Stony road to the Promised Land
Meanwhile, the Irish presidency of the EU has stepped up its efforts to push through by mid-year the Union's constitution, which this country helped torpedo at the December summit in Brussels. Is Poland, widely perceived as ill-prepared for membership and very aggressive on national interests, about to become isolated politically in the wider Union, and does this matter for local business?
"Difficult to learn to work with," "extremely stubborn," and "the ones who will argue the most," - this is how officials at the European Commission (EC), speaking anonymously, describe Poland's representatives in Brussels, according to a report released last year by lobbying firm Burson-Marsteller. After the Brussels debacle over the constitution, tensions are rising even higher with the Germans making thinly-veiled threats that Poland's tough stance on the constitution could hurt its chances of attracting more structural funds in the next budgetary period (2007-2013). Some analysts worry that the country could face isolation within the enlarged Union, with the largest 'core' members taking the lead, which could have an effect on Poland's ability to push its national interests through the European bodies, including areas of vital interest to local and international investors here.
"The political tensions can have an effect in the longer term, affecting the quality of integration," says Tadeusz Syryjczyk, a director at the European Bank for Reconstruction and Development (EBRD). In the medium term, however, it is not a factor likely to affect the thinking of businesses. Corruption and taxes are more likely to play a role, he adds, saying that the country's standing on these issues has recently taken a battering.
Taxes may be lower here than in Germany, Syryjczyk says, but the recent controversy over alleged tax evasion by international pharmaceutical companies places tax risk high on the agenda for potential investors. Worse still, it is not the first instance of the government's U-turn on tax issues directly affecting businesses and even threatening their very existence. In a spectacular topsy-turvy journey through the intricacies of the labyrinthine tax system, JTT Computer won a case last year against the authorities, but still had to wait until January, or nearly half a year, before the zł.22 million of unduly claimed taxes was finally repaid. The wait was enough to bring the company to bankruptcy and, although this scenario is unlikely to happen in the case of, say, GlaxoSmithKline, which is currently waging a similar battle with the tax authorities, the new controversy has done nothing to reassure investors.
So instead of worrying about the outcome of the Berlin talks, we should perhaps concern ourselves with worries closer to home.
"Every zł.1 billion of savings chopped off the Hausner plan by the spendthrift government means a lot more in the eyes of investors than all the anger that German diplomats may be feeling at the moment," EBRD's Syryjczyk says. Piotr Chudzik, head of investment banking at Deutsche Bank, and thus presumably well placed to discuss the attitude of German businesses to the political conflicts between the two countries, concurs.
"We have never met with negative reactions [from business partners]," he says. "National stereotypes and inter-governmental conflicts do exist, but they should not influence investment decisions." He points out, however, that a report by an influential institution, painting a negative picture of Polish officials, could have an impact on the thinking of investors with no first-hand experience of the country. So Poland could, perhaps, suffer as a result of the government's tough negotiating tactics.
"Nice or death," Jan Rokita, an opposition leader from Civic Platform (PO), thundered in Parliament last year. The remark provoked many unfavorable comments on the part of Poland's EU partners, and in Germany in particular. "How can the Poles behave like this, after everything we have done for them," a German diplomat is said to have exclaimed in the corridors of Brussels after the constitutional debacle. But the country's politicians seem hardly affected by their partners' dismay, as President Aleksander Kwaśniewski said in an interview for the BBC last month.
"We are not afraid of suffering [as a result of the unwavering stand on voting powers in the EU]," he said, "Polish history is about suffering." While such a stance may win plaudits from the British Conservatives and stir some unpleasant memories among the diplomats of Europe's largest country, it does not do Poland any favors with businesses across its western border.
"No one is going to pull out of their investments here because of this," says an executive at a major German concern in this country, "But, if your country is seen as being downright difficult and politicians don't create a favorable impression, that is a consideration." He goes on to say that, while economic considerations are of supreme importance and businesses take decisions on a rational basis, "they are not as immune to sentiments as you might think. Just look at the stock markets."
The country could also risk looking somewhat ridiculous in the eyes of Europe, that businessman warns. While being, "aggressive on your national interests," to use Burson-Marsteller's wording, is hardly ridiculous, the elections to the European Parliament could change all that. The crop of 54 MEPs may well prove a rather curious mix and there is a distinct possibility that their rants will not encourage potential investors.
"If we cannot even choose a decent representation for the European Parliament, then that begs the question of what we are doing in the Union," says Wanda Rapaczynski, president of Agora, the country's largest media firm and publisher of daily Gazeta Wyborcza. She is not alone in worrying that the presence of Andrzej Lepper or his acolytes of the Self-Defense (Samoobrona) party in Strasbourg could reinforce the impression that this country is poorly prepared for accession.
