Polish Government Battles Eavesdropping Row Amid Arrests

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

The two-party coalition is “ready to work together,” Rafal Grupinski, head of the premier’s Civic Platform parliamentary caucus, told reporters in Warsaw today after meeting the Polish Peasants Party. Tusk will address lawmakers tomorrow as the opposition called for his resignation.

“There is no alternative for this coalition in the current parliament,” Janusz Piechocinski, the leader of the Polish Peasants Party, said on Radio One today. “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 country’s longest-serving prime minister since the fall of communism 25 years ago has tried to regain his footing by saying that the recordings were carried out by a “criminal group.” Prosecutors in Warsaw today detained two people and charged one in relation to the scandal, according to Renata Mazur, a spokeswoman for the law-enforcement office.

The situation needs to be explained in the next month and a half, Piechocinski said today. Last week, prosecutors also charged a manager at one of the restaurants where the illegal taping allegedly took place.

Belka, Sienkiewicz

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. President Bronislaw Komorowski said yesterday that “personnel decisions” were “are up to those involved and the head of government.”

Belka today 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.

Zloty, Bonds

The zloty advanced for a second 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 Komorowski raised the possibility of an early vote, which isn’t due until late next year.

The Polish currency gained 0.2 percent to 4.1525 per euro as of 3:18 p.m. in Warsaw. The yield on the government’s 10-year notes fell 11 basis points to 3.47 percent today, the biggest drop among emerging-market bonds tracked by Bloomberg.

“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 today.

The first opinion poll published after the scandal broke out 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 percent.

Ukraine, EU

Tusk said yesterday 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.

“We’re dealing with an unprecedented kind of political crisis,” Tusk said yesterday after meeting Spanish Prime Minister Mariano Rajoy in Gdansk, Poland. “It appears the sequence of events is planned, not spontaneous, with the purpose of paralyzing the whole government.”

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

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 Majority

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 today 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 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 said yesterday 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.

“The opposition remains disunited and chances for a constructive vote of no-confidence to oust Tusk are therefore limited,” Otilia Dhand, an analyst at Teneo Intelligence in London, said by e-mail. “Wprost’s tactics to release the tapes in a gradual manner mean that the government crisis may continue for weeks.”

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