Books on Poland
% of GDP
Update No: 108 - (30/05/06)
Populists joining coalition in Poland
The governing party in Poland on May 5th announced a coalition agreement with a
small populist party that would bring one of the country's leading anti-European
Union activists into the government as deputy prime minister. The largest
parliamentary party, Law and Justice, made the agreement with a group called
Self-Defence, whose charismatic and, many say, demagogic, leader, Andrzej Lepper,
has been charged with several criminal offences, including assault, blocking
roads and dumping grain on railroad tracks in the course of robust
Many people in Poland figured that the party was making a last-ditch effort to
construct a governing majority, but the move risks a strong backlash, too. Hours
after the agreement was announced, the foreign minister, Stefan Meller, said he
was resigning; he had earlier expressed an unwillingness to serve with Lepper in
the government. This is a resignation that, as we shall see, could have
The agreement, the product of weeks of intense negotiations, still does not give
the two parties a majority in Parliament. Government spokesmen said that a new
government would not be announced immediately, presumably after the coalition
has persuaded a group of independent legislators to give their support.
The agreement was the latest effort of Law and Justice to form a working
governing majority since close elections late last year made it the biggest
party in Parliament. Initially, the expectation in Poland was that Law and
Justice would form a coalition with the second- biggest party in Poland, the
pro-business Civic Platform. But ideological differences and personality clashes
made that impossible.
Law and Justice, which has promised a moral overhaul of what it portrays as a
political system still deeply influenced by Poland's long Communist past,
instead entered into a "stability pact" with Poland's two leading
populist parties. That arrangement soon proved unworkable, in part because the
leaders of the smaller parties demanded ministerial portfolios in exchange for
their support of the coalition.
In the new agreement, Law and Justice has agreed to give Self-Defence three
ministerial portfolios, with Lepper becoming both deputy prime minister and
minister of agriculture.
The cover of a widely read Polish magazine, Ozon, shows a picture of Lepper
partly obscured by the Polish eagle and the caption, "Enough. Lepper in the
Government Is a Shame."
Lepper, a pig farmer during Communist times, has built his political career
largely on the dissatisfactions of small farmers and others who have suffered
from Poland's conversion to a market economy. He vigorously opposed Poland's
entry into the European Union and has characterized the privatisation of
Poland's state-owned industries as a corrupt process by which large segments of
Poland's economy have been sold to foreigners for "peanuts."
Lepper was ordered by a Polish court to apologize to the newspaper Gazeta
Wyborcza for falsely accusing it, in a book Lepper published a couple of years
ago, of tax evasion.
Lepper has also campaigned to have Leszek Balcerowicz, the economics professor
who is credited by most outside experts for having guided Poland to a free
economy, fired from his job as chairman of the National Bank of Poland. "He
has to account for the damage he has done to Poland by his reforms and
action," Lepper said in an interview with the magazine Poland Monthly.
The prospect that Lepper would take ranking jobs in the government is "like
making someone a cardinal who already has five illegitimate children," a
former foreign minister, Andrzej Olechowski, was quoted as saying in the
English-language Warsaw Voice.
But Law and Justice officials have defended the agreement with Self-Defence on
the grounds that participation in government will induce the party to moderate
"We are fully aware of the reputation of Lepper in Poland and abroad,"
Konrad Ciesiolkiewicz, the government spokesman, said in an interview. "But
at the same time, we know the experience different countries have had with
populist parties that entered governments, and the experience shows that when a
populist party entered the government, it usually changed its positions
Foreign policy the territory for Polish leaders' battles
Poland's conservative president, Lech Kaczynski, a visceral right-winger and
anti-European, exploited the opportunity offered by the resignation of Meller to
open a battle to wrest control of foreign policy from his prime minister. On May
10th he appointed one of his closest advisers as foreign minister, a move that
could have far-reaching consequences for the country's ambitions in the European
In naming Anna Fotyga, who belongs to the president's inner circle, but has no
diplomatic experience, Kaczynski is hoping to wrest influence from Prime
Minister Kazimierz Marcinkiewicz, who has struggled to maintain a pro- European
policy. "We can now expect a struggle between Kaczynski and Marcinkiewicz
over the future shape of foreign policy," said Sebastien Plociennik, an
expert on Polish-German relations at Wroclaw University, in southern Poland.
"Marcinkiewicz wants continuity in foreign policy, but Kaczynski wants to
use foreign policy to improve his image at home just at a time when Poland
should be working hard to mend its relations with the EU," Plociennik said.
