beyondbrics

Poland’s parliamentary election was supposed to be a romp for the governing centrist Civic Platform party – touting its success in avoiding recession in 2009 – but recent opinion polls are showing steady growth for the right-wing opposition Law and Justice party, threatening to introduce an element of political risk to assessments of the Polish economy and the Polish currency.

A new opinion poll has Civic Platform, headed by premier Donald Tusk, with 36 per cent support, with Law and Justice (PiS) just behind at 32 per cent. Past surveys have tended to undercount PiS, as its policies have provoked controversy and some voters are hesitant about voicing their intention to vote for it.

Jaroslaw Kaczynski (pictured) – PiS’s leader, a former prime minister and twin brother of the Polish president killed in last year’s air crash – is already saying that his party’s internal polling has it ahead of Civic Platform.

PiS’s tumultuous two years in power from 2005-2007 were marked by populist economic policies and by bitter fights with Brussels, Berlin and Moscow that left Poland marginalised in the EU. Recent comments by Kaczynski that Poland was a Russo-German “condominium” inspire little hope that he has changed his views.

For now, PiS’s progress is having little impact on currency and stock markets, which were solidly up on Tuesday. The zloty advanced by more than 1 per cent against the dollar and by slightly less against the euro, while the Warsaw Stock Exchange’s WiG20 blue chip index closed up by 4.16 per cent.

But investors might want to pay closer attention to the situation in Poland, as it could have an impact on whether the government that comes to power after the October 9 vote is able to continue with the present policy of fiscal tightening.

“My impression is that investors are completely discounting political risk,” says Piotr Kalisz, an analyst for Citi Handlowy in Warsaw. “They are completely focussed on the situation in western Europe. During the previous elections four years ago, we had a lot of questions from investors about the political situation. Now, I can count those questions on the fingers of one hand. It’s probably not sensible, but it is understandable.”

Investors would most like to see a majority government formed by Civic Platform, or else a continuation of the current coalition with the smaller Polish People’s Party, whose base is in the rural parts of the country.

But if the margin between the two leading parties is very small, Civic Platform would probably try to cobble together a coalition of all parties except PiS – Kaczynski so terrified the smaller parties when he was prime minister that they would be unlikely to risk forming a government with him.

However, an unwieldy coalition could have trouble doing the difficult work of continuing to reduce the government’s budget deficit to less than 3 per cent of GDP, while steadily lowering public debt.

“The worst would be the creation of a government unable to undertake reforms,” says Kalisz.

Related reading:
Legacy of air crash still casts pall in run-up to elections, FT
Poland: the lessons of history, beyondbrics
Charm, luck and tactical sense likely to propel Donald Tusk to another term, FT