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Friday, August 19, 2005

Old habits are hard to break

The Times Online:

Poland's pensions threaten reform

Has Poland become complacent since it joined the European Union? Or has it just lost its way? In either case, its European neighbours must be aware that one of the largest and most vocal EU members may duck the challenge of modernisation.

As a result its role within Europe may be diminished. It is now hard to assume that Poland will join the euro - something that its people, and Brussels, had taken for granted.

On Wednesday, President Kwaśniewski signed into law a plan to extend miners' rights to retire early on a pension after 25 years' work. It also freezes reform of pensions in some other sectors.

The President, who is almost at the end of his full term, appears to have been prompted by the weakness of the centre-left Government before elections next month. The move was a sop to the trade unions, still the object of passion and sympathy in Poland.

The miners' demands awakened memories of the 1980 Solidarity trade union protests. The miners, still powerful within that movement, are also a national symbol of the struggle against the former Communist Government.

But the President's move cannot be justified on economic grounds. The Bill is expected to cost Polish taxpayers about 18 billion zlotys (£3 billion) by 2010. That compares with a government budget deficit this year of 35 billion zlotys.

An impressive array of economists and Polish dignitaries pleaded with him not to do it. They included Marek Belka, the Prime Minister and a close ally, who told him it would wreck public finances and undermine the reform of other sectors. Leszek Balcerowicz, the central bank chief, also attacked it, and bond and currency markets moved sharply lower. And although the resonance of the miners' cause won the day the strain of paying for their lavish pensions will make it more difficult for Poland to meet the criteria for joining the eurozone, which sets limits on the permitted level of budget deficits.

It has been taken as gospel by the ten countries which joined the EU last year, and by Brussels, that they would each later join the euro.

Of course, Poland may reckon that the eurozone will bend its rules again, given how far it has already done so to accommodate France and Germany. Or Poland may, indeed, reckon that the prize of membership was not worth having. Many would agree.

But the worry in President Kwasniewski's cavalier treatment of public finances is that Poland is showing signs of ducking reform. The country has done well since the end of Soviet rule - maybe too well in that pressures for reform may now have eased. Its economy may grow by 4 per cent this year. That is enviable by the standards of Western Europe, but not by those of the East. And growth is slowing.

Meanwhile, unemployment is stuck at nearly 18 per cent, higher than any other country in the EU. The figure is twice as high among people under 25. The country also has the lowest employment rate of the entire EU: only 52 per cent of those of working age have a job. Many of those are in the hugely inefficient state bureaucracy. Many others have managed to emulate the miners and secure an early pension.

It is a pity. Poland has already managed to make its voice loudly heard in the politics of the EU. As Ukraine was gripped by its Orange Revolution last year, Poland called for it to be let into the EU to knit its ties to the West.

In the EU's internal fights about the failed constitution, Poland came out firmly on the side of the free marketeers. That is refreshing, and an important new element in the EU.

Where other former Soviet bloc countries have seemed entangled in introspection as they struggle to modernise, and, as a result, quieter within the EU, Poland has seemed loud, confident and sophisticated.

But that surefootedness in foreign affairs is worth nothing if it fails to complete the changes so badly needed at home. It may find itself overtaken in reform by other Eastern European countries as it neglects to get to grips with its problems. That is a sentimentality and indulgence that it cannot afford.


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