Kaczynski's popularity has plunged in recent weeks as he pursues increasingly
nationalist policies after bringing two far-right parties into his fragile
coalition in order to stay in power. The further right you go in Poland , the
further right you become.
Marcinkiewicz, the conservative but less stridently nationalist prime minister,
has started a big push to mend relations with Berlin, which have been sorely
strained by the growing anti- German and anti-European Union rhetoric of some
members of his coalition.
German officials were shocked by remarks in April by Poland's defence minister,
Radek Sikorski, who compared the North Sea Gas Pipeline - a joint German-Russian
project that will allow Russia to deliver gas directly to Western Europe - to
the 1939 Hitler- Stalin pact in which both countries carved out spheres of
influence in Eastern Europe.
"I am very angry and very disappointed over those comments," Ruprecht
Polenz, chairman of the influential foreign affairs committee of the Bundestag,
the German Parliament, said in an interview on May 10th. He well might be. It is
an absurd comparison. The 1939 pact carved up and re-allocated countries. The
2006 deal is about gas supply.
In an effort to soothe ruffled ties, Marcinkiewicz, whose government, following
a recent reshuffle, now includes the Self-Defence Party, a Euroskeptic group,
led by Andrzej Lepper and the Catholic nationalist League of Polish families led
by Roman Giertych, held talks with Chancellor Angela Merkel in Berlin. In a
major foreign policy speech there, Marcinkiewicz set out what Poland seeks from
the EU in the coming years.
Apart from a common energy policy to weaken Europe's dependence on Russia,
Marcinkiewicz said he endorsed EU membership for Poland's eastern neighbours,
Ukraine and Belarus. "The enlargement of the EU would demonstrate to other
countries that we are not an exclusive club," Marcinkiewicz said. "We
say, 'Thank you that we were allowed to join the EU,' but at the same time, we
say please, 'We are asking for more. We should open the EU further.'"
But German politicians and analysts said that Poland's governing Law and Justice
Party, which has been in power since winning the presidential and parliamentary
elections last October, has so far been focused entirely on promoting Poland's
own interests within the EU.
"This Polish government has taken no new initiatives since taking
power," said Kai-Olaf Lang, East European expert at the German Institute
for International and Security Affairs in Berlin. "It has made a lot of
mistakes with regard to its relations with Germany and the EU despite the fact
that Chancellor Merkel helped Poland during last December's EU budget
negotiations. The next few months could be very rocky with regard to Poland's
relations with both Germany and the EU," Lang added.
Since October, Poland has challenged the EU's competition rules by trying to
stop one of its largest banks from being taken over by an Italian bank. It has
shown little interest in approving the EU's constitution even though Poland
gained considerably from it by winning substantial voting rights.
EU diplomats said Poland risked even more controversy because of the attitudes
of the League of Polish Families, which was given control of the Education
Ministry. The League has a made clear that it wants to ban rallies for gay
rights. League politicians also have frequently criticized foreigners.
If these nationalist trends continued, German officials said Poland would have
little chance of winning support inside the EU for its Eastern policy.
"Poland risks being isolated," said Polenz, a leading member of
Merkel's Christian Democratic Union party. "This is neither in Poland's
interests nor ours. When it comes to Warsaw wanting Ukraine and Belarus to join
the EU, Poland will need the support of Germany and other EU countries."
Poland attracts foreign investors
There is no doubt for all that that Poland has become a prime attraction for
foreign investors. Accumulative FDI is well above US$50bn, the highest in the
former communist world.
Its appeal stems from the economic situation of the country, situated as it is
in the heart of Central Europe, rather than from any special incentives for
foreign capital, says a representative of the American Chamber of Commerce in
Poland Roman Rewald.
According to an international consulting company A.T.Kearney, Poland ranks fifth
in the world ranking of states attracting world investors, a very high ranking
The country has become even more attractive after becoming an EU member,
considers Roman Rewald, but to assure more investments Poland's promotion abroad
has to be intensified as should be incentives for foreign investors in Poland.
The government expects that foreign investments in Poland will exceed US$10 bn
According to Poland's National Bank last year's figures amounted to US$7.7bn.
Here is a highly idiosyncratic view of affairs by the famous previous president
of Poland, whose earlier career is well-known, Lech Walesa:-
Nobel winner supports 9/11 response by US, Lech Walesa also blames European
countries for problems with Iraq
By Mary Clarkin, The Hutchinson News
"Total chaos" would be rocking the world if the United States had not
reacted to the Sept. 11 terrorist attacks, former Polish leader Lech Walesa told
a Hutchinson audience on Easter Friday.
