Polish PM wins four more years, cheers investors

WARSAW Mon Oct 10, 2011 7:41am EDT

1 of 5. Poland's Prime Minister Donald Tusk (C) claps his hands after the election results announcement in Warsaw October 9, 2011.

Credit: Reuters/Wojciech Olkusnik/Agencja Gazeta

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WARSAW (Reuters) - Center-right leader Donald Tusk has become the first Polish prime minister since the fall of communism in 1989 to win a second consecutive term following his Civic Platform's election victory, nearly complete results showed on Monday.

Investors hailed the outcome as a guarantee of political and economic stability in the European Union's largest eastern member in turbulent times, but Fitch ratings agency urged Warsaw to move swiftly to put its public finances in order.

With 99 percent of the votes from Sunday's election counted, Tusk's pro-business party had 39 percent and its main rival, Jaroslaw Kaczynski's nationalist-conservative Law and Justice party, 30 percent. Turnout was 49 percent.

A new party called Palikot's Support Movement also struck a chord with voters by winning 10 percent over by criticizing the powerful Roman Catholic Church and championing causes such as gay rights and legalization of soft drugs.

Political analysts said Sunday's election result showed democracy had come of age in the country of 38 million people.

"The ruling party and coalition for the first time in Poland's post-communist history has been re-elected and that shows the consolidation of democracy in Poland," said Jacek Raciborski, a political scientist at Warsaw University.

President Bronislaw Komorowski, who is expected to invite Tusk to form a government after the publication of final results on Tuesday, said the election results pointed to a swift creation of a new coalition.

Civic Platform (PO) is projected to secure around 206 seats in the 460-member lower chamber, or Sejm.

Its ally, the rural-based Peasants' Party, is on track to win about 30 seats, giving Tusk enough support to rebuild the same coalition that has steered Poland smoothly through the economic turmoil of the past four years.

Tusk is also expected to try to lure moderate members of the post-communist Democratic Left Alliance (SLD) into a new coalition. The SLD won only about 8 percent of the vote after losing many younger voters to a new libertarian grouping and its leader Grzegorz Napieralski said he would step down.

FOCUS ON REFORMS

"The outcome of the elections is good news for investors as pro-market policies are likely to be continued and there should be a solid parliamentarian majority for fiscal reforms," Danske Bank said in a note.

The Polish zloty was 1.1 percent higher against the euro at midday on Monday, bonds also firmed and the Warsaw bourse's main index rose 1.6 percent, outperforming regional markets.

"We expect a new coalition government to be formed relatively fast and would expect the new coalition government to propose concrete fiscal reforms soon," Danske Bank said.

Tusk's party also won a clear victory in the upper chamber, or Senate, where it was projected to win 62 of the 100 seats.

The success of Palikot's Support Movement, led by former PO lawmaker Janusz Palikot, signaled disaffection among younger voters and a challenge to the authority of the Catholic Church, which has long been venerated as a pillar of national identity.

The outgoing coalition has presided over four years of strong economic growth, steering Poland smoothly through the 2008-09 global financial crisis without dipping into recession.

Its victory ends a string of defeats for ruling parties in elections in EU member states this year, including in Portugal, Latvia, Denmark and Ireland.

ATTACKING DEBT AND BUDGET DEFICIT

Civic Platform has pledged more cautious reforms aimed at reining in the public debt and budget deficit, expected to reach 53.8 percent and 5.6 percent respectively this year.

It also wants to continue a privatization program set to net 15 billion zlotys ($4 billion) for state coffers in 2011 and to pursue closer ties with Poland's EU partners.

Fitch ratings agency said the new government would struggle to cut the fiscal deficit to below 3 percent of gross domestic product in 2012 as forecast in its draft budget, given a likely scenario of slowing economic growth.

"If it is serious about its... target, the incoming government will have to implement more drastic fiscal measures. This will likely require further cuts in expenditure," it said.

An adviser to Tusk, Jan Krzysztof Bielecki, said economic growth may slip to 3 percent next year from the 4 percent envisaged in the draft budget.

The election result is a personal triumph for Tusk, 54, a pragmatic liberal conservative from near Gdansk on Poland's Baltic coast, who was involved in the Solidarity movement that helped end decades of communist rule.

Tusk, whose country holds the EU presidency until the end of this year, favors closer integration with the rest of the bloc and says joining the euro remains a strategic goal for Poland despite the debt crisis in the euro zone.

He has good personal ties with German Chancellor Angela Merkel and has maintained a cautious rapprochement with Russia, despite strains over a plane crash there last year that killed then-President Lech Kaczynski, Jaroslaw Kaczynski's twin.

Jaroslaw Kaczynski's calls for a halt to privatization, for higher taxes on the wealthy and for a more combative stance in dealings with the EU and Russia had unsettled investors. ($1 = 3.235 Polish Zlotys)

(Additional reporting by Chris Borowski and Dagmara Leszkowicz; Editing by Timothy Heritage)

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