Few woes in Warsaw

POLAND is the only economy in the European Union that kept growing all the way through the crisis. Its ability to insulate itself from external shocks stems partly from history and geography. It is by far the biggest economy in central Europe (making up 40% of the GDP of the EU's ten new ex-communist members), and gets lots of oomph from domestic demand. Expansion in neighbouring countries, mainly Germany, is now stoking Polish growth, forecast at around 4% this year and next.

But Poland also entered the crisis in sound shape. Its banks were stodgy in their lending. The property market stayed unbubbly in most of the country. Monetary policy had been overly tight in the early years of the last decade. That slowed growth then, but proved a blessing later.

Another advantage was a floating exchange rate: the Polish zloty plunged during the downturn, helping exporters and the tourism industry. In the Baltic states (which had currency boards) and Slovakia (which adopted the euro in 2009) the burden of adjustment went uncushioned, meaning cuts in nominal wages.

Protection against external shocks gave Poland's policymakers plenty of room for manoeuvre. They did not need to hike interest rates to save the currency and soothe investors. They did not need a pro-cyclical fiscal policy to stave off default or devaluation. Instead Poland could afford a classic Keynesian response to the downturn. The government ran big budget deficits (7.3% in 2009 and 7.9% last year), a hefty fiscal stimulus that kept domestic consumption purring along while it collapsed elsewhere. For many of Poland's peers the crisis exposed the narrow base of their economies. When construction, exports and investment plunged, nothing could take up the slack. In Poland, the consumer kept spending.

For the stimulus to work, outsiders had to be willing to lend. Poland was well served by its finance minister, Jacek Rostowski, a sardonic English-born economics professor, who adeptly managed the borrowing splurge. Poland's credit rating barely budged as that of some other ex-communist countries plunged. It helped that Poland in 2009 gained, and did not need to use, a $20 billion credit line from the International Monetary Fund.

Wider worries about the euro zone and currencies on its periphery may have helped Poland, too. They kept away the hot money that has sent exchange rates soaring in other emerging-market stars. Even when the zloty hardened, demand from Germany kept exports booming (keen prices and flexible workers make Polish subcontractors a vital part of the Teutonic trade machine). “Germany helped save Mitteleuropa,” says Marcin Piatkowski, a Warsaw-based World Bank economist. Poland has replaced Russia as Germany's main eastern trading partner, even including energy.

Another boon has been money from abroad. A million or more emigrants send home remittances (worth $9 billion in 2010, according to the World Bank). Poland was also allocated €67 billion ($92 billion) in EU funds for 2007-13. That is paying for new roads, faster railways and lavish training programmes. After a slow start, the Polish bureaucracy has proved one of the most effective spenders of this bonanza (efficiency is another story).

The result is a superficially happy picture: broad-based growth, falling unemployment, affordable borrowing and rising investment. But the current account and inflation are worries; so is the budget deficit, which the government said on April 26th it would cut to 2.9% in 2012.

Yet if Poland still wants to join the euro (perhaps in 2015), it will do so in better shape than many existing members. Mr Piatkowski speaks of a “New Golden Age”, with Poland converging on west European levels of well-being soon after 2020. That is a fine goal. But first Poland must master its public finances, stoke innovation, widen labour-market participation and deal with the red tape that drags it down international rankings. Poles grumble about such things. They should fix them, too.