Polish Government May Approve Deficit Above Euro Limit for 2004

Poland's government will probably approve a budget deficit that surpasses a European Union limit for member states, endangering early adoption of the euro as Prime Minister Leszek Miller tries to revive economic growth. The cabinet will meet in Warsaw at 10 a.m. to approve a record deficit of 45.4 billion zloty ($11.33 billion) from 38.4 billion zloty expected this year. Parliament may begin debating the budget by Sept. 30. The deficit would amount to 5.5 percent of gross domestic product, compared with a 3 percent EU limit. Poland, which will have the 10th largest economy in the EU after it joins in May, is struggling to reach targets for adopting the euro, mirroring battles in France and Germany. Delaying adoption of the single currency may hurt foreign companies with operations in Poland, such as France Telecom SA and Unicredito Italiano SpA, whose hedging costs would fall with the euro. Unicredito Italiano, Italy's second-biggest lender by assets, owns 53 percent of Poland's Bank Pekao SA. France Telecom holds a 47.5 percent stake in phone company TPSA SA. TPSA has 60 percent of its 15.6 billion zloty in debt denominated in euros and has used hedging transactions as the zloty strengthened, Chief Financial Officer Roger de Bazelaire said earlier this year. Polish economic growth, which averaged 5 percent a year in the late 1990s, slowed to 1 percent in 2001 and 1.4 percent in 2002. The government has forecast it may pick up to 3 percent this year.