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By Kuba Jaworowski and Maciej Onoszko
WARSAW, Feb 16 (Reuters) - Poland's central bank warned against joining the pre-euro ERM-2 mechanism too fast on Monday, casting doubt on the government's 2012 euro adoption target, despite affirming the long-term gains euro adoption would bring.
In response, Deputy Finance Minister Ludwik Kotecki said he did not agree with the central bank's view on entry to the European exchange rate mechanism (ERM-2) and reiterated the government was determined to push ahead with its euro entry plan.
"The decision to enter ERM-2 is based on both political and economic grounds. The research carried out shows that it is hard to find economic arguments supporting entering this mechanism in the current situation," the central bank said in a presentation accompanying the report.
The long-awaited euro report did not downplay benefits of euro entry altogether and said that, in general, advantages of such a move would outweigh costs over the medium and longer term.
"I agree with the part of the report saying benefits of the euro entry will outweigh the costs but I disagree with the part of the report on ERM-2," Kotecki, who manages the government's euro entry preparations, told reporters.
"Risks that are mentioned there would be manageable," he said.
Analysts have been saying that the turbulent global markets and the spreading economic recession could pose a serious threat to exchange-rate stability once the zloty is in the ERM 2 grid and vulnerable to speculative attacks.
Before joining the euro, a country must keep its currency inside the ERM 2 grid for at least two years, where it trades within a plus/minus 15 percent range around a central parity.
A recent Reuters poll of more than 30 economists and analysts saw Poland joining ERM 2 in 2010 and adopting the euro in 2013.
The head of the ruling Civic Platform's parliamentary group, Zbigniew Chlebowski, told Reuters the weakness and volatility of the zloty, which shed over 10 percent since the start of the year alone, could force the government to delay its plan to adopt the euro until 2014 in the worst case scenario.
The euro zone entry roadmap released by the centre-right government of Prime Minister Donald Tusk last October showed Poland aimed to enter ERM 2 in the first half of 2009 and the euro zone on Jan. 1 2012.
LONG-TERM BENEFITS
In addition to the danger of entering ERM 2 amid a global crisis, just as analysts had expected, the report, promised by the central bank Governor Slawomir Skrzypek shortly after he took office two years ago, also says the economy would benefit from euro adoption.
"Economic arguments presented in the report show the long-term balance (of costs and benefits) of Poland's euro zone membership should be positive," the report read.
Many analysts saw Skrzypek as a eurosceptic as he owed his appointment to the job at the central bank to the eurosceptic President Lech Kaczynski and a eurosceptic government of Law and Justice (PiS) led by Jaroslaw Kaczynski, the president's identical twin.
The central bank's report also said Poland's Gross Domestic Product (GDP) could be boosted by an additional 0.7 percentage points annually in the first ten years following euro adoption.
The report said costs, such as the loss of autonomous monetary policy or exchange-rate policy, would be concentrated in the short term, while benefits would mostly be visible in the medium or longer term.
Unlike Britain or Denmark, Poland and other countries that joined the European Union in 2004 have no legal opt-out from the euro, though governments can decide on the timing of the move.
"The decisive voice on this issue belongs to the government, not the central bank," said Rafal Benecki, senior economist at ING Bank in Warsaw.
"Nevertheless, the general positive sounds of the report shows that the central bank management's attitude should not be a barrier in the government's efforts to join ERM 2 (and euro)."
The Polish zloty was largely unchanged after the release of the report. (Writing by Karolina Slowikowska, editing by Andy Bruce)