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Poland Politics January 2017

Poland: European Commission invokes Article 7 on concerns over rule of law

On 20 December, the European Commission invoked Article 7 of the EU Treaty against Poland over controversial changes to Poland’s judicial system. The move, an unprecedented disciplinary measure, comes after months of clashes between the two sides. The Commission holds that recently-approved reforms endanger the rule of law in Poland, and that they pose a threat to the independence of the judiciary by bringing it under political control. The Commission gave the Polish government a three-month window to address its concerns. However, the government has so far rejected the Commission’s claims that the reforms threaten the rule of law and stated that the changes are needed to reform the court system. For the article to be triggered, four-fifths of EU member states still need to vote in favor of the commission’s proposal.

The move could lead to Poland’s legal standards being placed under monitoring by the EU; certain rights within the Union could be suspended, including voting rights. However, the suspension of voting rights would need to be backed unanimously by EU member states for adoption, and Hungary stated that it would veto sanctions on Poland, which makes the suspension of voting rights extremely unlikely. Markets were unfazed by Brussels’ move: Bond yields increased only marginally after the announcement, and the exchange rate of the zloty against the euro hardly moved.

If political tensions with the EU intensify, however, investors could grow increasingly worried, especially as EU members could decide to cut investment funds for Poland when negotiating allocations for the 2021–2027 budget cycle. That said, the Polish economy is set to post another robust increase this year, although growth should moderate from last year’s outstanding performance. Solid household spending growth and a faster expansion in fixed investment on the back of rising EU fund inflows are expected to support the economy in 2018.

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