Poland, the Next Turkey? Spotlight on the Zloty and External Debt

Emerging markets have taken it on the chin. Is Poland next?

Murray Gunn, Head of Global Research at Elliott Wave International, asks "Is Poland the next Turkey?"

Our outlook for the Polish Zloty suggests that Poland’s developing authoritarianism is likely to accelerate.

In case you have been living on Mars over the last few years and have missed what is going on, people around the world are becoming increasingly angry. This is especially true in the periphery of Europe, where countries like Turkey and Hungary are ruled by governments with an intolerance for people who disagree with them. After long negative trends in social mood, the so-called “populist revolution” has also resulted in the election of governments in Italy and Poland that have radical agendas. In Poland’s case, one policy of the ruling Law and Justice Party (nothing sinister about that name, eh) is to overhaul the judicial system by forcing judges to retire early. This, the European Union argues, is aimed at increasing political influence in the Polish legal system. On Monday, the EU stepped up threats of legal action against the Polish government which remains intransigent on the matter. It’s looking very probable that Poland is on the road to becoming internationally isolated.

Indeed, the chart of the Polish zloty versus the Euro suggests that Poland may be in for the same treatment as Turkey. A multi-year consolidation ended at the beginning of this year. It looks like EUR-PLN is entering a strong advance which should see the pair explode higher. Be prepared for that to be accompanied with a further breakdown in international relations with Warsaw.

The above via email. I do not have a link. The chart, as delivered, had an arrow pointing up. I edited the chart, adding a "? and put in arrows up and down.

Polish Zloty 1999-Present

The above chart better shows the the volatility of the Zloty.

  • Between May 2001 and January 2004 the Zloty declined 33% vs. the Euro.
  • Between January 2004 and May 2008, the Zloty rallied 54%.
  • Between May 2008 and January 2009 the Zloty declined 35%

Poland Battles With EU

Bloomberg offers a Quick Take: How to Understand Poland’s Battles With the EU.

Almost three years into Poland’s populist revolution, the European Union is fighting with its most populous eastern member on two fronts. The bloc is edging toward suing the country over a judicial revamp and has recommended launching an unprecedented disciplinary process that could lead to penalties against the Polish government for failing to respect democratic standards. At stake is the value of Polish assets, with the zloty usually weakening when conflicts with the EU escalate, and the cohesion of the union itself.

What triggered EU action?

A law passed by Poland’s parliament went into effect, forcing out about two-fifths of Supreme Court justices and giving politicians more sway over a council that decides on court appointments. The law seriously jeopardizes independence of “all parts of the Polish judiciary,” according to the Venice Commission, which advises the Council of Europe human-rights group on constitutional law.

What are the possible penalties?

If four-fifths of EU members approve, Poland’s legal standards would be placed under monitoring by national governments in the Council of the EU. If the breach were to persist, fellow members could suspend certain rights that Poland enjoys as part the EU, including its voting rights in collective decisions. Such escalation, however, would require unanimous support from the bloc’s 27 other countries.

Does Poland have any allies?

Yes. It enjoys the support of Hungary, whose prime minister, Viktor Orban, has been steering his country on a similarly illiberal course. If it comes to a vote on sanctions, more nations may side with Poland in the spirit of supporting a fellow maverick state. Other former-communist nations such as the Czech Republic, Slovakia and Romania have strayed from the EU mainstream by rejecting refugees or moving to make it harder for officials to be prosecuted.

Does that mean sanctions are unlikely?

Through Article 7, yes. However, as the standoff escalates, the EU is separately considering limiting access to development funds in the post-2020 budget for countries that disrespect the bloc’s values. That could hit Poland hard since it’s the biggest net beneficiary of the EU’s budget, which may total 1.28 trillion euros ($1.5 trillion) in the 2021-2027 period. The money has helped power the Polish economy, contributing as much as a percentage point of growth to gross domestic product each year.

What could this dispute mean for markets?

While Poland’s economic performance has been robust, the zloty has lagged behind most eastern European peers. The currency has proven vulnerable when the conflict has escalated, as shown during street protests in July 2017 or when concerns about Poland’s sovereign ratings have mounted amid the dispute. More criticism from the European Commission is likely to undermine Poland’s status as a safe investment bet.

