East Capital on the Polish poll

By Marcus Svedberg, Chief Economist at East Capital

No one can be surprised of the result in the Polish poll on Sunday – in which the opposition Law and Justice (PiS) party became the largest party and will be able to form a new government – but everyone should take note as the election send an important message across Europe.

It has been clear for quite some time that the incumbent Civil Platform would lose the election, the win of PiS in the presidential election in the spring was an early sign later confirmed by various opinion polls, despite overseeing the best performing economy in the EU. The lesson is not the reverse of the famous “it’s the economy, stupid” but rather one of socio-economic alienation in a divided country.

It is quite simple, actually, as Poland is divided into a diminishing core that supports the current government against pretty much everyone else. A lot of people were keen for change after two terms of establishment liberal policies often associated with Brussels and the EU.

Civic Platform, whose initial prime minister very fittingly left the country to become President of the European Council last year, has not managed to renew themselves and paid the price for supporter fatigue and perhaps also for some embarrassing scandals. This is only partially a result of Prime Minister Ewa Kopacz struggling to fill the charismatic shoes of her predecessor Donald Tusk. The more fundamental reason is that Poland was ready for change.

So what will change under PiS and Prime Minister Beata Szydlo? According to financial markets, which has been clear in its preference for a continuation of Civic Platform rule, a lot will change for the worse. This is especially true if the exit poll are correct in that PiS got an absolute majority and can form a government on their own.  Fiscal discipline may deteriorate while corporate taxation look set to increase.

Analysts are particularly worried about regulations in the banking sector. We agree that a PiS government is likely to be less market friendly than Civic Platform but we are perhaps somewhat less concerned and do not agree that Poland will become another Hungary.

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