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Tight Polish election race rattles investors

Source: Thomson Reuters Foundation - Tue, 4 Oct 2011 02:31 PM
Author: Reuters
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By Gareth Jones

WARSAW, Oct 4 (Reuters) - Opposition leader Jaroslaw Kaczynski has eroded the gap with Poland's ruling centrists ahead of Sunday's general election, raising the outside possibility of a right-wing government that might test ties with EU partners at a time of financial crisis.

Latest opinion polls, notoriously erratic in Poland, show Prime Minister Donald Tusk's pro-business, pro-EU Civic Platform (PO) ahead of Kaczynski's nationalist Law and Justice (PiS) by as much as 15 points or as little as one point.

The most likely scenario remains a two or more unwieldy three-party coalition led by Tusk and probably including his current partner, the tiny Peasants' Party (PSL), and possibly also the post-communist Democratic Left Alliance (SLD).

But a low voter turnout on Sunday that would favour Kaczynski's more disciplined, generally older electorate could scupper PO's hopes of becoming the first Polish party since the fall of communism in 1989 to win a second term of office.

"The situation is getting a bit uncomfortable with the lead PO enjoyed over PiS narrowing quite quickly," said Grzegorz Maliszewski, chief economist at Millennium Bank in Warsaw.

PiS, though conservative on moral and social issues such as abortion, homosexuality and the role of the powerful Catholic Church, takes a more leftist stance on the economy, favouring more social spending and higher taxes on the rich.

"The market remembers that PiS is usually slightly underestimated in opinion polls, so the scenario of them winning is a bit more probable now."

"This will be weighing on the zloty this week, though the main concerns stem from Greece of course," said Maliszewksi.

On Tuesday, the zloty traded 0.8 percent down on the day against the euro after sharp falls on European equity markets.

Kaczynski is a deeply divisive figure. To his conservative supporters, he is an honest patriot who will champion Poland's national interests in the European Union and beyond.

His liberal critics, however, flinch at the memory of the sometimes prickly nationalism that defined his spell as prime minister in 2006-07 and fear that, back in power, he could reignite tensions with Russia, Germany and the EU.

"It will be very risky for Poland if he wins... After a month he will have offended Moscow, then he will alienate (German Chancellor Angela) Merkel," said Radoslaw Markowski, a political scientist at the Polish Academy of Sciences.

Kaczynski came close to sabotaging Merkel's bid in 2007 to seal a deal on a new EU treaty, invoking the number of Poles killed by the Nazis in World War Two to press Warsaw's demand for greater voting rights.

RISKS

Investors are worried by Kaczynski's aversion to the PO government's privatisations, his strong support for a tax on financial transactions, his calls for more social spending and his hostility to Poland's private pension funds.

"If PiS wins, there is a risk Poland would follow Hungary in nationalising OFEs (the private pension funds)," a market source told Reuters.

On Tuesday, citing the need for political continuity in Poland as the debt crisis in the neighbouring euro zone deepens, Tusk said he would keep Finance Minister Jacek Rostowski in his role if PO wins the election.

"The second wave of the (financial) crisis seems certain to come, only nobody knows how big it will be, whom it will engulf and who will stay afloat," Tusk told a news conference.

"So it's clear that the finance minister will play a key role dealing with this in the new government," he said, confirming Rostowksi as his favoured candidate.

The British-born and educated Rostowski is a strong critic of Kaczynski, whose abrasive nationalism he says would leave Poland -- current holder of the EU's rotating presidency -- isolated when it needs to work closely with the rest of Europe.

"It would be a disaster for Poland if Law and Justice won elections especially in the current situation when cooperation with our partners is necessary," he told reporters recently.

PO is haunted by the memory of how Kaczynski's party defied the opinion polls to clinch victory over them in a 2005 parliamentary election. That same year, Kaczynski's twin brother Lech defeated Tusk to become Poland's president.

President Kaczynski was killed in a plane crash in Russia in April 2010 along with 95 other, mostly senior officials. PO's candidate Bronislaw Komorowski then defeated Jaroslaw Kaczynski's bid to replace his dead brother as head of state.

Kaczynski says the Tusk government bears some responsibility for the crash and accuses it of colluding with Russia to conceal the true causes of the disaster.

Despite a strong election campaign, Kaczynski himself may not expect to become prime minister again just yet.

"Kaczynski knows it will be very difficult for him to form a government after Sunday and the best fallback position is to be the sole opposition party while PO leads a broad new coalition," said Marek Matraszek of the political consultancy CEC Government Relations.

"But a narrow victory or defeat for him (and then letting PO get on with building a new government) would be a moral victory for him. Kaczynski would then wait for the electoral jackpot in 2015 or perhaps earlier. He is not desperate for power at any cost."

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