Poland. Sunny prospects

An upturn in the Polish economy bolsters its government as well

THAT rarest of beasts, the happy farmer, has made an unexpected appearance in rural Poland this year, after the country's entry into the European Union on May 1st. Food prices have soared thanks to the opening of new markets in western Europe, helped by the arrival of big buyers from Germany and Scandinavia hunting for cheap beef and fruit. Hitherto truculent Polish farmers, who still make up a fifth of the country's workforce, may turn even more pro-European when their first subsidy payments arrive next month, courtesy of Europe's munificent common agricultural policy.

At this rate, Poland may even become a supporter of the EU's new constitution, despite having fought it so fiercely when it was under negotiation last year. A referendum on the constitution is pencilled in for late next year.

Poland's shoppers may be rather less enthusiastic about the EU, however. Fruit prices rose by 11% and meat prices by 5% in the month of July alone. The central bank says that food is mainly responsible for a rise in annual inflation to 4.6% in July, well above its target range. It has raised interest rates three times in the past three months, and looks likely to continue, pointing to the risk of rising wage demands.

But after three years of stagnation, growth is welcome even if it brings a few pains with it. Polish GDP rose by 6.9% year-on-year in the first quarter of 2004, and probably by 6% in the second quarter, buoyed by rising farm trade. “We grossly underestimated the positive effects of accession,” Marek Belka, Poland's prime minister, told The Economist last week.

The farmers may have been the most obvious gainers, but they are not the only ones. With no more customs formalities to slow trade between Poland and other EU countries, Polish trucking companies have increased productivity by 20-50%, says Mr Belka. Foreign direct investment is strong, especially in service industries. Germany's Commerzbank said last week that it planned to move some back-office operations to Poland. Other banks may follow.

Mr Belka suggests optimistically that Poland is heading for “a very long, good period” of economic growth. The past few years were difficult, he concedes, but they forced Polish companies into a “second wave of deep restructuring” that made them more competitive, helped by a depreciating currency.

Up to a point. The Polish economy grew only slowly in 2000-03, but employment actually fell, especially among export-oriented firms, implying that there were some productivity gains. If it is now to get on to a path of sustained high growth, Poland must encourage job creation, by easing tough labour laws and cutting back its wasteful social-security schemes. Mr Belka is making some small improvements here, but his minority Socialist government is too weak to make big ones, even if it wanted to.

Mr Belka was appointed prime minister by President Aleksander Kwasniewski after a split in the ruling Socialists had forced out Leszek Miller in May. Despite that precarious start, and talk of yet another confidence vote next month, Mr Belka may yet hold on until May 2005, his target date for the next general election. Opinion polls, and the results of June's European elections, have persuaded Polish opposition leaders that an earlier vote could return a parliament too fragmented to support any stable government at all.

A few more months of Mr Belka could give time for the Socialists to regroup, and for economic recovery to erode the appeal of Samoobrona (Self defence), a Eurosceptic farmers' movement. These things cannot alone guarantee Poland the strong, reformist government that it needs: for that, the centre-right would also have to unite. But a year or so at the top as a stabilising influence would still be an honourable record for Mr Belka, and it would surely make him a strong contender for the presidency when Mr Kwasniewski steps down next autumn.

An upturn in the Polish economy bolsters the government of Marek Belka.

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