The other European deficit problem

Posted by Izabella Kaminska on Feb 03 13:15. Comment.

The European Commission’s position on Greece may have been the key focus of market attention on Wednesday, but there was another country that also managed to draw some criticism from Brussels.

That country was Poland: More…

The European Commission’s position on Greece may have been the key focus of market attention on Wednesday, but there was another country that also managed to draw some criticism from Brussels.

That country was Poland:

Feb. 3 (Bloomberg) — Poland needs to take “sizeable” measures to bring its deficit down to the European Union limit by the 2012 deadline, the European Commission said.

There are “considerable risks attached to the fiscal strategy of the Polish authorities,” the commission, the EU’s Brussels-based executive, said in a report today. “Even taking into account the better-than-anticipated growth prospects, further sizeable consolidation measures” will be needed to cut the deficit to below the EU ceiling of 3 percent of gross domestic product.

Poland’s deficit swelled last year to 6.4 percent of GDP, the commission estimates, as tax revenue dropped and the government stepped up spending in a bid to boost the economy. This year, the deficit could widen to 7.5 percent, the third- largest projected among the 10 eastern members of the EU, according to commission forecasts.

The commission warned Poland that “new stimulus measures should be avoided, the 2010 budget be strictly implemented, windfall revenue be allocated to deficit reduction, and additional consolidation measures be prepared for the following years.”

Despite the above, governmental clashes over the country’s euro convergence plans and fiscal tightening measures persist.

Prime Minister Donald Tusk was expected to approve an updated plan for 2014 eurozone entry by Tuesday, dismissing junior-coalition partner concerns over the tightening path involved.

Nevertheless, by Wednesday (European) lunchtime the plan was still awaiting approval.

On the flip side, Tusk is said to be committed to the deal going through no later than February 9. If it does, Poland would then be on track to cut its deficit below 3 per cent of GDP by 2012.

Not that the recent delays haven’t worried some in the market.

Danske Bank analysts commented on Wednesday:

Last night the Polish Prime Minister Donald Tusk announced that the government had not approved the euro convergence plans, as the junior partner in the government coalition, the Polish Peasant Party (PSL), had some doubts. This is clearly bad news and is an indication that PSL does not support Finance Minister Rostowski’s plans for fiscal tightening.

The full EC report can be found in the usual place.

Related links:
Is Poland selling itself for nothing? – FT Alphaville
The EMEA debt dog – FT Alphaville
Poland is the new Hungary, says BNP Paribas- FT Alphaville

Is Poland selling itself for nothing?

Posted by Izabella Kaminska on Dec 04 12:14. 9 comments.

Budget deficits are increasingly being perceived as emerging Europe’s biggest problem.
Austria’s Erste Bank — a lender with more exposure to the region than most — picks up on the issue in a recent note, More…
Budget deficits are increasingly being perceived as emerging Europe’s biggest problem.
Austria’s Erste Bank — a lender with more exposure to the region than most — picks up on the issue in a recent note, with a focus on some of the options open to countries to counteract the situation.
According to an Erste survey, the three most common ways for governments to deal with budget deficits are privatisation of state owned assets, increases in value added tax (VAT) and cuts in public spending.
Not all are as effective as each other, however. As Erste found:The survey participants clearly evaluate spending cuts as the most effective one among these three measures. 40 percent assess its effectiveness as very high and another 37 percent as high. A VAT increase is evaluated less effective. 50 percent of the analysts appraise it as neutral, only 3 percent as very highly and 31 percent as highly effective. The least effective instrument in the expert’s assessment is privatisation, with 5 percent rating its effectiveness very high and only 23 percent as high. 44 percent of the answers are related to a low or a very low effectiveness. This might reflect the short term nature of privatisation in generating a single cash inflow and not affecting the budget in the long run.
Here meanwhile is the effectiveness of those measures in tabulated form — the darker the column the more effective the measure.
As for how that compares with the processes emerging European countries are planning to take to combat their budget deficits, Erste provides the following chart based on current government policy expectations:
As can be seen, one country in particular stands out in terms of the most ineffective measure (privatisation). It just so happens it’s also the country that many say is most at risk of breaching the European Union GDP-to-debt ceiling of 55 per cent and via that triggering automatic austerity measures. That country is Poland.
According to the FT, the Polish government is planning to sell 37bn zlotys worth of state assets in the next two years. Among the assets up for sale are the Warsaw Stock Exchange and Poland’s largest energy company PGE, as well as minority stakes in power producer Tauron, copper miner KGHM and refiner Lotos.
The list also includes lesser known pharmaceutical firms, a press distributor, fertiliser companies and chemical firms.
Of course, in case you were wondering why privatisation might be seen as an ineffective measure for combating budget deficits — it’s probably worth looking up some of Poland’s previous efforts in this area. (A hint, look up insurer PZU, energy company Enea, and power-and-telecoms group Elektrim.)

Related links:The EMEA debt dog - FT Alphaville
Poland is the new Hungary, says BNP Paribas- FT Alphaville
Poland Tackles Its Deficit With Privatization Spree - WSJ