So far, this impression has arisen not so much from political issues as from slow and inefficient administrative and judiciary procedures, not to mention the government's inability to curb the soaring levels of public debt. Add to that the possible embarrassment of extreme populists in Strasbourg and the opinion recently expressed by British Foreign Secretary Jack Straw that, in the face of enlargement, "[it is] logical to couple Britain with the Franco-German engine," then it is clear that the danger of Poland becoming marginalized within the EU may seem a very real possibility. This, local businesses agree, could hurt the economy and put the prospect of joining the monetary union beyond the foreseeable future. At the same time, however, that possibility seems to be considered unlikely.
Wanda Rapaczynski of Agora describes the idea of a "two-speed Europe" as "just so much empty talk," saying that it would be difficult to identify areas where member states would be able to co-operate in smaller groups without breaching Europe's treaties. EBRD's Syryjczyk is equally skeptical, pointing out that there are "many more than two speeds," and that those countries moving the fastest are not always the ones that like wallowing in the "ever closer Union" rhetoric. He cites the EC's recently published research indicating that such a euro-enthusiastic country as Belgium does in fact trail the euro-skeptics of Spain or the UK in terms of legal alignment.
Syryjczyk describes his own outlook as "perhaps technocratic, or a little naive," but in quantitative terms at least claims that, "you don't see the core integrating faster," than other countries, "or being that much of a core in most ways." Still, if Poland does not improve its performance on macroeconomic policy and administrative capability, the benefits from integration could be significantly reduced.
Although Józef Oleksy, deputy prime minister and the head of the parliamentary committee for EU affairs, recently said that, "we are better prepared for membership than the Union is prepared for enlargement," the state of the country's preparations has already set alarm bells ringing in Brussels. Poland was the first of the ten accession countries to see an investigation launched into suspected improper state aid.
Last month, the EC said it would begin an investigation into government bailouts of ten of the 17 power generation companies as soon as formally possible, or on May 1. The government claims that the subsidies are legal under EU law, as the companies in question have seen their bottom line affected by energy market liberalization and the resulting revocation of long-term contracts with the National Power Grid (PSE). The Commission counters, however, that while this may well be the case, the government has failed to provide the required details of the subsidies. According to an anonymous EC lawyer, quoted in the national press, "Poles are doing this because they know they are in the wrong."
Unfortunately, the same may apply to many more instances of state support for local businesses. The zł.120 million spent last year on boosting the equity of the Gdynia shipyard could well prove to be illegal under EU law. The Commission could also request details of the debt restructuring scheme for companies, introduced last year by Grzegorz Kołodko, the then deputy prime minister and minister for finance.
As sources within the Commission say, no other country is facing as many potential reversals of their state-aid decisions as Poland is. This could well prove to be much more of a headache for local businesses than local politicians' willingness to "die for Nice" and the resulting frictions with Poland's EU partners.
"Difficult to learn to work with," "extremely stubborn," and "the ones who will argue the most," - this is how officials at the European Commission (EC), speaking anonymously, describe Poland's representatives in Brussels, according to a report released last year by lobbying firm Burson-Marsteller. After the Brussels debacle over the constitution, tensions are rising even higher with the Germans making thinly-veiled threats that Poland's tough stance on the constitution could hurt its chances of attracting more structural funds in the next budgetary period (2007-2013). Some analysts worry that the country could face isolation within the enlarged Union, with the largest 'core' members taking the lead, which could have an effect on Poland's ability to push its national interests through the European bodies, including areas of vital interest to local and international investors here.
"The political tensions can have an effect in the longer term, affecting the quality of integration," says Tadeusz Syryjczyk, a director at the European Bank for Reconstruction and Development (EBRD). In the medium term, however, it is not a factor likely to affect the thinking of businesses. Corruption and taxes are more likely to play a role, he adds, saying that the country's standing on these issues has recently taken a battering.
Taxes may be lower here than in Germany, Syryjczyk says, but the recent controversy over alleged tax evasion by international pharmaceutical companies places tax risk high on the agenda for potential investors. Worse still, it is not the first instance of the government's U-turn on tax issues directly affecting businesses and even threatening their very existence. In a spectacular topsy-turvy journey through the intricacies of the labyrinthine tax system, JTT Computer won a case last year against the authorities, but still had to wait until January, or nearly half a year, before the zł.22 million of unduly claimed taxes was finally repaid. The wait was enough to bring the company to bankruptcy and, although this scenario is unlikely to happen in the case of, say, GlaxoSmithKline, which is currently waging a similar battle with the tax authorities, the new controversy has done nothing to reassure investors.
So instead of worrying about the outcome of the Berlin talks, we should perhaps concern ourselves with worries closer to home.
"Every zł.1 billion of savings chopped off the Hausner plan by the spendthrift government means a lot more in the eyes of investors than all the anger that German diplomats may be feeling at the moment," EBRD's Syryjczyk says. Piotr Chudzik, head of investment banking at Deutsche Bank, and thus presumably well placed to discuss the attitude of German businesses to the political conflicts between the two countries, concurs.
