It's Official: Buy Złoty!!!

With Greece still swirling around in the toilet, waiting for Germany to scoop them out and pat them down, the Euro is taking a moderate beating. Many economists see the depreciation of the Euro as a moderate-term event; meaning both the Dollar and the Zloty will be gaining ground against it in the immediate future. The US is expected to raise rates from the near-0% it has now before the ECB does, since the Euro Area has to deal with this new crisis. Poland already has higher rates than both the ECB (Euro Area) and the US, so it behooves one to to borrow from the ECB and invest in Poland. You borrow money for almost nothing, and get a higher return.

In a previous post, I commented how the weakness of the Zloty helped the Polish economy by making Polish goods and services cheaper compared to other countries. I also noted that it was a double-edged sword in that it make imports more expensive (it did: the prices rose by about 30%) especially for energy, namely, oil. Well, I have a two points to make concerning the Zloty's weakness.

I forgot to add that while the Zloty was weaker, making energy more expensive, energy prices themselves were falling rapidly. Oil dropped from $147/barrel to almost $30 faster than you could say "Well, fuck me!" So, while the Zloty was trading near 2 PLN to the $1 in mid-2008, it dropped to almost 3.50 PLN to the Dollar in early 2009, but also energy prices followed suit, taking care of the difference.

The second point, is based on Poland as a brand. Let's face it, Poland isn't exactly known for the quality of its products (Belvedere Vodka excluded, which is known as a premium vodka brand in the US.) Countries like China, India, and the Philippines aren't either, while countries like Switzerland, Germany, and Japan are. The point I'm trying to make is that people will buy Polish goods because they are cheap, not because they are expecting quality. People will buy Swiss and German goods (and pay a little extra) because they think they are getting a superior product, especially in the terms of quality. So, until Poland because a known for its high standard of quality, it should have every bit of help it needs to make its goods cheaper, i.e. a weak Zloty.

By the way, I'm looking forward to seeing how this all turns out. If I'm wrong, so what (barely anyone reads this anyway, and I'm sure even fewer actually take my advice to heart.)

Oh, Euro

There is a big focus and scrutiny of the Euro these days. Many analysts are wondering if the decade-old mega-currency can actually survive this economic downturn. Greece, Ireland, Portugal, Spain and any other countries ready to step forward with their massive debts, have all cast a pall over their common currency. This leaves many questions for Poland, which is currently not in the Eurozone.

The Euro: The next world currency? Or resigned to the dustbin of economic history?

Poland, which was aiming to go over to the Euro in 2012 (just in time for the Euro Cup) probably won't any time soon. I can't blame them. It makes economic sense; many credit the Zloty for helping Poland be the only EU country not to head into recession.

See, the weakness of the Zloty makes Polish goods cheaper to foreign buyers, even for other EU countries (which use the Euro.) While a struggling country, like Ireland, has seen its costs of production rise with the Euro's strength, Poland's remain relatively low. It's the same strategy that the Chinese are using. Companies have responded by shifting a great deal of production to Poland (Dell, for one, moved its massive computer plant from Limerick to Lodz.) Poland and the Czech Republic recently overtook Italy for the amount of cars produced. The exchange rate of the Euro-Zloty can also have a effect on tourism. With the rise of the Euro against the dollar, the Americans have found that it's becoming more expensive to visit the typical places like France, Spain, and Italy. Tours to Poland and the rest of Eastern Europe (including Russia) have risen over 100% since the recession began. Medical tourism is also a small cash cow; many Germans pass over the border for dentist visits and such (don't expect many Brits to do that though; they just come for the strippers.)

A weak Zloty is not all good news though, it makes things like foreign imports (energy especially) more expensive. But, with all this production shifting to Poland anyway, that might just deaden the blow; that, and the fact that the Poles have accepted that foreign stuff is going to cost an arm and a leg.

Talking to people on the street, one may get the sense that they aren't really looking forward to the Euro. Many believe it will drive prices up (see: Cappuccino Effect) and that wages won't follow. Not all are against it, the Government is pro-Euro as are some businessmen. The cost of intra-European trade would decrease and become stable and predictable. Ask a Pole on the street what the greatest benefit the Euro would bring, and the answer would be, "I wouldn't have to change money when going to Ireland/Germany/Italy."