Banking in Poland. Tussles with Brussels

Date: 21/01/06

Polish protectionists take on the European Commission

BIG business and bossy outsiders are rarely popular, especially with economic nationalists, of whom Poland's new minority government has plenty. They are holding up the euro15 billion ($18 billion) takeover of Germany's HVB by Italy's UniCredit. This is just the sort of cross-border deal that Europe's fragmented financial industry needs. But in Poland it involves the merger of the second-biggest bank, Pekao (owned by UniCredit), with the third-biggest, BPH (controlled by HVB).

The EU's competition commissioner, Neelie Kroes, cleared the deal in October. Ms Kroes looked at its effects in Poland, but concluded that the country's banking market would still be competitive enough. But the Polish government is blocking the deal nonetheless. Partly, this is because it thinks there will be less competition. It also balks at the loss of around 9% of jobs in the merged banks. And it is indignant that the country's biggest bank will be run from a regional headquarters in Austria.

But the real reason is that the takeover is bad news for state-owned PKO BP, until now Poland's biggest bank. The new government wants to force UniCredit to sell some of its Polish assets, making the new bank smaller and less threatening. Naturally, it dislikes foreign bureaucrats telling it that all this is quite illegal.

Many Polish officials and politicians seem unaware that EU membership has limited their control over their own country. Told that the EU claims "exclusive competence" in competition policy, a spokesperson for the treasury ministry replies crisply: "Maybe they do." The chairman of the parliament's finance committee, Wojciech Jasinski, of the ruling Law and Justice party, said this week: "What the commission thinks should not have any impact on the approach of our government."

The politics may be compelling, but the legal case against the deal looks flimsy. The only grounds for blocking it are prudential--if it involved dirty money, or threatened the stability of the financial system. Officials at the National Bank of Poland, which supervises banks, agree that there is no sign of this. But the central bank is under political fire from the new government, which dislikes its tight-money policy. One government appointee on the bank's council, Cezary Mech, has already said he will vote against clearing the takeover, apparently on purely political grounds.

If Poles are spoiling for a fight with Brussels, the feeling is mutual. Ms Kroes's office sent a peremptory letter to Poland this week, asking for an explanation by January 23rd of official footdragging. Under EU law, the commission can issue a ruling that a Polish court would have to uphold, allowing the deal through. In theory, anyway. In practice, however, it could take three uncertain years. "That's the trouble with the EU admitting countries without a mature court system," says a Warsaw lawyer close to the case. "Polish judges...don't understand cases like this."

Delay and controversy would be bad for UniCredit, which is eager to get going in central Europe's biggest and most promising banking market. PMR, a Cracow consultancy, says Polish banking portfolios are bursting at the seams, chiefly thanks to booming mortgage business. So rather than be squeezed between the warring EU, government and central bank, UniCredit is looking for a compromise. A showdown might be an exemplary lesson for someone. But who wants to be the recipient?