Poland’s parliamentary and presidential elections this month saw the death of a left-leaning postcommunist party that mostly dominated the country since 1995. But the demise of the left does not mean that the right has a coherent economic program. For the victorious coalition of the Law and Justice (PiS) party and Civic Platform (PO) is torn between liberal (PO) and populist instincts (PiS).
If PiS’s populist slogans become policy, government spending is likely to expand, which will exacerbate Poland’s already weak fiscal position and consequently trigger inflationary expectations. Worse, boosting social spending will contribute little to resolving the country’s staggering 17.5% rate of unemployment – most of it structural –while any hope of quick euro adoption will be dashed.
What Poland needs most is fiscal discipline and market-oriented reforms, including relaxation of the rigid labor laws that are inhibiting job creation. After all, over the past two decades, the enduring goals of dismantling communism and central planning, as well as joining the European Union, have served as important driving forces of reform. But can the political will for renewed reform be mustered in a government that is half liberal and half populist?
A specific commitment to adopt the euro at the earliest possible date could serve as the same sort of springboard as the push to join the EU in the 1990’s. Such a strategic goal would provide justification for prudent fiscal and monetary policies, and, given Poles’ desire to consider themselves full Europeans, it would boost political support for such policies. Only such support can bring the government budget deficit, expected to reach 4.4% of GDP in 2005, down to the EU’s benchmark of less than 3% of GDP within the next two years.