Polish Coalition Closes Ranks as Arrests Made Over Tapes

Poland’s ruling coalition moved to show unity around Prime Minister Donald Tusk as prosecutors made arrests in a scandal over leaked recordings of top officials that put the country at risk of early elections.

The two-party coalition “remains united” and there is no need to test its parliamentary majority with a confidence vote, Malgorzata Kidawa-Blonska, a government spokeswoman said today. Tusk will address lawmakers today after the opposition called for his resignation and the junior partner in the ruling coalition demanded an explanation for the scandal within weeks.

The country’s longest-serving prime minister since the fall of communism 25 years ago has tried to rally support for the government by saying the recordings were carried out by a “criminal group” intent on destabilizing the country. Prosecutors in Warsaw detained two people and charged two others in relation to the scandal, according to Renata Mazur, a spokeswoman for the law-enforcement office.

“There is no alternative for this coalition in the current parliament,” Janusz Piechocinski, the leader of the Polish Peasants Party, which shares power with Tusk’s Civic Platform, said on Radio One yesterday. “However, if it turns out that we are unable to address the threats and bring back security for the state, then we will have to turn to voters for the answer.”

The coalition is “ready to work together,” Rafal Grupinski, head of the Civic Platform parliamentary caucus, told reporters in Warsaw yesterday after meeting the Polish Peasants Party.

Zloty Gains

The zloty advanced for a third day against the euro and government bonds rallied as the risk of snap elections receded. The currency depreciated the most since January last week as Tusk and President Bronislaw Komorowski raised the possibility of an early vote, which isn’t due until late next year.

The Polish currency gained 0.2 percent to 4.1485 per euro at 9:56 a.m. in Warsaw. The yield on the government’s 10-year notes fell 4 basis points to 3.45 percent, the lowest level in more than a year.

“Political turmoil in Poland now looks to have reached a climax with no real market implications,” Piotr Chwiejczak, an emerging-market strategist at BNP Paribas SA in London, said in an e-mailed note.

The situation needs to be explained in the next month and a half, Piechocinski said yesterday, adding that a resolution may require “painful personnel steps.” Last week, prosecutors also charged a manager at one of the restaurants where the illegal taping allegedly took place.

‘Deep Reconstruction’

“I want Prime Minister Tusk to propose a deep reconstruction of the government and present plans for the coalition for the next 12 months by Aug. 15 at the latest,” Piechocinski said in an interview with TVP Info channel.

The crisis erupted on June 14 after Wprost magazine published secretly recorded conversations of central bank Governor Marek Belka discussing with Interior Minister Bartlomiej Sienkiewicz steps to boost the economy and help the government win elections. More tapes emerged during the weekend, including one that purportedly features Foreign Minister Radoslaw Sikorski and Jacek Krawiec, chief executive officer of oil refiner PKN Orlen.

A possible government overhaul will be determined by the prime minister once the scandal is explained, according to Civic Platform’s Grupinski. Komorowski said June 23 that “personnel decisions” were “up to those involved and the head of government.”

Belka Defiant

Belka yesterday reiterated on Radio One that he isn’t planning to resign, adding that he has discussed with Komorowski his ability to work with the Monetary Policy Council. The scandal won’t affect the work of the MPC, Elzbieta Chojna-Duch, one of the 10 rate-setters on the panel, told reporters at an economic forum in Sopot, Poland.

The first opinion poll published after the scandal broke showed the Civic Platform trailing the biggest opposition party, Law and Justice. The party of Jaroslaw Kaczynski was in the lead among potential voters in the June 23 poll of 1,000 adults by Warsaw-based TNS Polska. The margin of error was 3.1 percentage points.

Tusk said June 23 that the Wprost revelations aim to weaken the government at the time of the Ukrainian crisis and efforts to reshape the European Union, issues in which Poland plays an important role.

Opposition Call

The prime minister should step down to make way for “a technocratic government” to guarantee early elections, Kaczynski said.

The Democratic Left Alliance last week dismissed the idea of putting forward a joint candidate for prime minister with Law and Justice. Such a measure would require 231 votes to pass. Law and Justice has 136.

Tusk’s Civic Platform party holds the key to the cabinet’s future, having enough lawmakers to block any motion to dissolve parliament. Leszek Miller, the leader of the Democratic Left Alliance, said on TVN24 that Tusk should call a vote of confidence in his government to show if he still commands a majority.

The rift over the taping scandal is jeopardizing the political stability brought by Tusk, who in 2011 became the first Polish premier to win a second term since 1989.

Tusk’s Majority

Tusk’s two-way coalition controls 234 votes in the 460-seat lower house of parliament, 32 of which belong to the Peasants Party. A two-thirds majority, or 307 votes, is required for lawmakers to dissolve the legislature, making Civic Platform’s support necessary to pass any such measure.

If the prime minister resigns, the president has two weeks to propose a replacement, who then has to win a confidence vote in parliament.

Komorowski has said the constitution is clear that the president doesn’t initiate government changes. Tusk said he wouldn’t fire government officials for using crude language in private conversations.

“This episode may be a welcome opportunity for markets to more carefully assess the medium-run political risks in Poland,” Peter Attard Montalto, an emerging-market economist at Nomura International Plc. in London, said in an e-mailed note. “Such political risk premia should now start to be factored in to Poland for the first time in a long while.”

To contact the reporter on this story: Piotr Skolimowski in Warsaw at pskolimowski@bloomberg.net

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

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