Polish President Karol Nawrocki said on March 13 that he will not sign a law setting out the rules for how Poland would spend money borrowed under the European Union’s Security Action for Europe (SAFE) mechanism.

Poland is the largest beneficiary of SAFE and could receive €43.7bn, or nearly PLN200bn. The government has said that close to 90% of the funds would go to Polish arms companies, supporting employment and potentially boosting economic growth.

The vetoed legislation would have created a management vehicle at the state development bank BGK, allowing the government to handle funds from the EU programme. The government led by pro-EU Prime Minister Donald Tusk had planned to use SAFE funds for a range of projects, including some not directly linked to the military, such as upgrading the police force or building infrastructure.

Nawrocki, who has repeatedly criticised SAFE, complicated those plans even though Poland’s allocation under the scheme remains available.

Strings attached
Nawrocki said the borrowing plan, devised by the EU to use its size to secure favourable market borrowing terms, carries too many risks.

The president claimed the SAFE programme would require excessive borrowing — with repayment envisaged by 2070 — and includes political conditions imposed by the European Commission that, Nawrocki said, could allow funding to be halted if a less pro-EU government takes power in Poland.

Poland is due to hold a general election in 2027 in which the Law and Justice (PiS) party, which nominated Nawrocki for president last year, could return to power, although opinion polls suggest that this would likely require a coalition with far-right parties.

According to Nawrocki, SAFE would also benefit foreign arms manufacturers more than Polish companies. The president said these factors make SAFE a threat to Poland’s sovereignty and security because the scheme would effectively hand control over military modernisation plans to external actors.

“I will never sign a law that strikes at our sovereignty, independence, economic security and military security,” Nawrocki said in a televised address.

Go for gold
Nawrocki proposed an alternative to SAFE earlier this month that he wants the government to adopt. The proposal envisages establishing a Polish Defence Investment Fund within BGK, with the National Bank of Poland directing the estimated valuation gain on its gold holdings after conversion at current prices.

“We have accumulated an unrealised gain, an additional value on gold of 197 billion PLN — it occurred to me that this should be used to support defence, to speedily build armed forces,” Glapiński said earlier this week.

Glapiński also said the central bank could recognise unrealised gains on gold as profit without reducing the overall level of foreign reserves, arguing that such a step would only change the composition of the reserves.

The NBP's gold holdings rose to 570 tonnes at the end of February from 550 tonnes at the end of last year. The central bank’s foreign exchange reserves are currently worth PLN1,094bn, of which gold accounts for PLN340bn. The bank also aims to increase its gold holdings to 700 tonnes.

Treason?
The Tusk government appeared to anticipate the veto and responded quickly, calling the president’s decision “treason.” Government officials appeared in the media last night listing companies and public services that could lose hundreds of millions in financing.

The veto also appeared to run counter to the views of the military, as senior generals had spoken in favour of the mechanism before Nawrocki’s announcement. Some media reported that Nawrocki met top military commanders earlier this week to inform them of the decision, although the president’s office denied those reports.

The government says it has a “plan B” in case of a veto. Prime Minister Donald Tusk called an extraordinary cabinet meeting to present details on March 13.