Judgment on the rule of law negative for the credit profile of Poland and Hungary

The ruling of the CJEU on the rule of law mechanism, which opens the way to suspend the payment of funds from the EU budget to the Member States in the event of violations of the rule of law, is negative for the credit negative profile of Poland and Hungary says the Moody's rating agency.

As noted by the rating agency, a significant reduction in the inflow of EU funds could affect the pace of economic growth in Poland. Moody estimates that EU funds may boost GDP growth in Poland by 0.3-0.5 percentage points in the years 2022-25.

In February, the Court of Justice of the European Union dismissed the claims of Hungary and Poland against the conditionality mechanism protecting the EU budget in the event of violations of the rule of law in the Member States.

Both Hungary and Poland brought an action before the Court seeking annulment of that regulation. Both countries demonstrated that the EU treaties do not have a proper legal basis for its adoption, that the EU exceeds the conferred competencies, and violates the principles of legal certainty.

Last Friday, the Fitch agency started a round of reviews of Poland's rating by major agencies in the first half of this year, confirming in the evening the long-term rating of Poland in foreign currency at "A-" with a stable outlook.

On April 1, Poland's credit rating will be examined by S&P Global Ratings, and on April 29 by Moody's.

(PAP)