NEWS / Foreign Exchange

Poland: Landslide victory for the reformists

Sunday??™s Polish parliamentarian elections ended ina result that will no doubt be welcomed in the financial markets and in Poland??™s business community. The liberal andreformist Civic Platform party (PO) won a landslide victory and gained more than 40% ofthe vote (according to preliminary results), while the governing socialconservative Law and Justice party won around 32%. Only two other partiessecured sufficient votes to enter the Polish parliament - the centre-leftists Peasant party (PSL)with 10% and the social democratic LiD party with 13%. The Polish public said aresounding no to populism by sending the two extremist populist parties Leagueof Polish Families (LPR) and Samoobrona party out of the parliament. These twoparties combined only secured around 3% of the popular vote. The results areclearly good news for the Polish FX and fixed income markets.

While it was expected that the Civic Platform party (PO) would win the election, the result was better than expectedand even though the PO as it stands now not will have a majorityon its own, there should be no doubt that PO will form Poland??™s new government - most likely in coalition with PSL - and with PO leader Donald Tusk as Prime Minister. However, thereis also a chance that some PiS parliament members will defect and join the PO.

 A PO led government is likely to be significantly morereformist than the outgoing PiS government, and furthermore a PO government should be welcomed by Poland??™s EU partners with open arms as the EUpartners have long been unhappy with the outgoing government??™s behaviour in EU negotiations.

 Poland?’s President (and twin brother of theoutgoing Prime Minister) Lech Kaczynski said prior to the elections that hewould do everything to make life hard for a PO government by using his veto powers to stop legislationhe didn??™tlike. However, he probably did not expect the PO to get this many seats in the Sejm and a PO government will be able to overrule his veto with 60%(+1) of the seats in parliament (277 seats of 460). As it stands now, the PO could master such a significant majority with thesupport of PSL and LiD. Hence, the president??™s veto powers are weaker than expectedbefore the election. This is good news in terms of prospects for economicreforms in Poland, in our view.

 There is no doubt the election result isan endorsement of the PO??™s reformist agenda and the financialmarkets are likely be very encourage d by the result. We will revise ourforecasts for the Polish markets in a more positive direction on the back ofthe elections, and we recommend investors to buy the Polish zloty against theother CEE currencies on the back of the election results.