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FACTBOX-Key political risks to watch in Poland

Source: Thomson Reuters Foundation - Mon, 3 Oct 2011 11:25 GMT
Author: Reuters
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By Gareth Jones

WARSAW, Sept 28 (Reuters) - Poland's centrist ruling Civic Platform (PO) party remains favorite to win an Oct. 9 general election, helped by a resilient economy, but opinion polls show its lead eroding, raising the risk of protracted post-election horse-trading.

A low voter turnout and a strong campaign by its main rival could yet dash the hopes of Prime Minister Donald Tusk's broadly pro-business PO to become the first Polish party to win a second consecutive term since the fall of communism in 1989.

Recent surveys have put PO's lead over Jaroslaw Kaczynski's more conservative, nationalist-minded Law and Justice party (PiS), at between 4 and 9 percentage points, down from 11 or more seen in August.

Kaczynski, whose party is waging a vigorous election campaign, accuses Tusk of failing to defend Polish national interests in relations with the European Union and Russia.

Kaczynski is the twin brother of President Lech Kaczynski who died along with 95 other top Polish officials in a plane crash in Russia last year. PiS leader has accused Tusk of colluding with Moscow to hide the true causes of the disaster.

With economic gloom in Europe deepening, Tusk believes PO's reputation for economic competence -- based on its success in keeping the economy growing even during the global financial crisis -- will persuade voters to stick with the status quo.

But his failure to cut red tape for small businesses, his partial rollback of a decade-old pension reform and his caution in tackling entitlement programmes have dented support for PO among the younger urban middle-class voters who helped propel his party to power in 2007.

For more on the Polish election, see:

Following are key political risks facing Poland.

INCONCLUSIVE ELECTION RESULT

Tusk's party is unlikely to win enough votes to govern alone and has said it favours a continuation of the current coalition with the tiny Peasants' Party (PSL), a rural-based grouping that has worked fairly smoothly with PO despite its preference for more state involvement in the economy.

However, some opinion polls suggest PSL may fail to breach the 5 percent threshold to enter parliament or that it may have too few lawmakers to enable PO to form a stable government.

PO might then have to consider either an alliance with Poland's third biggest party, the post-communist Democratic Left Alliance (SLD), or possibly a three-party coalition involving both the SLD and PSL -- an unwieldy option that would make economic reforms more difficult and could upset investors.

Financial markets favour a continued PO-PSL coalition as it is seen offering the best hope of political and economic stability in the European Union's largest ex-communist economy.

A less likely outcome is that Kaczynski's PiS emerges as the largest party and is then asked by President Bronislaw Komorowski to build a government. PiS might have difficulty finding a coalition partner, though PSL -- traditional kingmaker of Polish politics -- has not ruled out such a deal.

A PiS-led government would probably not be very stable due to a lack of support within the Sejm lower house of parliament.

A newly created fourth party, the Palikot's Support Movement (RPP) could further complicate the political arithmetic if, as some polls suggest, it breaches the 5 percent threshold.

Maverick ex-PO lawmaker Janusz Palikot, known for his outspoken anti-clericalism in the staunchly Catholic Poland and his support for liberal causes such as gay rights and abortion, is expected to lure some voters away from both PO and from SLD.

His party could conceivably prop up a PO-led government but would be strongly opposed to any coalition involving PiS, which espouses traditional Catholic and patriotic values.

What to watch:

* Opinion polls. They are notoriously unreliable in Poland and often diverge widely in their forecasts because they use different methodologies. The polls tend to underestimate the level of support for Kaczynski's PiS and for PSL while overestimating backing for Tusk's PO.

* Turnout. A low turnout on election day could eat into PO's lead and boost support for PiS, whose older core electorate is seen as more disciplined about voting.

ECONOMIC REFORMS

Poland's biggest immediate economic challenge is taming its large budget deficit and preventing public debt from breaching 55 percent of gross domestic product (GDP) under domestic accounting rules, a move that under Polish law would force deep spending cuts.

Rostowski says measures he has already taken are sufficient to bring the deficit back to below the EU's ceiling of 3 percent of GDP next year from nearly 8 percent in 2010.

These include a shakeup of the pension system , a hike in value-added tax, the freezing of some public sector wages and a cap on discretionary spending.

PO also aims to balance the budget by 2015 and to reduce public debt to 40 percent of GDP by 2018 -- goals some economists say are overly ambitious.

Rostowski says there is no need for "big bang" economic reforms after the election but steady, incremental change.

Liberal economists say the government is too complacent -- especially given the renewed fears of global recession that put pressure on riskier assets and currencies like the Polish zloty -- and have called for deep structural reforms to reduce debt.

A weaker zloty increases the debt load as about a quarter of it is denominated in foreign currencies, mostly euros.

The British-educated Rostowski, who is running for parliament on the PO ticket, is seen likely to continue as finance minister after the election if his party wins.

SLD and PiS have also vowed to cut the deficit and debt but have called for more spending in certain areas, especially to help the poor and needy. PiS is opposed to PO's ambitious privatisation plans and speaks of creating 'national champions' in key sectors such as energy and chemicals.

PO says joining the euro remains a strategic goal despite the current turmoil in the euro zone but that this would definitely not happen before 2016. SLD also remains pro-euro but PiS is much more sceptical, saying Poland must first close the gap in living standards with wealthier west European countries.

What to watch:

* What concessions on reform would the smaller parties try to wrest from PO in return for joining a coalition? Would PSL block any effort to make farmers join the national pension system? Would SLD insist on an increase in the minimum wage or a cut in VAT as its price for joining a PO-led coalition?

* Will an incoming government be forced into more radical fiscal measures to regain the confidence of financial markets increasingly jittery about the prospects for central Europe in the light of the euro zone crisis?

* To what extent will the economic slowdown in the euro zone, especially Poland's neighbour and main trade partner Germany, hit growth and thus the government's efforts to balance its books.

THE BEAR NEXT DOOR

Warsaw's relations with Moscow, long strained over history, defence and energy issues, will remain a challenge for the incoming Polish government.

Russian Prime Minister Vladimir Putin, who looks set to return to the Kremlin in next year's presidential election, is suspicious of Polish and EU efforts to draw ex-Soviet republics such as Ukraine closer to the West and is also distrustful of U.S. plans for missile defence that Warsaw strongly backs.

For more on Polish-Russian relations, see:

Since taking office in late 2007, Tusk's ambition was to mend ties with the Kremlin, but the cautious rapprochement took a hit from their differences over the causes of the plane crash near Smolensk in April 2010 that killed Lech Kaczynski.

Russia puts sole blame on the Polish pilots while Warsaw says ground controllers at the airport also contributed to the

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