WARSAW Nov 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.
A bulging budget deficit and rising public debt have forced
Tusk to announce a hike in the value-added tax (VAT) and trim
state spending. This, however, has so far not hit PO support.
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 new laws that include 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 strongly criticised 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 that it does not tackle such issues as generous
pension rules for farmers or hiking the retirement age.
Tusk hopes economic growth -- now seen at 3.4 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 budget deficit seen at 7.9 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 17 billion so far. Markets would
welcome success as it would help curb the deficit.
-- Will Warsaw, along with 8 other EU members, win looser
stance on public finances for EU members who have reformed their
pension systems? [ID:nLDE69S0SV]
-- Social tensions. Poland, unlike France, has not seen
serious industrial unrest, but some social groups could stage
protests if Warsaw delivered on its plans to lay off 10 percent
of the public sector or further cut spending.
COUNTDOWN TO PARLIAMENTARY POLL
President Komorowski has been working smoothly with the
government and has not vetoed its laws, unlike his predecessor
Lech Kaczynski, who died, along with 95 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 50 percent of the vote, against around 20 to 30 percent
for PiS. The Democratic Left Alliance (SLD), whose candidate
also outperformed expectations in the presidential election, has
lately gained in support and now polls at up to 20 percent.
The polls also 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 rival parties could further temper Tusk's reforms appetite.
-- A cautious rapprochement between PO and the opposition
leftists. Tusk previously said he could imagine forming a
coalition with the SLD if PSL fails to get into parliament. Will
SLD's recent rise in polls prove a solid trend?
-- 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 and
Warsaw now only rarely speaks on the issue, noting the euro zone
must solve its own troubles before considering widening.
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 escape recession.
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. Such a change has so far
been blocked by PiS, which is sceptical on the euro.
A strong PO win next year would be welcomed by markets as a
signal for fresh reforms clearing the way to euro adoption.
What to watch:
-- Will Tusk's government revive preparing plans to put the
zloty up 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 and analysts see the
reapprochement going ahead despite some hiccups.
Moscow remains sceptical about Poland's decision to go ahead
with the temporary deployment of a U.S. Patriot missile battery
near to the Russian exclave of Kaliningrad.
Russian President Dmitry Medvedev is due to visit Warsaw on
Dec.6 in a fresh sign of improving ties.
What to watch:
-- Will Russia's handling of the investigation into the
Smolensk crash further upset Poland? Warsaw has said it was not
entirely satisfied with the inquiry and it now has two months to
review draft conclusions from the Russian probe. The recent
findings on the crash site may also spark calls for exhumations
of the victims potentially inspiring some anti-Russian
sentiment. [ID:nLDE68L1OV] [ID:nLDE69P16N]
-- Will the EU formally approve a new Polish-Russian gas
deal signed on Oct.28? Refusal to do so could force Warsaw into
another round of negotiations leaving it at least temporarily
short of gas with winter nearing. [ID:nLDE69S12F]
For political risks to watch in other countries, please
click on [ID:nEMEARISK]
(Writing by Gabriela Baczynska; editing by Ralph Boulton)