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Poland and EU Conflict | Polexit A Warning Of Possible Consequences

The dispute over the rule of law is escalating between Poland and the EU. Economists are already warning of possible consequences - not only for the Polish economy.

Blackmail - this is the word that is currently used in many of the ugly stories that Poland's right-wing PiS government is spreading about the EU. Prime Minister Mateusz Morawiecki said in the European Parliament on Tuesday: "We reject politicians blackmailing Poland." He also criticized the government-affiliated TV channel TVP for the fact that the Brussels Commission was holding back billions of euros from the Corona reconstruction fund.

"If this is to be an attempt at financial blackmail, we will react very flexibly," announced the prime minister. Adam Glapiński recently went even further. The president of the Polish National Bank NBP assured his compatriots: "We can ensure our dynamic economic development very well even without these funds." 

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The background to this is the escalating dispute between Poland and the EU over the rule of law and the primacy of national or European law. In fact, the Commission is relying primarily on money as a means of pressure in the conflict. She has applied to the European Court of Justice (ECJ) for high fines because of the controversial Polish judicial reforms.

Above all, however, she is delaying her approval of the Warsaw corona reconstruction plan. According to this, Poland would actually be entitled to 36 billion euros in direct payments and discounted loans. But as long as the PiS government does not recognize the primacy of European law, no money can flow, argues the commission . After all, the correct use of the funds can only be guaranteed by an independent judiciary.

"We can get loans elsewhere"

Is that blackmail, as Morawiecki says, or is it simply a matter of course? What is certain is that the enforcement force of the pressure from Brussels depends on the financial needs in Warsaw. And that is precisely why the latest statements by the National Bank Chairman Glapiński, who is close to the PiS, received so much attention. 

Because the 71-year-old seemed to put a thick line in the Commission's calculations: "The EU funds are mainly loans. But we can also get them elsewhere." Thanks to an economic miracle that has been going on for two decades, Poland is now so strong that "everyone will give us money," said Glapiński. So one is not dependent on the EU billions at all.

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Most analysts, however, consider Glapiński's statements to be exaggerated - or even a bluff. Nobody doubts the enormous strength of the Polish economy. The gross domestic product (GDP) has tripled since the turn of the millennium. For 2020, the PiS government even planned with a black zero in the budget for the first time since 1989, before the corona pandemic set in.

At the same time, however, Poland needs "huge investments in power grids, in photovoltaics and other renewable energies, in clean air, e-mobility and digitization," said Rafał Banecki, chief economist at ING Bank Śląski. His conclusion: "Without EU support, these investments will be much leaner, or we will have to tighten our belts."

The PiS wants to avoid the latter at all costs. For the popularity of Jarosław Kaczyński's party was largely due to its spending-intensive social policy. After taking over the government in 2015, the PiS introduced child benefit in Poland for the first time, increased the minimum wage, reduced the pension at 67, reduced the tax burden on young people and redirected state investments to remote rural regions.

Now she is planning a sequel with a kind of "New Deal for Poland" - and is probably already looking at the 2023 elections. Above all, taxes and duties for small and medium incomes are to be reduced. However, that costs money. And if the government doesn't want to hurt the economy in return, it has to borrow.

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Missing EU funds would therefore have a double impact. Because there is no getting around future investments in CO2-neutral technologies, in e-mobility, digitization or the partially ailing health system, as Lars Gutheil also emphasizes. "The funds from Brussels are central to many investments that are planned in Poland," the head of the German-Polish Chamber of Commerce and Industry (AHK Polska) told international media. 

Together with partner organizations all over the world, the AHK recently presented a business survey among more than 400 international investors. The result is clear: Poland's membership in the EU is the country's number one location advantage. For about 63 percent of the investors, this increases the attractiveness decisively. Another 30 percent are at least satisfied with it.

The debate about a "Polexit" is particularly damaging

It is not a coincidence. After all, Poland has not only been the largest net recipient of EU funds for years . The changing governments have also succeeded in using the available funds more effectively than in any other member state. "The crucial point, however, is access to the EU internal market, especially in view of the situation in the heart of Europe," says AHK boss Gutheil. "With regard to delivery routes and value chains, Poland plays an outstanding role in the domestic market, not least for Germany."

This was even more evident than before during the corona pandemic. At 58.4 billion euros, Polish exports to the neighboring country to the west exceeded the previous record of 2019 by one percent. This made Poland Germany's fourth largest supplier in the world and even overtook France. It is also because of such values   that it is obvious to economists that the current dispute between Warsaw and Brussels could be detrimental to all concerned in Europe.

In particular, the debate about a possible Polexit , i.e. Poland's exit from the EU, is considered extremely counterproductive even at the current, more theoretical stage - any uncertainty is bad for the economy. AHK boss Gutheil: "In a country that is so centrally located in Europe and so integrated into supply chains, the damage if you leave the domestic market would be so immense, not only for Poland, but for the entire EU that every thought would be lost forbids a Polexit by itself from an economic point of view. "

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It could help that in Warsaw, Prime Minister Morawiecki, a trained economist, former banker and finance minister, rules. However, many observers in Poland consider the head of government, who only joined the PiS in 2016, to be driven by his party. Kaczyński still has the last word there. And he says: "We want to be in the EU. But we also want to remain a sovereign state." So we can still expect contradicting signals from Warsaw. That will hardly provide more security in the markets.

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