UPDATE 1-Poland must join euro to be at Europe's heart, says PM

Fri Dec 14, 2012 9:33am EST

* PM Tusk says decision on road to euro needed soon

* Source says 2017 likely target for euro adoption

* Poland fears being left outside EU's core

By Karolina Slowikowska and Pawel Sobczak

WARSAW, Dec 14 (Reuters) - Polish Prime Minister Donald Tusk has raised the prospect of relaunching his country's bid to join the euro soon, saying to do otherwise would risk simply being on the European Union's periphery.

The largest member of the EU's emerging east has so far treated euro entry as a rather distant prospect amid the turbulence surrounding the common currency.

But top officials in Warsaw have grown concerned it could be left outside what it sees as Europe's core as the euro zone makes far-reaching decisions to steady itself after its recent crisis, including this week's decision to give the European Central Bank new powers to supervise banks.

Speaking to reporters during a visit to Brussels on Thursday, Tusk said Poland faced a choice "whether to become a part of the heart of Europe, which will be the union around the economic-financial axis, where the common currency is at the core, or become a rather peripheral state with its own currency."

He said the actual adoption was a matter of years away, but if Poland does not take a decision in the coming months, the opportunity may "float away".

A source close to the government told Reuters the government could target 2017 as an entry date, which would mean it needed to push forward next year to enter the pre-adoption currency stabilisation mechanism known as ERM-2 and peg its currency to the euro in 2014.

Finance Minister Jacek Rostowski cautioned, however, that euro entry would not be a simple matter.

"Poland will join the euro zone as soon as it is possible, but also beneficial and safe for Poland," he said. "The restructuring of the euro zone must be advanced, but we also have a lot to do to make it (euro adoption) safe."

But a decision was necessary: "We do not want to be in a grey area in the medium- and the long-term," he said.

Many analysts say the decision on when Poland enters the euro will be driven primarily by politics, not economics. Poland sees its destiny as being in the front rank of EU decision-makers, and many in the government believe euro membership has become an essential qualification for that.

Poland, the European Union's seventh-largest economy, is the only member to avoid a recession in the aftermath of the global financial crisis, in large part thanks to the significant weakening of its currency to boost its competitiveness.

With polls showing that less than a third of Poles supporting abandoning the zloty in favour of the battered euro the government will also have a hard time winning backing from the opposition to push through required constitutional changes.

"One has to show that the euro zone has been greatly transformed and improved, that the euro is one of the key global currencies and only in this context one may regain support," said Pawel Swieboda, president of the demosEUROPA think-tank.

Poland currently does not meet any of the euro zone convergence criteria. It remains under the EU's excessive deficit procedure that Warsaw hopes to be lifted by the European Commission next year.

Inflation, which is now easing quickly, still exceeds the reference level. However, most economists say Poland's strict financial discipline have put it on track for convergence within the next few years.