External Debt

Poland's external debt is as bad as Turkey's. If the EU does limit assistance to Poland, the Zloty is highly likely to come under pressure. The Zloty may come under pressure regardless, based on external debt concerns.

Yet, Poland is not Turkey. It is a member of the EU and nothing can be done about that, ever. Poland can voluntarily leave the EU, but it cannot be kicked out.

It takes unanimous agreement to make major changes, including trade deals. That is a huge, fundamental design flaw of the EU.

A bet against the Zloty vs the Euro seems like a reasonable idea, but it may take time to play out. I have no position in the idea and do not plan one.

Toothless Tiger

Flashback May 17, 2017: EU Opens Article Seven Process Against Poland.

I called the EU a "toothless tiger".

My closing comment was "Dear EU: Talk is cheap. What are you going to do about any of this?"

Clearly the answer was nothing.

Polish Black Hole

For the ironic side of this discussion, please see EU Spent a Trillion Dollars of "Cohesion Money" Seeking Unity: Where's Is It?

Short answer: There is no unity, but a lot of money vanished in a Polish black hole. The curious aspect is "Both Donor and Recipient Countries are Unhappy".

EU discontent is high and rising.

Mike "Mish" Shedlock

Comments (36)
No. 1-18

An amazingly long article with lots of words without mentioning islam, muslims, rapes, immigration, welfare and culture.

Almost like they were forbidden words.

Other words like punishment and Brussels are also missing.


Zloty is just another garbage currency that will soon fail, ala the Turkish Lira and Venezuelan Bolivar. One by one, they will all pass into "Money" Heaven. The only question is, "In what order?"


Zloty issues will help the EU achieve Poland joining the Euro. There is a desire to see all EU states inside the Euro.

Also - I believe standardisation in the EU is inherently deflationary. Any standardisation commoditizes readily available needs. Be it products, services or labour.


Poland's economic indicators are better than the Eurozone average.


More background is required; some justices being forced to retire were appointed illegally by the old government backed by Brussel ,after they lost the last election.Some were still from the old communist regime. European pressure and interference is odd.Mish,you are the most welcome and refreshing champion of freedom and please stay that way.


Mish ! Stop lie about Poland . Have you ever been in Poland ? Do you have any idea what's going on with the Supreme Court ? What is it ? Who are those people in this Court ? Do you know that most of them sentenced patriots , people who fought with former totalitarian communist system before 1989 to jails and sometimes for tortures ? Some of them are "famous " corrupted judges . And so on , and so on . But who cares , right Mish ? Poland is one of the last free countries in Europe . If you do not believe I invite you to Krakow and than you can see and maybe understand what's the difference between the truth and your opinion . Unless you are some kind of leftist or neomarxists like many in Brusseles. That's why they hate us, I mean my government . I can show you many examples as The European Commission uses double standards to Warsaw and ( for example ) Berlin or Paris . I 'm 58 and I remember very well those times and what the judges did with anticomminists. Mish , I thought you were wise man .


Ah, Poland. Crummy economy, brain drain, interest rates at all time lows, super low birthrate (even by Euro standards) and the only national hero in recent memory is a former Pope.

Poland seems to get undue love on the blogosphere recently because of their disdain (understandably) for refugees, but to ignore the rest of their plight is folly. Glad Mish isn't slurping the Kool-Aid like some others.


The odd thing here is that Poland has a debt to GDP ratio of 54.1%, while Turkey has a debt to GDP ratio that is even better, only 42.4%. The US is 105.4%.


Cohesion funds do not target political cohesion but regional development disparities. Bullshit to keep harping on a wrong take on some teminology.


Perhaps once having lived under a an old Soviet system you would tend to rebel against a modern one, the EU.


Mike you, probably accidentially, quoted leftist propaganda. Apparently you were to Prague recently? I'd recommend to rent a car and drive around in Poland for a while, not only in big cities but around the countryside as well, and talk to the people, some of them speak English pretty well. I bet you'll find out that the quote that you used above is not quite appropriate...


That looks like the completion of a bullish horizontal triangle. Breakout to the upside soon IMO.