Without a counterattack on Afghanistan, the terrorists would have assaulted
Moscow, burning the unprepared city "completely," in Walesa's view.
Perhaps London would have been the third target, he said. The US "should
take the glory" for responding to terrorism, Walesa said.
He faulted European countries for not uniting to analyse their role and deciding
whether to favour or oppose action in Iraq. Europe should take the greatest
blame for problems experienced in Iraq, he said.
Walesa, 62, organized shipyard workers in Communist Poland, illegally climbing
over the wall to the Lenin Shipyard to lead a strike. Punished by jail and
blacklisting, the leader of the Solidarity union movement did not retreat. In
1982, Time Magazine put him on its cover, under the headline: "Shaking up
Communism." He won the Nobel Peace Prize in 1983, and in 1990 became
president of Poland. He lost two subsequent presidential bids.
Walesa, communicating through a translator, said the anti-communist workers in
Poland didn't possess money or missiles to fight an oppressive regime in the
1970s and 1980s. But they had faith and values - and a fellow Pole in the
Walesa gave the late Pope John Paul II 50 per cent of the credit for the
collapse of the Berlin Wall and communism. "Want to remain on good terms
with the one up there," Walesa quipped in a reference to heaven, after
giving the pontiff credit.
But Walesa also named Solidarity and himself, as well as former US Presidents
Ronald Reagan and George H.W. Bush, for playing a role, too, in the
"greatest victory" - dismantling a system that had killed more than
200 million people.
Walesa really became controversial in taking against Gorbachev.
"Then-Soviet Union President Mikhail Gorbachev was sitting in the driver's
seat, and the vehicle - communism - was nearly at the top of the hill,"
"But he did not realize that the Poles had unscrewed the engine,"
Walesa said. The only thing Gorbachev could do was to let the vehicle slide
backward - and he's "good at that," Walesa said. "He was forced
to behave in the positive way that he did," Walesa said.
Gorbachev later picked up a Nobel Peace Prize also, but Walesa called him a hero
Walesa confessed he could not understand why Communist Cuba bites the nose off
the US, but the US does nothing to get rid of it. He speculated the strategy was
to keep Cuba as the Jurassic Park of communism.
With the Cold War thawed, Walesa said the United Nations should be restructured.
Ryanair chief urges Poland to expand, improve airports
Head of Ireland's Ryanair budget airline, Michael O'Leary, recently urged the
Polish government to improve the country's airport infrastructure in a bid to
spur further growth in the European Union newcomer's booming budget air travel
sector, Deutsche Presse-Agentur (dpa) reported.
O'Leary urged Poland to do away with its inflexible centralised national airport
authority, bring an end to centrally established airport fees and break the
monopoly on airport fuel deliveries. A second airport for the capital Warsaw was
also essential, he said. Ryanair is one of five budget airlines competing on the
Polish market. Eased labour restrictions in Ireland and Great Britain for EU
newcomer Poles have led to an increase in the demand for budget flights from
passengers travelling to work. Budget airlines served some 3.23 million
passengers in Poland in 2005, accounting for a 31 per cent share of all domestic
air passenger traffic for the year and a whopping 18 per cent rise from 2004.
Other budget airlines operating in Poland include Centralwings, the budget wing
of Poland's LOT national flagship airline, Hungary's Wizz Air, Slovakia's Sky
Europe and Britain's EasyJet. Statistics show Poland underwent a 30 per cent
boom in passenger traffic through airports in 2005 over the previous year. The
growth was the most rapid in Europe.
Eastern German airports up share in Polish market
Air travellers in western Poland are increasingly using airports in Germany as
the starting point for their journeys, Deutsche Presse-Agentur (dpa) reports.
That trend has made the border between the two countries less of a barrier than
One of the reasons for this development is Germany's better road infrastructure.
"I can reach Berlin in three hours and go on holiday from Schoenefeld
airport," says Alicja Visnievska from Poznan. "It would take just as
long to go to Warsaw and the trip would have been more expensive." Added to
that are the shorter waiting times for people crossing the frontier into Germany
since Poland joined the European Union in May 2004.
Visnievska is not alone in deciding to choose a German rather than Polish
airport. One million Polish passengers used Schoenefeld airport just outside
Berlin last year, according to a recent report in the Polish newspaper Gazeta
Vyborcza. That figure could more than double by 2011 to 2.5 million Poles opting
to fly from Berlin.
