European leaders are watching Poland closely ahead of elections on Sunday October 15, which could give ruling populists led by Jarosław Kaczyński a third consecutive term, or let Donald Tusk, the former European Council president, return as prime minister.
After a pro-Russian party won elections in Slovakia on September 30, Poland’s election comes as at a critical time for the European Union enlargement policy, most importantly the prospect of membership for Ukraine.
Under the Law and Justice party, Poland has taken an unflinchingly anti-Russian stance on the war in Ukraine, unlike fellow populists in Hungary. The opposition Civic Platform takes a similar line.
But Kaczyński’s government has recently been uncooperative with the EU’s migration policy and has been in dispute with the bloc over the rule of law, causing Brussels to withhold funds otherwise due to Poland.
Recent polling suggests the election is on a knife edge. Neither party may be able to form a government on its own, although Tusk has recently been gaining in polls, as have some of his potential coalition partners.
“At the moment the central European region is perceived very negatively within the EU,” said Gunter Deuber, head of research at Raiffeisen Bank International in Vienna. “If there’s a governing coalition in Poland with a more constructive stance towards the EU and the West, it will be very helpful for the whole region. It could be a turning point.”
Investors are also looking closely at the election for signs of change in financial sector and monetary policy.
The National Bank of Poland surprised markets with a 75bp interest rate cut in early September, followed by another 25bp cut to 5.75% in early October, fuelling new concern about central bank independence.
The NBP’s communication has been frustratingly inconsistent. During the summer it had indicated it would take a more cautious approach to monetary easing, said Michał Dybuła, chief economist CEE at BNP Paribas Polska. Nothing surprising has happened to inflation since then.
“If the Civic Platform was able to form a government,” he said, “it would be a massive improvement in the climate for investors and expectations of moving forward, for example on unblocking EU funds, even though the process of reversing changes in the judiciary will take time.”
On financial policy, in late September prime minister Mateusz Morawiecki confirmed the government would extend statutory payment holidays for mortgage borrowers until next year. Although he also introduced an income threshold, bankers seem to think most borrowers will still be able to benefit from the policy.
Since Kaczyński’s party came to power in 2015, state ownership has become increasingly prominent in the Polish stockmarket. Some previously private and foreign-owned banks have ended up in state hands, and the government has consolidated control over the energy sector.
A victory for Tusk would be favourable for the market as investors would assume corporate governance of these state-controlled firms would improve, says Łukasz Jańczak, a bank equity analyst at Erste Securities Polska.
Janczak concludes that one of the likely outcomes is also “the worst for the market”, namely “a hung parliament, more uncertainty and another round of election promises.”