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The Hidden Dependence in Poland’s Defiance

Its politics have drifted from the EU, but Poland’s economy and national security strategy still revolve around membership.

Deep Dive

|January 19, 2018

Summary

In 2016, the European Union had to decide what to do when a member no longer wants to be a member. At the end of 2017, it had to decide how to handle a member that is not behaving as it believes a member should. The Polish government, says the European Commission, has through a series of judiciary reforms breached fundamental EU values, including the rule of law. And on Dec. 20, the commission took the unprecedented step of invoking Article 7.

Once Article 7 is triggered, its target is subjected to increasingly severe disciplinary measures unless and until it acquiesces. One of the early penalties is the suspension of EU funding to the offending state. By the end of the process, the member state is at risk of losing its voting rights in the European Council. If fully applied, Article 7 would effectively deprive Poland of the rights of EU membership.  

In Poland’s case, the process is unlikely to get that far, not least because to get there would require consensus among all other EU member states. Still, Warsaw has taken steps to work with Brussels, including replacing five government ministers shortly before the prime minister traveled to Brussels for his first meeting with EU officials. Yet the Polish government will not roll back the controversial measures that started the dispute, the prime minister said. In this Deep Dive, we will discuss how far Poland can and can’t go in the negotiations with the European Union, taking into account Poland’s political ties with the EU, its economic situation and dependence on EU funding, and its security imperatives.

Damage Control

The standoff between Brussels and Warsaw has been a few years in the making and centers on the Polish government’s increasingly brazen infringements upon the judicial system. The ruling Law and Justice party, or PiS, passed a string of reforms that, among other things, lowered the retirement age for judges, empowered the president to extend the mandate of Supreme Court justices and established an extraordinary appeal procedure that enables the courts to reopen years-old judgments with the support of the prosecutor general. The reduced retirement age would force as much as 40 percent of judges in the Supreme Court to step down, all while giving politicians control over the body that would appoint their replacements. Amid charges that the measures will politicize Poland’s courts, the European Commission invoked Article 7.

Article 7 is intended to punish member states that fail to live up to the ideals of the EU: “respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights, including the rights of persons belonging to minorities.” Article 7 can be proposed only by the European Commission, but proceedings can’t begin without the consent of the European Parliament and approval by at least four-fifths of the European Council. At the moment, the article has only been proposed, not approved. Poland has three months to address the European Commission’s concerns.

The Polish government has been discussing and enacting the controversial judicial reforms since the PiS was elected in 2015, and the EU has been threatening the country with Article 7 almost as long. The government ignored the warnings from Brussels, however, and once protests in Poland against the reforms died down and it was apparent that the government was not at risk of being overthrown, it signed them into law.

With the reforms passed, Warsaw feels confident that it can sit down with officials in Brussels to negotiate a resolution to the Article 7 proceedings, so long as that resolution doesn’t affect the party’s popularity at home. It won’t be easy. The government has its own domestic agenda, which it somehow needs to sell to Brussels. Moreover, Polish citizens are among the most pro-European in the EU. For the past 10 years, the Polish population’s support for the EU has ranged from 70 percent to 90 percent, with the latest polls putting it at 88 percent. PiS can push back to an extent, but if it goes too far it risks losing voters.

In January, PiS signaled to Brussels that it was ready to address the rifts in the relationship when it replaced some of the most unpopular and contentious ministers in the government. Defense Minister Antoni Macierewicz, Foreign Minister Witold Waszczykowski, Health Minister Konstanty Radziwill and Environment Minister Jan Szyszko were removed. But Justice Minister Zbigniew Ziobro, who oversaw the judicial reforms that were at the center of the dispute, was not dismissed. All of the ousted ministers represented the most conservative wing of the PiS. Their replacements are all moderates and were announced just hours before Prime Minister Mateusz Morawiecki made his inaugural visit to Brussels. The overhaul, Morawiecki said, was done to address Brussels’ concerns (though it could also help the ruling party in the local elections in the fall, general elections in 2019 and the presidential election in 2020).

