Poland holds a presidential election on June 20 whose outcome will help determine the pace and scale of reforms needed to improve the European Union's largest ex-communist economy and prepare it for euro entry.
The election was moved forward from the second half of the year after the death of President Lech Kaczynski and 95 others including Poland’s top military commanders, its central bank governor and lawmakers in a plane crash in Russia on April 10.
Bronislaw Komorowski, who took over as acting president in his capacity as parliamentary speaker, is tipped to win the poll as the candidate of Poland’s governing centrists, but the public mood remains febrile after the unprecedented disaster.
If no candidate wins more than 50 percent of the vote, a runoff vote will be held on July 4.
Prime Minister Donald Tusk’s government must also contend with the turmoil on global financial markets caused by the debt woes of Greece and some other euro zone nations that could put renewed pressure on emerging economies such as Poland.
The zloty, the most heavily traded currency in emerging Europe, is used as a proxy for the region, and so can get sold on bad news from Poland’s neighbours even when its own economy is performing relatively well.
Following are the key political risks facing Poland.
ELECTING A NEW PRESIDENT
The outcome matters. Although most power lies with the prime minister and his cabinet, the president is not just a ceremonial figure. He can veto laws, appoints key officials such as the central bank governor and has a say in foreign policy.
Lech Kaczynski irritated Tusk’s government by blocking pension, health and media reforms.
Komorowski’s main election rival, Kaczynski’s twin brother Jaroslaw, leads the main opposition party, the right-wing, eurosceptic Law and Justice (PiS). He has managed to close the gap in opinion polls, helped by public sympathy for his family.
If elected, Kaczynski would thwart government bills and oppose its efforts to join the euro, just as his brother did. Analysts say he would take a nationalistic stance in foreign affairs that could harm ties with the EU, Germany and Russia.
Although conservative on moral and social issues, Kaczynski and PiS tilt to the left on the economy, favouring more state spending and opposing the government’s privatisation plans.
What to watch:
— Opinion polls. Kaczynski has proven an astute campaigner, toning down his normally aggressive rhetoric in a bid to win centrist voters. But analysts say Kaczynski will struggle to garner enough votes outside his core constituency — older, devoutly Catholic, patriotic-minded Poles — to win. A surprise victory for Kaczynski would be negative for markets as it would likely herald resumed conflict between government and president.
— Low turnout. PiS voters are generally easier to mobilise, so a low turnout could hurt Komorowski. Also, supporters of Tusk’s and Komorowski’s ruling pro-business, pro-euro Civic Platform (PO) are more likely to be taking summer holidays at election time and many will not have a chance to cast absentee ballots. PO is anxious to avoid a repeat of the 2005 election when Lech Kaczynski unexpectedly beat frontrunner Tusk.
— Flooding. Heavy spring rain sparked floods in southern and central Poland that killed 20 people and caused widespread damage. The government has earmarked 2 billion zlotys ($590 million) to help victims, but Kaczynski has accused PO of failing to invest in Poland’s flood defences since it took power in 2007 and the issue could dent support for Komoworski.
ELECTING A NEW PARLIAMENT
Poles are due to elect a new parliament in 2011.
Opinion polls give PO a comfortable lead over PiS, its nearest rival, but the uncertain economic outlook, especially for the euro zone, Poland’s main trade partner, could hit the country’s recovery and also PO’s ratings.
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 would be welcomed by markets as a signal for fresh reforms and for clearing the way to eventual euro adoption.
What to watch:
— If Komorowski becomes president, will the government start delivering on structural reforms such as raising the retirement age and ending pension privileges of farmers and other groups? Until now, it has used the risk of a presidential veto to avoid tackling these issues, but with a compliant president it would no longer have that excuse.
— Will PO’s junior coalition partner, the Peasants’ Party (PSL), quit Tusk’s government early in order to distance itself from unpopular policies? Tensions in the coalition rose recently after Komorowski nominated Marek Belka, an ex-prime minister and International Monetary Fund economist, to head the central bank without consulting PSL. PSL views Belka as too hawkish on rates.
IT’S THE ECONOMY
Poland was the only country in the 27-member EU to avoid recession last year, thanks partly to pre-programmed tax cuts, generous EU infrastructure funds and a sharp fall in the zloty that helped exports.
But the downturn has pushed up the budget deficit to about 7 percent of gross domestic product (GDP), more than twice the EU ceiling, and boosted unemployment. Tusk hopes resumed growth — seen at about 3 percent this year after 1.8 percent in 2009 — will trim the budget gap. The European Commission says Warsaw’s plans to tackle its deficit are too vague and optimistic.
Poland is perceived as relatively immune to possible fallout from the Greek crisis, with public debt levels well below those in most of western Europe. But continued risk aversion among investors would put renewed pressure on the zloty, despite Poland’s impressive performance in the 2008-09 credit crunch.
What to watch:
— Can the government reach its ambitious target of 25 billion zlotys ($8.47 billion) in revenues from privatisations this year? It has raised about a fifth of that sum so far. Markets would welcome success as it would help curb the deficit.
— Assuming the euro zone can overcome its crisis and investors flock back to central Europe’s emerging markets, the zloty is expected to resume its appreciation trend. Will this hamper Poland’s recovery and thus its ability to restore order to the public finances?
EURO HOPES
Joining the euro zone is a strategic objective for Tusk, despite the currency union’s debt woes and poor growth prospects. Poland’s business and political elite believes the benefits of membership still outweigh the costs.
Poland has legal safeguards against allowing public debt to balloon to the kind of proportions seen in Greece, though economists also stress the urgency of structural reforms to ensure Poles reap the full benefits of currency union.
However, Poland’s fiscal challenges and the euro zone’s own travails have pushed membership back at least until 2015. The lack of political consensus in parliament is also an obstacle.
What to watch:
— Would a Komorowski win in the presidential election, along with the recent appointment of the pro-euro Belka as central bank governor, embolden the government to start preparing 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 plane crash in western Russia should serve as a catalyst for an improvement in long-frosty relations.
But Moscow criticised Poland’s decision in May 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.
Poland wants NATO to admit ex-Soviet republics such as Georgia and Ukraine and has also signalled its readiness to take part in U.S. President Barack Obama’s revamped missile defence plans, which Moscow views with deep distrust. Poland also wants the EU to reduce its dependence on Russian gas.
What to watch:
— Will Russia agree to a long-standing Polish request to open all its archives on Katyn, the 1940 massacre of 22,000 Polish army officers and intellectuals by the Soviet NKVD secret police? Will Moscow issue a formal apology for the massacre, which continues to haunt bilateral ties? Lech Kaczynski and his entourage were heading to Katyn for a memorial service marking the 70th anniversary of the event when their plane crashed.
— Can Poland persuade sceptical western Europeans that Ukraine and other ex-Soviet states be allowed, if they choose and they meet the criteria, to join the EU and NATO one day?
