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Poland’s New Parliamentary Party May Help Spur Tusk’s Economic Overhaul

Polish Prime Minister Donald Tusk, who won an unprecedented second consecutive election, may receive a boost to plans for an economic overhaul from a new parliamentary party.

The Palikot movement, founded by a vodka distiller who quit Tusk’s Civic Platform party last year, received 10 percent of the votes in the Oct. 9 election, beating opinion polls. The group may provide Tusk a lever against complacency within his own party and the reluctance of the Peasants Party, his ally in the past four years, to support some policies.

Tusk has relied on uninterrupted economic growth in the only European Union country to avoid a recession in 2009 to consolidate the budget, shunning austerity measures employed by governments across the region. Next year’s expansion may fall short of the Cabinet’s estimates, forcing more decisive action.

“The election result gives Tusk some leeway,” Lars Christensen, an economist at Danske Bank A/S in Copenhagen, said by phone yesterday. “The Peasants Party will have less possibility of threatening with leaving the coalition because there is an alternative or actually numerous alternatives. Palikot is a big chance for” Tusk “to press for more reforms.”

Coalition May Continue

Tusk’s Civic Platform probably won 206 seats in the 460- member parliament after getting 39.2 percent of the vote, based on results from all precincts. The Peasants Party took 28 seats with an 8.4 percent showing, giving the two groups a four-seat majority.

The Platform is likely to continue governing in coalition with the Peasants and their leader, Waldemar Pawlak, will probably stay deputy prime minister, Grzegorz Schetyna, parliamentary speaker and deputy chairman of the Platform, said in an interview with radio broadcaster RMF FM today.

The biggest opposition party, former premier Jaroslaw Kaczynski’s Law & Justice, is set for 157 seats after winning 30 percent of the vote. The Palikot Movement, founded by Janusz Palikot, gained 40 seats, beating the Peasants and the Democratic Left Alliance, which received 8.3 percent, enough for 27 seats, according to preliminary results.

Zloty Slump

Tusk must focus on cutting the budget gap to reverse a zloty plunge as investors shy away from the EU’s biggest eastern country.

The currency has slumped 8.1 percent against the euro this year, while Polish bonds tumbled 15.7 percent in dollar terms in the third quarter, the third-worst performance in the world, according to indexes compiled by the European Federation of Financial Analyst Societies and Bloomberg. The zloty traded at 4.3296 per euro at 1:10 p.m. Warsaw time, compared with 4.3042 yesterday.

The government pledged to narrow the deficit to 2.9 percent of gross domestic product next year, counting on 4 percent economic growth to boost revenue. The expansion will fall short of the target, according to the International Monetary Fund, which forecasts it at 3 percent and Citigroup Inc., which predicts 1.9 percent.

“The government has to start fiscal reforms, by which it will stand or fall,” Marcin Mazurek, a senior analyst at BRE Bank in Warsaw, said by phone. “Rarely has anyone had a situation this comfortable, and the markets won’t stand for any excuses. Palikot will be the antidote to the PSL’s populism, and guarantees the support of a parliamentary majority for more ambitious policies from the government.”

Palikot’s Clash

Palikot, who clashed with Tusk last year, urges a quicker overhaul of public finances by cutting spending on bureaucracy, the Catholic church and pensions. He also supports legalizing marijuana, abortion and the separation of church and state.

“His focus is social liberalization and he has not clearly laid out his economic policies,” Jeremy Carter, managing director at Fitch Ratings said in an e-mail from London yesterday. “However, one of the reasons he left the PO was frustration over the slow pace of economic and labor market reform so he is likely to favor speeding up reform.”

Poland has “no choice but to grow” and Europe’s debt crisis may “end up being an opportunity,” Palikot said in an e-mail to Bloomberg last week. The country must “eventually” cut spending on the farmers’ pension system and make savings on the state administration, he said.

Palikot Movement is ready to back incumbent Prime Minister Donald Tusk’s government without joining the Cabinet, provided Tusk appoints non-party experts to head some ministries in the new government, Palikot told a press conference in Warsaw today.

“Tusk has lost arguments for fiddling around,” said Mateusz Szczurek, an economist for central and eastern Europe at ING Groep NV. (INGA) “The position of the Peasants, which could possibly have blocked the reform of farmers’ pensions or social security, is weaker, and meanwhile a party has appeared whose economic priorities fit with the government’s goals and guarantee a stable majority in parliament for legislative changes.”

To contact the reporters on this story: Dorota Bartyzel in Warsaw at dbartyzel@bloomberg.net Monika Rozlal in Warsaw at mrozlal@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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