Political in-fighting in Poland could slow down preparations to join EU

Poland's squabbling coalition partners have given each other two weeks to resolve a crisis that threatens to bring down prime…

Poland's squabbling coalition partners have given each other two weeks to resolve a crisis that threatens to bring down prime minister Jerzy Buzek's centre-right government and slow down Warsaw's preparations to join the European Union. Mr Buzek this week refused to accept the resignations of ministers from the liberal Freedom Party, led by the Finance Minister, Mr Leszec Balcerowicz.

Mr Balcerowicz, who was responsible for the "shock therapy" administered to Poland's economy in the early 1990s, complains that the prime minister's Solidarity bloc - a group of small parties stretching from trade unionists to religious right-wingers - lacks the political will to push through the reforms needed in advance of EU entry.

But the governor of Poland's central bank, Ms Hanna Gronkiewicz-Waltz, said this week that it did not matter who formed the government, as long as it agreed a tight budget next year.

"We have to approach this calmly, because it is hard to say when and how this difficult political situation will end. I don't think this will affect the country's economy until we know how next year's budget will be constructed," she said.

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All Poland's mainstream political parties - including the ex-communist Social Democrats, who are expected to win next year's general election - want their country to join the EU as soon as possible. And despite the euro's recent difficulties Poland is determined to be a full member of Economic and Monetary Union.

During his visit to Warsaw last week, the Taoiseach, Mr Ahern, declined to endorse Poland's target date for EU entry of January 1st, 2003. Although few are prepared to say so publicly, most EU leaders believe 2005 is the earliest date possible for Polish entry.

Between now and then, Poland will have to adopt all EU laws and institute a painful reform of its agricultural industry that could drive more than one million people off the land. It will also have to bring its booming economy more closely into line with the euro zone and bring down inflation from its present level above 8 per cent.

The Organisation for Economic Co-operation and Development (OECD) predicted yesterday that Poland's economy would slow down safely in the second half of this year and avoid the overheating many economists have been predicting.

"The Polish economy should gradually settle into a slower but more sustainable pace of economic expansion, with GDP growth average close to 5 per cent this year and next," the organisation said in its latest, six-monthly report.

A surge in domestic demand last year drove up inflation and widened Poland's current account deficit, which is expected to grow to 8 per cent this year from 7.6 per cent in 1999.

Ms Gronkiewicz-Waltz has attempted to reduce the current account deficit by allowing the Polish currency, the zloty, to depreciate on foreign exchange markets. But a decision last month to allow the currency to float has seen it descend into free fall, putting the central bank under pressure to prop it up.

The most obvious instrument at Ms Gronkiewicz-Waltz's disposal is the interest rate, but with short-term lending rates already above 17 per cent, her room for manoeuvre is limited.

Before he flounced out of the government this week, Mr Balcerowicz proposed lowering the fiscal deficit to 1.5 per cent in 2001 from the 2.7 per cent planned for this year. The finance ministry say it is still working on the belt-tightening budget plan, despite the political turmoil.

Some Solidarity members have offered to replace the unpopular Mr Buzek with Mr Boguslaw Grabowski, a hard-line monetarist who has criticised the government for not tightening fiscal policy enough to allow for lower interest rates.

Although such a change would be welcomed by the Freedom Union, nervous Solidarity deputies may think twice before agreeing to a faster pace of reform. The party faces almost certain humiliation at October's presidential election when the ex-communist incumbent, Mr Alek sander Kwasniewski is expected to sweep back to power.

Denis Staunton

Denis Staunton

Denis Staunton is China Correspondent of The Irish Times