bne -

In a rather surprising announcement, Donald Tusk said Thursday, January 28 that contrary to expectations, he wouldn't try to unseat his bitter rival President Lech Kaczynski in this autumn's elections, but would stay on as prime minister to push through the new public finance consolidation plan, which will enable Poland to meet the criteria to join the euro from 2012.

His decision, he told reporters, was based on a commitment to see Poland take the necessary steps to reduce its growing budget deficit and public debt as it emerges in relatively rude health from the global economic crisis. Poland was the only EU country not to enter recession, instead expanding by 1.5% in 2009.

"I have made this decision, as I need effectiveness and strength to carry out ambitious plans for Poland and not to make my home in the Presidential Palace, even though we all hold in high esteem the prestige of this office," Tusk said at a press conference held in the Warsaw Stock Exchange. "I do not want to participate in a race whose end is marked by the Palace and splendour."

The Polish presidency is indeed largely ceremonial, with few powers outside of a presidential veto. But the government blames Kaczynski for using this veto to hold up its legislative agenda and knows it will be crucial in the big battle between the two old foes: the decision on when to join the euro.

On Friday, January 29, Tusk unveiled his government's public finance consolidation plan and said Poland would meet the Maastricht criteria for joining the euro from 2012. According to newswires, the plan to bring the public finance sector deficit back down to 3% of GDP from the 7.2% in 2009, thus meeting the fiscal convergence criterion, includes:

- a cap on discretionary spending growth at 1% in real terms;

- the possible introduction of "an element lowering public spending/GDP ratio to below 40%;"

- force select public finance units to keep their liquidity deposits at the Finance Ministry and not in banks; currently up to PLN20bn is in bank accounts;

- members of uniformed services who start service in 2012 and beyond would be covered by universal pension system; visible effects are expected beyond 2020;

- the unification of disability payment standards from social insurance fund FUS - savings rise from PLN41m in 2011 to PLN1.6bn in 2020.

- the gradual levelling of retirement age of men and women;

- introducing cash registers for doctors and lawyers;

- Poland will temporarily cut transfers from privatization receipts to reprivatization and company restructuring funds, which will cut public debt by PLN3.8bn in 2010 and PLN0.9bn in 2011.

Finance Minister Jacek Rostowski said that the government wouldn't give a euro adoption target date right now, but the possible euro adoption dates "could be inferred" from the 2012 date to have the public finance sector deficit cut to 3% of GDP. Kaczynski, who dislikes the euro and is generally sceptical about the EU, will undoubtedly have something to say about that.