Polish mountains a bargain basement for Slovaks

NOWY TARG, Poland Sun Mar 1, 2009 8:03pm EST

1 of 7. A Polish woman holds animal skins at an open market in the town of Nowy Targ, some 400 km (250 miles) south of Warsaw February 28, 2009.

Credit: Reuters/Vasily Fedosenko

NOWY TARG, Poland (Reuters) - The euro may be the shelter Poland's government seeks from eastern Europe's currency storm, but residents here are basking in the zloty's weakness.

The Tatra mountain region in Poland's south neighbors Slovakia, which has joined the euro zone.

Whereas the traditional traffic is of Poles to Slovakia to ski and buy cheap alcohol, now Poles are relishing an influx of bargain-hunting Slovaks.

The trend has been building since Slovakia adopted the euro on January 1. Euro membership has preserved its "A+" credit rating at Standard & Poor's (Poland's is two notches lower) and Slovakia is, as the Economist magazine put it last week, "smugly in euro-area." But its currency strength is bringing pain.

Last month at more than 2,000 makeshift stalls in a muddy field just outside the Polish town of Nowy Targ, Slovaks comprised about 80 percent of customers.

They bought mainly basics such as clothes and furniture, and some, Poles said, were drawn to buy cars. Since Slovakia has become known as "Europe's Detroit" for its auto-making strength, that's an irony Poles would appreciate.

The currency-shopping vogue is similar to that in Britain, where the pound's steep fall has made London a cheap destination for euro-rich tourists. Many Polish businessmen are delighted.

The zloty, under pressure from an exodus of foreign investors, has lost about 30 percent of its value against the euro compared with record levels in the middle of last year.

It now trades at 4.7 to the euro, about the same level as when Poland, Slovakia and six other ex-communist countries joined the European Union in 2004.

"About 20 percent of our customers are Slovaks now," said Edward Kuchta, who co-owns car dealerships for a variety of marques in four towns in the picturesque Podhale highland region bordering Slovakia.

He said the weak zloty is bringing Slovaks to Poland to buy Skoda cars. Once produced in the former Czechoslovakia, they are traditionally the first pick for both Czechs and Slovaks.

"If this trend in exchange rates continues this year, then sales (to Slovaks) could compensate for losses ... resulting from the economic crisis," Kuchta told Reuters.

The mayor of Nowy Targ, a town of 35,000 people, expects more Slovak euros to flow in.

"I think trade has increased by 20 to 30 percent but the January-February period is always fairly quiet, so this for sure will increase further," Marek Fryzlewicz said.

"There were Opel cars on offer yesterday in Nowy Targ and the first two clients were Slovaks. And that is how the region can profit!"

MODERN NECESSITIES

Nowy Targ market dates from the 14th century and Fryzlewicz said it has always benefited from its location on a north-south trade route through which Poland imported wine from Hungary and exported salt, lead and herrings.

Now it's an export outlet for modern necessities.

"I have a small child, and things for babies are cheaper here," said Rastislav Kovalcik, a new stroller in his hands.

"What I also buy is diapers, baby food. Some things are 40 percent cheaper than back home," said Kovalcik, from Slovakia's Orava region just across the border.

Slovakia -- whose population of 5 million is tiny compared with Poland's 38 million -- was the 16th euro zone country and its first ex-Soviet bloc member.

Concerned about the country's long-term economic stability, Poland's center-right government said last autumn it too aimed to adopt the euro in 2012. As markets become ever more skittish of eastern European investments, the government said last month it had started unofficial contacts with EU institutions on entering the pre-euro Exchange Rate Mechanism.

The Czech Republic and Hungary have also speeded up plans to join the currency bloc, although few economists expect any of the three to join before 2013 at the earliest.

SLOVAK PAIN

But inside the euro zone, Slovaks are discovering the price of stability. Officials say the country's flagship tourist area, the High Tatras region, has recorded a sharp fall in business after becoming expensive for visitors from Poland, the Czech Republic and Hungary.

"All the neighboring currencies have weakened since our euro adoption," Peter Chudy, executive director of the Slovak High Tatras regional tourist association, told Reuters. "This means services are now cheaper in Poland than in Slovakia.

"If this trend continues till the end of March, we might see (an annual) drop of 30 percent in overall numbers of visitors," Chudy said.

Around half a million Czechs and a quarter of a million Poles visited Slovakia in 2007, according to Slovak Tourism Agency figures.

Besides the currency moves, the end of border controls between Poland and Slovakia since they joined the European Union's open-border Schengen zone just over a year ago has added to the drag on trade.

Small shops in Sucha Hora on the Slovak side of the border once prospered by selling cheaper alcohol to thirsty Poles, but most of the cars winding through the village now have Slovak number plates.

Maria Skorusova, who turned part of a house in the Slovak village into a store selling everything from toothbrushes to alcohol and candy and said her business had suffered from the weak zloty.

"The Poles come and look because they're used to buying in Slovakia," she said, standing in the middle of her shop where only one Polish customer was browsing. "But they convert the prices to zlotys and come to the conclusion that it does not pay any more to buy."

Her only Polish customer, Miroslaw Jankowski, said only a few types of alcohol were still cheaper here.

"I bought four bottles of beer and a bottle of cognac, but I mainly came here to visit my friends," he said.

(Additional reporting by Martin Santa and Peter Laca in Bratislava, editing by Gareth Jones and Sara Ledwith)

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