COMMENT: Market-friendly election result in Poland

By bne IntelliNews October 10, 2011

Timothy Ash of RBS -

Exit polls in Poland suggest that the ruling centre-right Civic Platform (PO) party of prime minister Donald Tusk is likely to have won a second term in office with only a slightly reduced share of the vote compared to the last elections in 2007.

The polls give PO 39.6% of the vote, down from 41.5% in 2007. The right-wing Justice and Law (PiS) party came second with 30.1%, down fro 32.1% in 2007. Three other parties appear to have crossed the 5% threshold required to secure parliamentary representation, with the PO's current coalition partner, the Polish Peasants Party (PSL) securing 8.2% of the vote, down from 8.9% in 2007. A new entrant on to the Polish political scene, the right-of-centre liberal Palikot Movement (RP) secured an impressive 10.1%, to come third, while the former communist Social Democrats (SLD) came a distant fifth with just 7.7% of the vote, down from 13.2% in 2007.

In terms of seat allocations in the Sejm, exit polls suggest the PO will have 212 (plus 3), which combined with PSL (27, minus 4) will give the current ruling coalition a solid working majority. PiS will likely secure around 158 seats (minus 8), RP 39, and the SLD 23 (minus 30).

The vote will be regarded as a vote of confidence in the "steady as it goes" policies of the PO, and in some ways is reward for the fact that the Tusk government has steered the Polish economy relatively successfully through a difficult global environment since 2007. Of particular note, the Polish economy avoided falling into recession in 2009 - the only member of the EU27 to record positive growth in that year, while growth/recovery since has been solid, at 3.5-4.0% over 2010-11.

New partners

The emergence of the right-of-centre liberal Palikot Movement (RP) as a new political force in Poland seems to have increased PO's options for coalition building, and should help cement political stability more broadly. RP was a splinter from the PO itself and there are still strong synergies with the "mother" party. Already the leader of RP, Janusz Palikot, has offered to work with PO in government. This offers the chance of a more radical centre-right (market friendly) policy programme, than perhaps the existing coalition with the PSL, which because of the latter party's more narrow power base in rural areas had to some extent stifled a more radical reform effort which some (including ourselves) would argue it still in urgent need in Poland. The PO has thus far signalled that it wants to maintain the coalition with PSL, but it will be interesting if the party, on reflection of the new parliamentary maths, looks to revise/extend the coalition.

The vote represents another crushing defeat for PiS, its leader Jaroslaw Kaczynski, and the aggressive nationalistic policies pushed by the party - including virulent anti-German rhetoric over the past week. The vote also marks the further decline of the SLD and the centre-left more generally in Poland, with the SLD seeing its representation in parliament more than half. It is indeed quite remarkable that centre-right and right wing parties took such a high share of the overall vote in Poland, leaving a very small "rump" for the centre-left.

Opinion polls over the past few weeks had indicated a much closer contest between PO and PiS and even suggested the risk of a hung parliament. The decisive victory by PO and the increased coalition options it now has will be well taken by markets. In many respects PO has disappointed on the reform front during its first term in office, with for example key privatisations and more far reaching structural reform (eg. public finances, pensions) stalled. Poland has had a "good" crisis in terms of the durability of growth, but a broader regional question remains as to what are to be the new drivers for growth over the next decade given that previous drivers for growth (credit, FDI and real estate/construction) are lacking while core European growth/recovery looks set to disappoint. There is no room for complacency from the new Polish government and Poland needs to focus on remaining competitive and flexible, not just within the regional but globally and especially against Asia. Net-net though the result is a clear market positive.

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