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

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

No. 1-19

"It looks like EUR-PLN is entering a strong advance which should see the pair explode higher." - definitely true, but beware shorting zloty based on this statement. It will happen definitely - but when the global crisis will start. I made calculation that in case of EUR / USD will go to 1:0,8 (like in the early 2000) then one USD might cost 5 - 5,5 zloty. So the pair zloty / USD is much more interesting than zloty / EUR.

For current turmoil Central Bank in Poland has enough of foreign reserves. It lent just to USA 35 - 40 billion USD. All foreign reserves are on the level of 120 billion USD. Poland just gave up 3 years ago the special IMF loan that had not been ever used. It can be also renewed doubling the power of reserves. So only big global crisis will (will not might) undermine this currency like it used to happen in 2009 and in 2003.


That triangle pattern was the first thing that came to mind. In currencies, post triangle moves are most often very explosive.


4.93 in Jan 2009 and 4.30 now means that there has been under 15% decline so the claim of 35% decline is a mistake.


In Turkey Turkish companies and Turkish people have massive exposure to debts in foreign currencies because the interest rates on them were lower than debts in Turkish Lira. This led to a situation where drop in the value of Turkish Lira would cause repayment problems and debt management problems and bank solvency problems.

Then Erdogan stupidly wanted to take Turkey's central bank under more control by him leading traders to start selling Lira. This led to a drop in Lira along with other political mistakes by Erdogan like being authoritarian, oppressing kurds and putting political enemies in prison. That in turn triggered the trap of currency debts.

Now due to the large drops in Turkey's Lira many companies and people have trouble repaying or even managing their debts and this has created a massive bank solvency problem in Turkey and the more Lira has dropped the worse the situation has become.

There is NO way out for Turkey without massive pain.

IF Poland does NOT have massive debts in foreign currencies by Polish companies and Polish people then things will be OK for Poland.


In many western EU countries judges are mostly leftists because the university law departments were infiltrated by leftists and communists in 1970's and 1980's and those leftists and communists made sure that other hires would also be leftists and communists and the education was leftist and communistesque. Also these leftists and communists started their own lawyer and judge associations to make sure that as much leftist and communist judges would be working as possible.

Now since that happened in western EU countries image what the situation is like in Poland. EVERYONE in Poland when it came to lawyers or judges was straight up communist until 1990's so that was 28 years ago so there are 50-68 year old judges in Poland now that are through and through communists because there was nothing done to stop this after Poland became free because it was too sensitive and once joining EU it became impossible to do anything because EU institutions and many western EU countries top judges are also leftists and communists so they have used the threat of EU action to make sure that fellow communists and socialists are protected.

EU as it functions today is socialist/communist central planning economy through EU regulations and EU directives although in name it is capitalism.