On 25 October, the Polish population went to the polls to elect their new government. The shift to the right of the presidential mandate after last May’s presidential elections had already signalled a high probability of change in the ruling coalition in the same direction. The alliance led by ‘Law and Justice’ (PiS) won an outright percentage of the vote (37.6%), allowing it to hold an absolute majority in parliament. The rightist swing will be reinforced further by the presence of two other parties in parliament: the party of former rock musician Kukiz, Kukiz'15, which finished third, and the agrarian-conservative Polish People's Party. The head of PiS, Kaczynski, could decide to enter into a coalition with them in order to reach a 2/3 majority enabling him to make constitutional changes. The incumbent centrist ‘Civic Platform’ party’s large defeat is attributed among others to the tape-recorded scandal which erupted last year, the unevenly perceived gains of the vigorous economic growth and the conciliatory approach at European level in dealing with the recent refugee crisis and reallocation quotas. A left-wing representation will be totally absent in parliament since no such party reached the 8% threshold for qualifying.
Impact on country risk
The completed alignment of the executive on the conservative presidential line will at first provide a strong support for populist, nationalist and Eurosceptic views regarding the domestic field as well as foreign affairs. During its campaign, the PiS indeed claimed for higher wages, increased welfare spending and making its voice louder within European cenacles. While promising that the fiscal easing measures would not impede the country from respecting EU fiscal rules (the fiscal deficit not exceeding 3% of GDP and public debt not exceeding 60% of GDP), tax increases targeting foreign-owned banks and retail will likely make up for the offset. The banking sector could still be more adversely affected by the political move because of the cost of a ‘Hungarian-style’ conversion programme of Swiss-franc denominated household loans into Polish zloty advocated by PiS. Public tender rules are also likely to be modified to increasingly favour domestic companies, in particular in the defence sector, and the nationalisation of public entities (PKO BP bank, PZU insurance group, and energy company PGE) are at risk of being suspended. Political stability is not guaranteed since the PiS alliance includes 2 other political groups, potentially triggering leadership issues and one of them having much more economical liberal pledges. On the external side, the country should distance itself from EU institutions and instil some opposition to the German dominance of the bloc, although the high reliance on EU funds makes breaches of EU laws and strong clashes unlikely. Analyst: Florence Thiéry, email@example.com