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9th Dec 2023

EU commission warns Poland is not crisis-proof

  • Warsaw skyline: Poland is by far the dominant economy in central and eastern Europe (Photo: metaphox)

The European Commission has warned that skittish foreign investors constitute a "new risk" for the Polish economy.

Writing in a series of reports on the economic situation in the 27 EU countries on Wednesday (30 May), EU officials noted that Poland currently depends on foreign firms for up to 50 percent of its sovereign debt.

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"A smooth roll-over of maturing debt therefore requires continued willingness of foreign investors to keep the share of Polish assets in their portfolios constant," they said.

"While in a normal environment, the level of capital inflows Poland registered in the past few years would not be perceived as harmful, in the current context of high economic uncertainty and volatile capital markets, [this] requires special attention," they added.

Poland is by far the dominant economy in central and eastern Europe and it has all-but beaten the crisis so far.

The commission's report paid tribute to its "remarkable growth performance during and after the financial crisis." It also noted that Polish bank profits last year "reached pre-crisis levels" and that government debt is within EU-prescribed limits at just below 60 percent.

Analysts in the private sector said Polish finance chiefs did a good job in introducing a debt-brake and in the way they managed the zloty exchange rate and with interest rates.

But the steady flow of EU funds and more deep-rooted factors - that Polish people and private firms had relatively few loans in foreign currencies, that Polish producers sell a lot inside Poland as well as to recession-hit neighbours - played a big role.

"They did a pretty good job but they had an easier job to do than in many other countries," a contact at a major Swiss bank told EUobserver.

Meanwhile, the EU report pointed to Poland's ageing population - 40 percent of Poles will live off pensions 30 years from now - as a long term problem.

It also depicted the former Communist country as lagging far behind the rich West some 20 years after Poland regained freedom.

The commission study noted that just 36 percent of Polish roads are in a good state, its railways are "underdeveloped and neglected," it relies on old, dirty and expensive coal-fired plants to make electricity and still stuffs 73 percent of its waste into landfills (the EU average is 40%).

In social terms, many young mothers cannot work because there is inadequate childcare.

Outdated welfare and subsidy schemes encourage too many people to retire early and help keep Poland's vast numbers of small-scale farmers from developing competitive businesses.

And Greeks, the commission noted, are not the only EU citizens keen to fiddle their taxes.

"Tax compliance appears to show scope for improvement, with the shadow economy estimated as accounting for as much as 25 percent of GDP, well above the EU average of 15.2 percent," the report said.

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