Understanding Poland

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Two years into Poland’s populist revolution, the European Union has recommended launching an unprecedented disciplinary process that could lead to penalties against the Polish government for failing to respect democratic standards. At stake is the value of Polish assets, with the zloty weakening when conflicts with the EU escalate, and the cohesion of the union itself, as an increasing number of governments challenge its liberal principles.

1. What triggered EU action?

Poland’s parliament this month backed rules that would force out some two-fifths of Supreme Court justices and give politicians more sway over a council that decides on court appointments. If signed into law by President Andrzej Duda, the rules would put at serious risk the independence of “all parts of the Polish judiciary,” according to the Venice Commission, which advises the Council of Europe human rights group on constitutional law.

2. Was there prior warning?

Yes. The European Commission, the EU’s executive arm, started investigating violations of the rule of law in Poland in January 2016. This was after the populist Law & Justice Party, the winner of 2015 elections, packed a different court, the Constitutional Tribunal, with party nominees, refused to appoint legally elected justices to the panel, and blocked publication of its rulings. In July 2016, the commission recommended remedial measures, which Poland’s government dismissed as interference in its affairs. A year later, the commission raised additional concerns about a law empowering the justice minister to remove and appoint the presidents of ordinary courts. The commission warned then of the possibility of disciplinary action.

3. What action will the EU take?

The commission on Wednesday proposed disciplining Poland using Article 7 of the Treaty of the European Union, a measure not taken before. The article is designed to ensure that the bloc’s states show “respect for human dignity, freedom, democracy, equality, the rule of law and human rights.” Under the procedure, a majority of four-fifths of members can determine “that there is a clear risk of a serious breach” of the EU’s fundamental values.

4. What are the possible penalties?

If four-fifths of EU members approve, Poland’s legal standards would be placed under monitoring by national governments in the Council of the EU. If the breach were to persist, fellow members could suspend certain rights that Poland enjoys as part the EU, including its voting rights in collective decisions. Such escalation, however, would require unanimous support from the bloc’s 27 other countries.

5. Does Poland have any allies?

Yes. It enjoys the support of Hungary, whose prime minister, Viktor Orban, has been steering his country on a similarly illiberal course. If it comes to a vote on sanctions, more nations might side with Poland in the spirit of supporting a fellow maverick state. Other former communist nations such as the Czech Republic, Slovakia and Romania have strayed from the EU mainstream by rejecting refugees or by planning to make it harder for officials to be prosecuted.

6. Does that mean sanctions are unlikely?

Through Article 7, yes. However, as the standoff escalates, EU officials are separately considering limiting access to EU funds in the post-2020 budget for any country that disrespects the bloc’s values. Officials in Germany and France, the EU’s biggest paymasters, face pressure from taxpayers to make such cutbacks, which could seriously harm Poland, the biggest net beneficiary. The bloc has pledged to deliver a total of 229 billion euros ($271 billion) in aid to Poland through 2021. The money has helped power the Polish economy, contributing as much as a percentage point of growth in GDP each year.

7. Does the commission have other tools?

It can, and has, referred Poland to the EU’s Court of Justice for other infringements of bloc policy. In July, the EU took Poland to the court over its increased logging in the Bialowieza forest, which threatened protected species and habitats. In November, the court ordered a stoppage or fines of at least 100,000 euros a day. In December, the commission took Poland, Hungary and the Czech Republic to the court for refusing to comply with EU decisions taken in 2015 to relocate or resettle immigrants who are part of the biggest influx of asylum seekers to Europe since World War II. On Dec. 20, the Commission may also take Poland to court in a process which challenges the law on ordinary courts amid concerns it gives justice minister excessive power over the judiciary, according to the Polish Press Agency. On Wednesday the commission also took Poland to court in a process which challenges the law on ordinary courts amid concerns it gives the justice minister excessive powers to dismiss and appoint court presidents.

8. How is Poland responding?

By insisting that the EU mind its own business. Also by needling Germany, the most powerful member of the bloc, which, Poland says, owes it war reparations. That has reopened an issue Germany has considered closed since the 1990s after subsequent Polish governments declared the end of the matter based on treaties from 1970 and 1990. Polish officials are also preparing new rules restricting foreign ownership of media, expressing concerns that Germans, especially, have become dominant in some segments of the industry.

9. What might this dispute mean for markets?

Poland’s economic performance has been robust, and the zloty has been the best performer among emerging-market currencies after the Czech koruna. However, the currency has proven vulnerable in moments when the conflict escalates as shown during street protests in July or when concerns about Poland’s sovereign ratings have mounted amid the dispute. And the conflict between Poland and the EU is only now coming to a boil. More criticism from the European Commission is likely to undermine Poland’s status as a safe investment bet.

The Reference Shelf

  • A QuickTake explainer on Poland’s populist turn.
  • Poland invoked Vichy France to defend its judicial overhaul.
  • A Polish politics blog by Aleks Szczerbiak, professor of politics and contemporary European studies at the University of Sussex.
  • A Bloomberg data visualization on how the populist right is redrawing the map of Europe.

— With assistance by Nikos Chrysoloras, Jonathan Stearns, and Ewa Krukowska

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