Marcin Bogdan: SAFE - 2 scenarios

Si vis pacem, bellum pair - you want peace, prepare for war, wrote in a prologue to the work "On War Art” Roman historian Vegetius. Poland wants peace, so it must prepare for war. Poland must arm itself. You just gotta ask yourself where to get the money, who to get the money from.

Consider here 2 alternate scenarios that have emerged recently. I'll call it the President's script and the government's script in a simplistic way. Both have the abbreviation SAFE in the name, from the English words “Security Action for Europe’, Both relate to a akin amount of PLN 185 billion.

President's Screenplay

In the President's scenario, funds are to come from the reserves of the National Bank of Poland. The current reserves of NBP exceed the level essential to warrant the country's financial security, so this surplus can be utilized to support the arms of the Polish army. Poland presently has reserves of 550 tonnes of gold, which account for about 27.5% of abroad exchange reserves. This gold is worth about PLN 333 billion. For the purposes of this column, let us presume that the weapons will come from the sale of gold. In practice, this requires issuing government bonds, as the law prohibits central banks from straight financing government expenditure. In order to get PLN 185 billion, about 305 tons of gold should be sold. It's a small more than half the gold reserves, but 420 tons of gold have been purchased in the last fewer years, after 2019. Thus, we can say that we can afford to resell what we have purchased recently, and that the funds we have obtained are spent on weapons. After this transaction, 245 tons of gold will stay in the NBP reserve. And we won't gotta pay off the debt for years, at most we'll gotta buy back the gold we sold if there's specified a possibility.

Government scenario

In the government scenario, the funds are to come from a debt in the EU under the SAFE programme. The debt is to be granted in euro. There is so a question of exchange rate differences erstwhile converting euro into gold. After the Persian Gulf conflict broke out, in the first 2 days, the gold fell by 10 cents compared to the euro. If the SAFE debt had already been taken out, this would have caused a debt increase in just 2 days by PLN 4.3 billion, or a billion euros. The more anxious the planet is, the more the fluctuations in the euro exchange rate can be. This could lead to a situation in which a debt drawn up for 45 years could consequence in a hazard of bankruptcy. In order to avoid this threat, the government will push the introduction of the euro in Poland and the European Union will even agree to a comparatively favourable conversion of the gold to the euro. Following the introduction of the euro, the gold constituting the provisions of the NBP will be exported to the vault of the European Central Bank, which is located in Germany, Frankfurt am Main. This gold will be removed from the board of NBP and the Polish state. specified will be the consequences of adopting the single currency. A fewer months ago, the Italians, who had the world's 3rd largest gold stock of 2,450 tons, wanted to vote on the evidence that this gold belongs to the Italian people. The European Central Bank powerfully opposed this by arguing that the reserves of gold and currency in the euro area countries belong to the central bank due to the fact that they are part of its instruments for stabilising the financial system. According to the ECB, it would be contrary to the principles enshrined in the EU Treaties to recognise that gold is owned by the Italians. Thus, in the script of the government, after taking out the debt and after adopting the euro, there will be no gold in the NBP reserve and Poland will be burdened with immense debt, which will pay off the next generations.

Which script will the Poles choose? The Germans have already chosen.

Mr Bogdan