What's at Stake for Poland as EU Starts Democracy Probe?

  • EU Commission to assess Polish government's democratic record
  • Move deepens finanical-investor `fear,' says Nomura analyst

The European Commission will check if policies adopted by Poland’s ruling Law & Justice party undermine the rule of law, taking a step toward disciplining a country that until recently was an example of east Europe’s democratic achievements.

Here are the main issues at stake.

What did the Commission decide?

The European Union’s executive branch will consider over the next 10 months whether new Polish laws on the constitutional court and media give the ruling party too much power and tread on the “rule of law.”

Introduced in 2014, this procedure takes three stages: a commission assessment -- which was started on Wednesday, recommendation, and follow-up, all accompanied by “dialog” with the government concerned. That is controversial enough: national leaders don’t like political philosophy lectures from EU officials in Brussels. But the commission only has the power of persuasion. The next step, if Poland doesn’t change its ways after a lengthy give-and-take, would be more sensitive: denying the nation the right to vote on EU decisions.

This sanction, spelled out in Article 7 of the EU’s treaty, can be imposed for a “serious and persistent breach” of European democratic norms. There is a high bar to even discussing it: four-fifths of the member states have to agree to put it on the table. The bar for pulling the trigger is higher: this requires unanimity among the other 27 governments. Hungarian Prime Minister Viktor Orban, also criticized over democratic behavior, has pledged to wield a veto.

What’s happened with the media law?

Poland’s parliament adopted changes to media law in a series of night sessions in late December. It allowed the government to directly appoint executives to public broadcasters and diluted the powers of the media regulator. Former ruling-party lawmaker and election strategist Jacek Kurski was picked to run state television, which Law & Justice earlier accused of “extreme bias.”

Public media must be “at the government’s disposal,” according to ruling-party lawmaker Krystyna Pawlowicz. Four European media freedom organizations have called on Poland to abandon the law as it threatens the free press and could compromise guarantees that the public broadcaster remain independent, according to a summary of the complaint by the Council of Europe, a human-rights group.

Such protests are so far not affecting the government’s rhetoric, with Prime Minister Beata Szydlo saying that those who fear losing influence in Poland, including opposition politicians and lobbyists for foreign investors, are behind the “attacks.” Foreign banks and retailers operating in the biggest post-communist EU member have been criticized by the premier for not sharing enough of their profits. They now face tax increases.

How was the constitutional tribunal overhauled?

The ruling party changed the law on the constitutional court, making it harder to overturn legislation by increasing the number of judges needed to pass a ruling and the majority required for a verdict. The court will also have to rule on cases in the order in which they were filed, meaning judges won’t make any quick rulings on more relevant laws.

The changes followed a tussle over appointments of judges to the nation’s highest court, with lawmakers passing a motion to scrap appointments made by the previous parliament before October’s general election. While allied President Andrzej Duda has defied the tribunal’s calls to swear in judges not picked by Law & Justice, the party passed legislation appointing its own justices to the panel.

How are investors reacting?

Poland’s zloty has weakened 1.8 percent against the euro this year, the worst performance among east-European currencies following Russia’s ruble, according to data compiled by Bloomberg. In the past three months, Warsaw’s WIG20 index has dropped 16 percent, the EU’s worst performing stock gauge.

The Polish currency can’t “seriously rally from here because of what I call ‘Law & Justice fear’ in the market,” said Peter Attard Montalto, a senior emerging-markets economist and strategist at Nomura Holdings. The Commission’s decision on Wednesday to carry out its assessment of democracy “adds a more formal framework” to market concerns, which also include “budget execution risk,” he said.

Polish bonds are rallying, with the yield on two-year notes dropping to a record 1.35 percent this week, amid speculation that Law & Justice appointees to the central bank’s policy panel will reduce official interest rates.

How is Europe reacting?

Besides sweeping changes in the media and the constitutional court, Law & Justice has also forced out the boss of the country’s anti-corruption agency and limited the opposition’s oversight over secret services. Such moves have raised concern over erosion of the system of checks and balances guaranteed by Poland’s constitution.

Twenty-six years after Poland became eastern Europe’s first communist country to hold free elections, helping trigger a wave of democratic change in the region which eventually led to the EU’s expansion across the former Iron Curtain in 2004, protests calling for democratic change are returning to the streets of Warsaw and other Polish cities.

In comments to Frankfurter Allgemeine Sonntagszeitung on Sunday, EU Parliament President Martin Schulz compared Law & Justice to Russia under President Vladimir Putin for trying to “subordinate the welfare of the state to the will of the party.” Guenter Oettinger, the German representative on the commission, called for activating the disciplinary procedure.

Government officials have lashed back. Justice Minister Zbigniew Ziobro and party leader Jaroslaw Kaczynski suggested Germany had no right to criticize Poland for alleged democratic breaches because of its Nazi past.

“Don’t count on us to carry out Poland’s foreign policy while kneeling,” Premier Szydlo told lawmakers in Warsaw on Wednesday.

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