The Berlin airport authorities are trying to encourage that trend and have begun
advertising their services in Polish cities such as Posen and Szeczecin. It is
already quite common for Polish travel agencies to offer their customers package
tours that begin in a German airport. Stanislav Mirovski, an engineer from
Warsaw, says he is quite prepared to take himself and his family to Berlin if
that means they can save money over a flight from the Polish capital. "A
difference of a couple of hundred zlotys means the four of us can treat
ourselves to a little bit more during our vacation," says Mirovski. Dresden
and Leipzig airports in Germany have also recently begun advertising themselves
in the Polish region of Lower Silesia.
Dresden is 300 kilometres from the Polish city of Wroclaw, which is closer than
Warsaw. The poor state of Poland's road network also means the trip to Dresden
Parking fees at the German airports are also considerably less than those in
Warsaw. The good bus service between Wroclaw and Dresden is another incentive to
fly from the German city.
Budget airline operators have complained about high airport charges in Warsaw
and the airport authority's inflexibility. Many of those discount airlines are
choosing to fly from regional airports in Poland instead. Teresa Vavdycz of the
Polish tour operator TSS Polska says the inflated charges at Warsaw airport are
affecting package tour deals.
The airports in Berlin, Dresden and Leipzig are 15 per cent cheaper than in
Warsaw, said Vavdycz in a newspaper interview. However, Poland's airport
authorities have decided to fight back. "We will not just idly stand by and
watch them take our passengers," says Artur Burak, spokesman for the Polish
airport authorities. "If the Polish national airline, LOT, tells us it is
losing passengers, then we will take the necessary steps," he added.
Poland, Unicredit bankers seal deal ending bank fusion row
European Union newcomer Poland and Italy's banking giant UniCredit recently
finalised an agreement ending a hotly-contested row over the fusion of two
Polish banks which are both majority-owned by UniCredit, Deutsche Presse-Agentur
"We're extremely happy to have made this agreement and we hope it will
serve our banking sector," Polish Treasury Minister, Wojciech Jasinski,
said. According to the negotiated deal, UniCredit will fuse 280 branches of the
BPH bank with its majority-owned Pekao, Poland's largest bank. But in line with
the Polish government's wishes, UniCredit will sell off 200 remaining
independent BPH units to another investor in order for the bank to remain a
player in the Polish banking sector. "Realising the concept and
implications of this agreement we are committed to do so in the interest of all
our customers, employees, the community and our shareholders," UniCredit
Official Andrea Moneta commented at the signing ceremony in Warsaw. He added the
Italian bankers believed in the great potential of Poland's developing financial
market. Right-wing Law and Justice (PiS) Prime Minister, Kazimierz Marcinkiewicz,
and UniCredit head, Alessandro Profumo, initialled a draft agreement on April
5th following intense negotiations. Poland had attempted to block UniCredit
plans to fuse the two banks to create Poland's largest banking group, arguing
the Italians agreed not to purchase Pekao competitors such as BPH in a 1999
privatisation agreement. The anti-monopoly clause was inserted into the Pekao
privatisation agreement to safeguard competition crucial to the healthy
development of Poland's young and rapidly growing banking sector. Poland's
attempt to block UniCredit's fusion plans for Pekao and BPH became one of the
25-member European Union's most hotly contested controversies earlier this year.
UniCredit acquired a majority sake in BPH via its purchase last year of German
banking giant HVB. The European Commission and European business media slammed
Poland's moves to block the fusion as being the kind of economic nationalism
irreconcilably at odds with the bloc's common market. The Commission even began
disciplinary action against Poland for allegedly attempting to violate
regulations on freedom of capital flows within the bloc.
Country rating outlook revised downwards
Standard & Poor's (S&P) said in a press release on April 24th, citing
political uncertainty and weaker prospects for fiscal reform, that Poland
suffered a downward revision of its long-term rating outlook to
"stable" from "positive." The agency wrote in a press
release that S&P's rating services revised its outlook on Poland: "At
the same time, the BBB+ long-term foreign currency, A- long-term local currency
and A-2 short-term sovereign credit ratings on Poland were affirmed."
Poland's uncertain politics and deteriorating reform outlook, with the governing
conservatives near certain to invite three small populist parties to join the
government coalition, stood behind the rating action, S&P wrote, New Europe
"The outlook revision reflects ongoing political uncertainty, unclear
prospects for structural reform and fiscal consolidation, and a deteriorating
perspective for Eurozone accession," S&P Analyst Kai Stukenbrock is
quoted as saying in the release. "Fiscal deficits are forecast to remain
high and debt levels to continue rising." Even though economic fundamentals
remain strong, with economic growth accelerating amid still-low inflation,
politics mar the picture, making any fiscal improvements unlikely, S&P
"Growing demand from the EU, as well as a sustained recovery in domestic
demand, should support average gross domestic product growth of around 4.3
percent per year in 2006-2009," the release says.
