What if the PIGS Had Never Adopted the Euro?

What if the PIGS had never adopted the Euro? How would they now be handling the current economic Eurozone crisis?  Would there even be a Eurozone crisis? These are difficult questions to answer, but Poland provides something of a natural experiment in that it too is a periphery economy on the Eurozone but has its own currency. So what does this natural experiment show? From the New York Times we learn the following (hat tip Paul Krugman):

The floating zloty, which has fallen about 18 percent against the euro since early 2009, acted as a pressure release valve, helping to keep Polish products competitive on world markets and insulating Poland from the effects of the sovereign debt crisis.

Poland has proved itself to be Europe’s most dogged economy during the last two years. It was the only member of the European Union to avoid recession, soldiering on even after a plane crash in April killed much of the political elite, including the president and the central bank governor. No banks needed to be rescued.

Note that Poland had its own housing boom and the related fallout.  Poland, however, pushed hard on expansionary monetary policy in 2009 and secured a confidence-building credit line from the IMF. It also has a smaller banking sector which makes it less susceptible to the problems in Ireland.  Still, were it using the Euro and forced to undertake internal price deflation rather than one external price adjustment the outcome most likely would have been far different. Here is the IMF's most recent assessment of the Poland.  They too praise Poland's expansionary monetary policy.