"We have never met with negative reactions [from business partners]," he says. "National stereotypes and inter-governmental conflicts do exist, but they should not influence investment decisions." He points out, however, that a report by an influential institution, painting a negative picture of Polish officials, could have an impact on the thinking of investors with no first-hand experience of the country. So Poland could, perhaps, suffer as a result of the government's tough negotiating tactics.
"Nice or death," Jan Rokita, an opposition leader from Civic Platform (PO), thundered in Parliament last year. The remark provoked many unfavorable comments on the part of Poland's EU partners, and in Germany in particular. "How can the Poles behave like this, after everything we have done for them," a German diplomat is said to have exclaimed in the corridors of Brussels after the constitutional debacle. But the country's politicians seem hardly affected by their partners' dismay, as President Aleksander Kwaśniewski said in an interview for the BBC last month.
"We are not afraid of suffering [as a result of the unwavering stand on voting powers in the EU]," he said, "Polish history is about suffering." While such a stance may win plaudits from the British Conservatives and stir some unpleasant memories among the diplomats of Europe's largest country, it does not do Poland any favors with businesses across its western border.
"No one is going to pull out of their investments here because of this," says an executive at a major German concern in this country, "But, if your country is seen as being downright difficult and politicians don't create a favorable impression, that is a consideration." He goes on to say that, while economic considerations are of supreme importance and businesses take decisions on a rational basis, "they are not as immune to sentiments as you might think. Just look at the stock markets."
The country could also risk looking somewhat ridiculous in the eyes of Europe, that businessman warns. While being, "aggressive on your national interests," to use Burson-Marsteller's wording, is hardly ridiculous, the elections to the European Parliament could change all that. The crop of 54 MEPs may well prove a rather curious mix and there is a distinct possibility that their rants will not encourage potential investors.
"If we cannot even choose a decent representation for the European Parliament, then that begs the question of what we are doing in the Union," says Wanda Rapaczynski, president of Agora, the country's largest media firm and publisher of daily Gazeta Wyborcza. She is not alone in worrying that the presence of Andrzej Lepper or his acolytes of the Self-Defense (Samoobrona) party in Strasbourg could reinforce the impression that this country is poorly prepared for accession.
So far, this impression has arisen not so much from political issues as from slow and inefficient administrative and judiciary procedures, not to mention the government's inability to curb the soaring levels of public debt. Add to that the possible embarrassment of extreme populists in Strasbourg and the opinion recently expressed by British Foreign Secretary Jack Straw that, in the face of enlargement, "[it is] logical to couple Britain with the Franco-German engine," then it is clear that the danger of Poland becoming marginalized within the EU may seem a very real possibility. This, local businesses agree, could hurt the economy and put the prospect of joining the monetary union beyond the foreseeable future. At the same time, however, that possibility seems to be considered unlikely.
Wanda Rapaczynski of Agora describes the idea of a "two-speed Europe" as "just so much empty talk," saying that it would be difficult to identify areas where member states would be able to co-operate in smaller groups without breaching Europe's treaties. EBRD's Syryjczyk is equally skeptical, pointing out that there are "many more than two speeds," and that those countries moving the fastest are not always the ones that like wallowing in the "ever closer Union" rhetoric. He cites the EC's recently published research indicating that such a euro-enthusiastic country as Belgium does in fact trail the euro-skeptics of Spain or the UK in terms of legal alignment.
Syryjczyk describes his own outlook as "perhaps technocratic, or a little naive," but in quantitative terms at least claims that, "you don't see the core integrating faster," than other countries, "or being that much of a core in most ways." Still, if Poland does not improve its performance on macroeconomic policy and administrative capability, the benefits from integration could be significantly reduced.
Although Józef Oleksy, deputy prime minister and the head of the parliamentary committee for EU affairs, recently said that, "we are better prepared for membership than the Union is prepared for enlargement," the state of the country's preparations has already set alarm bells ringing in Brussels. Poland was the first of the ten accession countries to see an investigation launched into suspected improper state aid.
Last month, the EC said it would begin an investigation into government bailouts of ten of the 17 power generation companies as soon as formally possible, or on May 1. The government claims that the subsidies are legal under EU law, as the companies in question have seen their bottom line affected by energy market liberalization and the resulting revocation of long-term contracts with the National Power Grid (PSE). The Commission counters, however, that while this may well be the case, the government has failed to provide the required details of the subsidies. According to an anonymous EC lawyer, quoted in the national press, "Poles are doing this because they know they are in the wrong."
Unfortunately, the same may apply to many more instances of state support for local businesses. The zł.120 million spent last year on boosting the equity of the Gdynia shipyard could well prove to be illegal under EU law. The Commission could also request details of the debt restructuring scheme for companies, introduced last year by Grzegorz Kołodko, the then deputy prime minister and minister for finance.
As sources within the Commission say, no other country is facing as many potential reversals of their state-aid decisions as Poland is. This could well prove to be much more of a headache for local businesses than local politicians' willingness to "die for Nice" and the resulting frictions with Poland's EU partners.
