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12th Apr 2024

Poland's economy feels the heat of rule of law talks

Poland is feeling the economic impact of the debate with the European Commission over the rule of law, with 20 percent of investors holding back because of the issue.

“Twenty percent of the potential investors who would have been already investing, are putting a question mark, and … wait for the definitive solution,” Polish deputy prime minister Mateusz Morawiecki told a group of journalists on Thursday (26 May).

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He said the "current discussion around the constitutional court" is having "not a significant, but not an insignificant impact" on the delay, adding that the investors are taking into account other factors, like the stability of the Polish economy and the volatile international situation.

The new Polish government’s efforts to reform the constitutional tribunal and appoint loyalists to the court earlier this year prompted the EU executive to launch a first-ever probe into rule of law in a member state.

The assessment of the commission was expected earlier this week, but after a visit by the commission's vice-president Frans Timmermans to Warsaw on Tuesday, the executive decided to discuss the issue again next week, giving more time to the Polish government to find a solution.

Morawiecki highlighted some of the other factors behind the investors' wariness.

“The overall doom and gloom over Europe and eurozone is much more important for some people in their decision-making,” he said.

He also blamed the Polish opposition for using the commission probe to fend off planned reforms by the current government.

“There is no trouble with the rule of law in Poland whatsoever. I think, speaking about democracy I could mention 10 other countries in the EU which have much bigger issues with democracy or the rule of law than Poland,” he said.

He said contacts were improving between the commission and the Polish government.

Morawiecki also said that Poland remained pro-EU and pro-Europe, but was very sensitive on questions of sovereignty and independence of decisions.

Slowing economy

The deputy prime minister dismissed suggestions that a slower than expected growth of Polish economy in the first quarter of the year was due to the controversial actions of the new government, which was elected by overwhelming majority in the parliament last October.

Even though Poland was the only EU country to avoid recession after the 2008 financial crisis, Poland's economic growth slowed more sharply than expected between January and April, to 3.0 percent in annual terms.

The minister shifted some blame to the previous government's economic policy and to the eurozone. He said the eurozone's continued troubles create uncertainty as 80 percent of Poland’s exports are directed to euro countries.

Morawiecki said Warsaw does not see lack of confidence in Polish bonds by international and domestic investors.

He said that despite the generous budget expenditures planned by the government, such as lowering the pension age, Poland was committed to sticking to EU rules and keeping the deficit below 3 percent.

“Not until we are convinced that the GDP growth is stimulating some additional tax collection, … not until then are we going to increase our expenditures,” he said.

On the issue of helping Polish people who have mortgages in Swiss francs, the deputy prime minister said president Andrzej Duda would come out with “balanced proposals” in the next couple of weeks.

Morawiecki said there are 38-39 billion Swiss francs in the Polish banking system.

Poland presented a draft law in January to burden lenders with the costs of converting Swiss franc mortgages into zlotys, a move that could undermine the health of Poland’s banking sector.

Converting mortgages to zlotys became a political issue after Duda promised the conversion in his campaign before he was elected in May last year, backed by the ruling conservative Law and Justice (PiS) party. Some 500,000 Poles have costly Swiss franc mortgages.

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