WARSAW Oct 1 Poland's centre-right ruling party
Civic Platform (PO) is trying to avoid painful economic reforms
in the countdown to next autumn's parliamentary election when it
hopes to increase its majority.
Opinion polls suggest Prime Minister Donald Tusk's party is
well placed to become the first in Poland since the fall of
communism in 1989 to win a second consecutive four-year term.
However, a bulging budget deficit and rising public debt
have forced Tusk to announce a hike in the value-added tax (VAT)
by one percentage point and to trim state spending, measures
that could cut into PO support and bolster its rivals.
PO's Bronislaw Komorowski won this summer's presidential
election but his main rival Jaroslaw Kaczynski, leader of the
right-wing main opposition party Law and Justice (PiS), did
better than expected, raising the political price of reforms.
Following are the key political risks facing Poland.
REINING IN DEFICIT, DEBT
Poland's public debt remains well below western European
levels, but the government is anxious to prevent it topping 55
percent of gross domestic product (GDP) as this would by law
trigger painful spending cuts likely to hurt support for PO.
The government has approved a long-term financing plan that
includes a cap on discretionary spending and more privatisations
to help plug the hole in public finances. The planned rise in
VAT from 2011 -- to 23 percent for many items -- is meant to be
temporary but opposition parties have vowed to fight the move.
Following Hungary's example and partly in response to
opposition suggestions, the government has also proposed a bank
tax to raise cash but has not yet said how much it might be.
Tusk has ruled out "radical" measures to slash spending or
raise other taxes. Liberal critics accuse the government of
timidity, noting the plan does not tackle such issues as
generous pension rules for farmers or hiking the retirement age.
Tusk hopes economic growth -- seen at 3.0-3.5 percent this
year, up from 1.7 percent in 2009 when Poland was the only
country in the 27-strong EU to avoid recession -- will help
narrow a general government deficit now expected to top 7
percent of GDP this year.
But the scale of the recovery will hinge on still-uncertain
growth prospects for the euro zone, Poland's main trade partner.
What to watch:
-- Will financial markets start to demand that Poland tackle
its deficit more aggressively? They appear relaxed for now but
Poland may begin to stand out in the region as other countries
tighten their belts.
-- Can the government reach its ambitious target of 25
billion zlotys ($8.47 billion) in revenues from privatisations
this year? It has raised about 13 billion so far. Markets would
welcome success as it would help curb the deficit.
-- Social tensions. Teachers and others are demanding salary
hikes and may stage protests. Other groups have already staged
protests gathering several thousand people. Poland also faces EU
pressure to start phasing out subsidies to coal mines, which may
trigger miners' protests. Poland still relies on heavily
polluting coal for more than 90 percent of its electricity.
COUNTDOWN TO PARLIAMENTARY POLL
President Komorowski is expected to work smoothly with the
government and not to veto its laws, unlike his predecessor Lech
Kaczynski, who died, along with scores of other top officials,
in a plane crash in Smolensk, western Russia, on April 10.
PiS leader Jaroslaw Kaczynski, twin brother of the late
president, won more votes than expected in the election after
toning down his nationalist rhetoric, but he has tilted back to
the right since Komorowski's victory.
Latest opinion polls show PO retaining its strong lead, with
up to 52 percent of the vote, against around 25 to 35 percent
for PiS. The Democratic Left Alliance (SLD), whose candidate
also outperformed expectations in the presidential election, has
around 9 percent support.
The polls show Tusk's junior coalition partner, the
Peasant's Party (PSL), failing to breach the 5 percent threshold
required to enter parliament in next year's election.
What to watch:
-- Local elections set for Nov. 21 and Dec. 5. A good result
for opposition parties could further temper Tusk's appetite for
-- A cautious rapprochement between PO and the opposition
leftists. Tusk said in a recent interview he could imagine
forming a coalition with the SLD after the 2011 election if PSL
fails to get into parliament.
-- Rising political tensions. Kaczynski has sharply
criticised PO and President Komorowski over what he says is
their lack of respect for his late brother. He has pledged to
have no contact with Komorowski. Some analysts speculate that
Kaczynski's hardline rhetoric and brusque treatment of party
members he suspects of disloyalty could presage a breakup of
PiS, a scenario that would bolster PO's domination of Poland's
Poland's fiscal challenges and the euro zone's woes have
pushed back Tusk's membership drive at least until 2015.
Though joining the euro zone remains an official strategic
objective for Warsaw, some in Poland have cooled to the idea as
the free-floating zloty's sharp fall during the financial crisis
played a key role in helping Poland to escape recession.
The lack of political consensus in parliament is also an
obstacle. PO needs to win, alone or with allies, a two-thirds
majority in the new parliament in order to amend the
constitution to pave the way for eventual euro adoption.
PiS, which is sceptical on the euro, has been blocking any
amendment in this parliament. A strong PO win next year would be
welcomed by markets as a signal for fresh reforms and for
clearing the way to eventual euro adoption.
What to watch:
-- Will Tusk's government revive preparing plans to put the
zloty for entry into the pre-euro ERM-2 mechanism?
THE BEAR NEXT DOOR
Warsaw and its communist-era overlord Moscow have said the
April crash in Russia should serve as a catalyst for an
improvement in long-frosty relations.
However, Moscow has criticised Poland's decision to go ahead
with the temporary deployment of a U.S. Patriot missile battery
near to the Russian exclave of Kaliningrad, saying it harms
regional trust. Warsaw says the deployment, designed to upgrade
its air defences, poses no possible threat to Russia.
What to watch:
-- Will Poland and Russia finally agree a new long-term deal
on gas supplies? Last-minute EU objections scuppered a
preliminary accord that had envisaged Poland importing Russian
gas totalling 10 billion cubic metres per year until 2037.
-- Will Warsaw accept a request from Moscow to extradite
exiled Chechen leader Akhmed Zakayev, wanted by Russia on
murder, kidnap and terrorism charges? A court briefly ordered
Zakayev's detention when he visited Poland in September but then
freed him. Zakayev, who has since returned to Britain where he
has political asylum, has said he will return to Poland if
needed to attend court hearings in his case. Few expect Poland
to extradite Zakayev to Moscow in the end. [ID:nLDE68K1LB]
-- Will Russia's handling of the investigation into the
Smolensk crash further upset Poland? Polish officials have
recently said Warsaw is not entirely satisfied with the inquiry.
For political risks to watch in other countries, please click
(Editing by Sonya Hepinstall)