"At the same time, inflationary pressures should remain low, helped by the
strong zloty, with inflation rising to reach the central bank's target midpoint
of 2.5 percent only in 2008." But politics make it unlikely that conditions
for a rating upgrade will appear any time soon, S&P wrote.
"The Law and Justice party (PiS) won the (September 2005) election on a
populist agenda," S&P wrote. "It has since formed a minority
government relying on the support of populist fringe parties. The PiS' dirigiste
roots and its dependence on fringe parties advocating increased social and
agricultural transfers are inauspicious for market-oriented structural reforms
and budgetary consolidation."
Poland's budget deficits are likely to remain higher than four percent until at
least 2009 and, with the ruling parties showing little enthusiasm for the
adoption of the Euro, a key consideration in view of fiscal consolidation, the
country is unlikely to enter the Eurozone before 2012.
"Poland's good macroeconomic prospects on the one hand are offset by the
unclear prospects for further necessary structural reforms and fiscal
consolidation on the other hand," Stukenbrock is quoted as saying in the
release. "The outlook could be revised back to positive if the government
presented a clear, credible, and sustainable agenda for driving down fiscal
deficits and stabilising the upward trend in the debt ratio."
Shell, Sharp, Orion plan Polish investments
The Polish government signed two agreements with foreign investors saying Sharp
and Orion Electric as well as Shell will invest 828 million zloty and create
5,400 jobs. Sharp is planning on building a LCD modules factory in the Lysomice
Special Economic Zone near Torun. President of Sharp, Katsuhiko Machida, said:
"We are initially going to invest 44 million Euro and 150 million Euro in
the long term." Global fuel giant Royal Dutch Shell plans to invest 27
million zloty in a new financial accounting centre in Zabierzow, near Krakow in
southern Poland, according to an agreement signed between the company and
Poland's Economy Ministry, Deutsche Presse-Agentur (dpa) reported.
The centre, to service the company's European branches, is expected to create
some 800 jobs. The Polish government has sweetened the deal with investment
incentives including a corporate tax break. Shell joins more than 30
multinational corporations, which have set up so-called "back-office"
accounting and business processing service centres in European Union newcomer
Poland. Citing good availability of qualified low-wage personnel, major players
which have set up European bean-counting operations include cosmetics firm Avon,
bankers Citi Group, car-maker Fiat, computing giant IBM and Germany's Lufthansa
airline, among others. To facilitate the investments, the government will amend
the law on Special Economic Zones and draft a law on the Polish Trade and
Investment Agency, reports said. Prime Minister Marcinkiewicz reportedly
declared that the proposed changes would also help other prospective investors.
Poland draws US$7.7bn in FDI in 2005
Poland, the largest of 10 European Union newcomers, drew some US$7.7 billion in
foreign direct investment (FDI) in 2005, Deutsche Presse-Agentur (dpa) reported.
The figure is down slightly from 2004, when Poland joined the EU in May drawing
US$7.8 billion in FDI, according to the Rzeczpospolita daily. Both sums are,
however considerably lower than the record US$10.6 billion of FDI influx in
2000. Poland attracted a whopping US$84.47 billion in FDI between 1993-2004,
according to official statistics compiled by the Polish Information and Foreign
Investment Agency (PAIiZ). The 2005 unofficial total compiled by Rzeczpospolita
would bring the total to 92.2 billion. Medium-sized companies worth US$10-50
million invested over US$1.5 billion of the 2005 total, Rzeczpospolita said. It
pointed to a trend among companies, especially from neighbouring Germany, to set
up manufacturing in Poland to take advantage of lower labour costs.
LG Philips LCD took the spot of top spender for 2005 with a US$530 million
investment in a LCD flat-screen TV plant near the south-western city of Wroclaw.
Located very near the German border, the plant will provide work for 10,000
employees. Experts note that thick bureaucratic red tape is more likely to scare
off investors than Poland's endemic political turmoil. "We do have these
problems: constantly shifting regulations and lack of uniform interpretations,
high non-wage labour costs and out-of-date administrative procedures," KPMG
Consultant Miroslaw Proppe pointed out. He urged reforms aimed at streamlining.
Tomasz Kalinowski with the Institute for Research on Market Economy pointed out
that low labour costs, Poland's main comparative advantage thus far, are quickly
increasing to EU levels.