WARSAW Dec 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, as well as the results of a first round of
municipal and regional elections held on Nov. 21, 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.
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.
However, the conservative-nationalist PiS has been hit by a
wave of defections over the past month, further bolstering the
position of Tusk and PO, a pro-business, pro-EU party.
The most urgent challenges for Tusk are a bulging budget
deficit and rising public debt that have forced him to announce
a hike in value-added tax (VAT) and some trimming of state
spending, but such moves have so far not hit PO support.
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.
-- Social tensions. Poland, unlike some other EU countries,
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.
PO topped the first round of municipal elections on Nov. 21
with around 34 percent of the vote and kept control of Warsaw
and some other big cities. PiS came second with 27 percent and
the ex-communist Democratic Left Alliance (SLD) had 16 percent.
A second round is set for Dec. 5.
What to watch:
-- A cautious rapprochement between PO and the opposition
leftists. Tusk previously said he could imagine forming a
coalition with the SLD if its current coalition partner, the
Peasants' Party, 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 members of PiS, unhappy
with Kaczynski's style, have quit the party to set up a new
grouping called "Poland is most important", but it is unclear
whether this presages a wider breakup of PiS.
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 enlarging.
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
rapprochement going ahead despite some hiccups.
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 some time to
review draft conclusions from the Russian probe.
(Writing by Gareth Jones, editing by Sonya Hepinstall)