17 November 2007

CITIZEN OF EUROPE: F-16 Planes, the Euroarea and Falling Dollar

What do F-16 fighter planes, joining the Euroarea and the falling dollar have in common?

It seems that they do have a lot.

As Gazeta Wyborcza (a large Polish centre-of-the-left newspaper, with very good econ articles) wrote, the Polish government decided to increase the number of F-16s Fighting received this year from 4 to 6 (Poland bought 48 planes to be received in the coming years and is thinking of joining the JSF programme)

There are two connections between this purchase, joining the Euroarea and the falling dollar..

The connection No. 1 is simple: the cheaper dollar is, the less you have to pay for the planes.

But there is something more to it that meets the eye.

Poland wants to join the Euroarea around 2011-2012. So far it has met all monetary requirements (inflation, interest rates etc). Nevertheless, the situation with fiscal requirements is not that good: budget deficit is still more than 3% (the Euroarea reguirements are here).

At the moment, the economy is booming - the growth is around 6%. Nevertheless, economists predict a mild slowdown next year. That means budget revenues will be smaller and budget deficit may increase.

By paying for two additional F-16s now, the government decreased expenses scheduled for the next year of about 90M USD. The predictions are that, thanks to this, the budget deficit will drop below 3% next year.

As a result, Poland will be able to start negotiations on accession to the Eurozone.

Shrewd, isn't it?

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