radziwill told the Dziennik Gazeta Prawna newspaper in an interview published today.

Poland’s economy expanded 4.3 percent last year as the weaker currency buoyed exports and infrastructure investment benefited from European Union funding. It was the only member of the 27-member bloc to escape a recession in 2009. The zloty traded at 4.1879 against the euro as of 4 p.m. in Warsaw, down from 4.1829 yesterday.

Poland will be able to trim this year’s budget deficit to 3 percent of gross domestic product or less even under the government’s “very conservative” economic-growth forecast of 2.5 percent, according to Bielecki.

The European Commission said in January that Poland would exit the EU’s excessive deficit procedure this year after taking “effective action” to narrow the gap from 7.8 percent of GDP in 2010.

The Polish currency added 0.8 percent to 4.2805 by 5:15 p.m. in Warsaw. Bonds climbed, cutting five-year yields by three basis points, or 0.03 percentage point, to 5.07 percent, the lowest since Nov. 8.

Global stocks and the euro rose as European Union finance ministers gathered in Brussels to discuss new budget rules and a Greek debt swap. Poland’s economy grew about 4.2 percent last year and the “balance of risks” for the 2.5 percent forecast this year is “positive,” Deputy Finance Minister Ludwik Kotecki told PAP newswire today.

“Central European currencies today gained hand in hand with the strengthening of the euro,” Jan Vejmelek, an economist at Komercni Banka in Prague, wrote in a report to clients. The zloty “is also helped by comments from Deputy Finance Minister Ludwik Kotecki, who said the Polish economy last year grew 4.2 percent, up from an earlier estimate of 4 percent.”

“The Polish zloty remains undervalued,” Belka told journalists in Moscow, speaking in English. “But whether it sustains the next wave of turbulence in Europe – God knows.”

He added that the central bank is ready to carry on with interventions to support the zloty, if necessary.

“We have pledged that we are on the market constantly – at random walk.”

Poland’s zloty strengthened for a third day against the euro and dollar on Wednesday as speculation Hungary will secure an international bailout boosted investor demand for assets across the European Union’s east.

The zloty appreciated as much as 0.8 percent to 4.3285 per euro, its strongest since Nov. 4, before paring the gain to 0.4 percent as of 5:23 p.m. in Warsaw. The forint surged 1.1 percent versus the euro and the Czech koruna added 0.4 percent.

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The Polish zloty appreciated as much as 0.8 percent to 4.3285 per euro, its strongest since Nov. 4, before paring the gain to 0.4 percent as of 10:10 a.m. in Warsaw. The forint surged 1 percent versus the euro and the Czech koruna added 0.3 percent.

Hungary is ready to comply with demands from the EU over a central bank law, Prime Minister Viktor Orban said today in an interview for Bild newspaper. The EU yesterday threatened a lawsuit against the EU’s most-indebted eastern member for encroaching on the central bank’s independence, a dispute that halted bailout talks with the International Monetary Fund.

“If the forint advances, the same happens to the zloty,” Joanna Bachert, an analyst at PKO Bank Polski SA in Warsaw, said by phone today. “While most people on the market don’t put the two countries in the same basket, the biggest global banks do.”

Mr. Rostowski said the National Bank of Poland could play a temporary role in absorbing any shocks that might rock the Polish secondary bond market amid the global financial crisis.

“If bond yields rise due to panic or a virus imported from the outside and not due to mismanagement of public finances, then it might be proper for the NBP to intervene,” Mr. Rostowski said in an interview with the Polish edition of Newsweek.

The remark raised some eyebrows, although eventually market participants decided to ignore it. Trading was slow on Monday, the first trading day of 2012, and some major markets were closed.

And Polish bonds don’t need a rescue the yield on 10-year treasury paper hovers around 5.88%, well off this year’s peaks or even below the levels seen in November.

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But the central bank’s reaction shows it was taken by surprise. In a dry statement, it said that while the law doesn’t explicitly forbid its intervention in the bond market, the central bank’s monetary panel didn’t include such a policy tool in its plans for 2012, and that the central bank can’t replace the government in managing the public finances.

The bank also said that even a mention of the words “panic,” “falling bond prices,” and “need for bond market intervention” in one sentence could trigger a sell-off, given investors’ frail nerves.

The spat was quite unusual. Since Marek Belka’s appointment as central bank governor in 2010, the relationship had been so good some analysts thought it was too cosy and “too pro-government.”

The central bank and the finance ministry intervened jointly at various times during 2011 to prop up the zloty, weakened by the exit of investors from emerging markets amid euro-zone debt concerns.

When the Polish government decided to contribute to the International Monetary Fund to increase its firepower amid the euro crisis, the central bank promptly welcomed the plan despite local political controversies.

The Poland’s bond buying disagreement is unlikely to seriously damage the relationship. For both institutions, economic growth and zloty stability are central goals.