Polish Politics

Sunday, March 06, 2011 » posts.tags:

I spent almost a decade in Poland, and live the last two years in Dublin, one of Europe’s financial centres. This allows me almost the viewpoint from an outsider on Poland. Poland is both a cherished example in Europe and an economy that worries its European partners.
Poland was the only European country that did not have recession, and the growth in 2010 is estimated at 3.5% and this year it should be higher (3.7%). Poland can expect to earn well from privatisations and money from the private pension system is diverted to reduce costs for the state, the football games of 2012 will fuel investments and lead to improved infrastructure. And as the icing on the cake, there are of course the European Subsidies. Also the political situation is perceived generally well. The leading party has still a majority of about 10% in all polls, indicating a stable situation around a government that is considered as responsible and not totally populist and reasonable. The improved relations with Germany and Russia were a welcome success for the government and it strengthens their reputation when they take the leadership of the European Presidency later this year.

But also beyond this success story there are many aspects that make this success a rather weak wrapping. The successes in international politics are overshadowed with the problems in Belarus for example. The government seems to be easily distracted in the populist game making big fuss about a public holiday or about semi-legal drugs. Such displays can be successful in the bidding for a certain group of voters but don’t make a good impression in international financiers that are lending money to us (and their appetite for buying the debt sets the interest rate and hence the cost for the country). Indeed where the Tusk government could hide after the veto fever of the previous president it doesn’t seem to be able to get the focus right there where it should be speeding up the needed reforms in public finances, administration and even the labour market.

For example, we all know that our police and farmers are not the big earners, but their privileges such as tax exemptions and early retirement draw attention. It’s just a matter of bad public marketing: increase the salaries for police and withdraw their privileges and we avoid the bad press. I know it’s unfair, but we are still an “ex communist country”, and such privileges are seen as “communist era privileges”. And that is not the label that you want when you want to lend money.

Some reforms such as the pension system where the money of working people is diverted to the state (the OFE of the private pension would only get 2.5% in stead of 7.3%) and the difference goes to the state. Sure, we know it goes actually to ZUS, but their the money will be consumed in stead of invested, and that will create disastrous consequences at the long run. This move makes the outlook on the long run rather grim. This is a move in the wrong direction, but personally I believe that on the short term it can be the worst of two evils.
Indeed the alternative was to present an even bigger public debt (also this is not advantageous for the tax payer), but more importantly Poland is struggling to keep the public debt below the 50% of GDP level. Above that level, Poland would have to face harsh austerity measures. But in international financial circles it tastes bitter to hear that the so necessary reform of the pension system is put a step back only a few weeks after Poland got an agreement to keep the cost of the pension reform out of the definition of public debt even till the end of the reform in 2060.

Besides, the deficit is now 7.9% and that is four times higher since Mr. Tusk took office. Sure, we know that that this can be attributed to the lack of reforms during the boom period under the previous government. Now that the global economy pulls us down, it is a lot more difficult. This is one of the many reasons why the pension reform on the long run should continue and why it is dangerous for taxpayers and pensioners to keep it in the balance of the state

Also the Polish infrastructure, mainly highways and and rail-roads don’t have the best reputations. Announcing delays has to be avoided. The energy production also needs serious plans to get rid of the polluting fossil fuel

Finally, it might be advisable to keep the elections away from the European Presidency, because that is a unique and important opportunity to show Poland to the rest of the world as modern nation that is on a right course to the future