The ruling party, however, has no intention of canceling its reforms. Its “negotiation strategy” will instead begin by trying to influence the vote in the European Parliament, which needs to give its consent for Article 7 to be discussed in the European Council. If an absolute majority of the parliament agrees, consent is given. Within the European Parliament, the European Conservatives and Reformists group, of which PiS is a member, has less than 10 percent of the votes. With a more moderate government in place, though, Warsaw may convince other groups, such as the European People’s Party – the largest contingent in the current parliament – to support Poland. Failing that, the government would likely need to make concessions so that it could come to an agreement with the European Commission.

If Poland can’t stop Article 7 proceedings, then EU member states will have to vote on whether Poland can keep its voting rights in the bloc. To prepare for this potential outcome, Warsaw will likely be negotiating on the sidelines with individual EU member states to try to win their support. Poland currently relies on Hungary, which has had similarly tense relations with Brussels in the past. Knowing it might be next to face the wrath of Brussels if the measure against Poland succeeds, Hungary has strong incentive to oppose it. Still, Warsaw can’t rule out last-minute surprises from Budapest. It’s happened before, such as when Hungary voted to extend the mandate for Donald Tusk as European Council president even though Poland’s governing party was deeply opposed at the time.

Two other countries could come to Poland’s aid: the traditionally euroskeptic Czech Republic and Poland’s strategic partner in Eastern Europe, Romania. It’s unclear at the moment, however, which side they would come down on. The Czech Republic has distanced itself from Poland since the election of Prime Minister Andrej Babis in December. Babis represents the ANO party, a centrist, populist party that is ideologically closer to liberals than to conservatives like the PiS. Romania, whose government has also been criticized by Brussels over its own issues with the rule of law, is also led by Social Democrats. Warsaw’s move to replace conservative ministers with moderates should give it a better chance to find common ground with these governments, but that is far from assured.

The Price of Dependence

Poland has economic and national security reasons for trying to stop the Article 7 proceedings. Its economy is the largest in Eastern Europe and one of the most dynamic in all of Europe. Through the toughest years of the economic crisis in Europe, it was resilient, though its dependence on exports has grown. According to the World Bank, Poland’s trade-to-GDP ratio increased from 37 percent in 2009 to just over 52 percent in 2016. But though exports are the engine of Poland’s economy, it also features strong private consumption and moderate public consumption, in part driven by the state’s stimulus and public investment.


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There are strong indicators that Poland’s economy will continue to grow. Imports have outpaced exports in most years since the 2008 crash. Only during the past three years have net exports registered positive values, standing at 4 percent of GDP during the first three quarters of 2017. Though total investment since 2008 accounts for around 17 percent of GDP, most of that is public investment. Investment in the manufacturing sector, the driver of Polish exports, has grown from 30 percent to 40 percent of total investment in the economy since 2015, accounting for about 2 percent of GDP and indicating that businesses are slightly more optimistic than before about the future.

To understand why optimism has increased since 2015 despite Poland’s high dependence on exports (they make up over half of the country’s GDP), we need to look at Poland’s export market. Eighty percent of Polish exports go to the EU, and of these, more than 90 percent are sold in Western Europe. Germany is the most important export partner for Poland, receiving about 40 percent of Polish exports to the EU and 30 percent of all Polish exports. As growth returned to the EU, and especially the eurozone, it was only natural that Polish growth rates would increase as well.

But dependence on the EU market, and the German market in particular, comes at a cost. Poland’s trade relationship with Germany (and some countries in Eastern Europe) is thus: Poland sells parts or semi-finished goods to Germany. Germany then packages those into finished products and exports them worldwide. One recipient of the finished goods is Poland. In fact, about 40 percent of Poland’s imports from the EU and 30 percent of its global imports come from Germany. In other words, Polish-German trade is nearly perfectly balanced. With almost no gain in value, Poland’s export performance depends on how German exports are doing.

Though the economies of the EU have recovered some since 2008, Poland’s private sector is still dangerously dependent on the Western European market, and thus corporate investment has been hurt. Polish businesses have instead counted on government investment, supported by EU funds, to maintain economic growth. According to Eurostat, the European Union’s statistics agency, EU spending in Poland accounts for 3.25 percent of the country’s gross national income. Data from the Polish statistics agency shows that from 2008 to 2015, government spending supported by EU funding accounted for an average of 5.1 percent of Poland’s GDP each year.

And yet Poland is among the smallest contributors to the EU budget. In 2016, Poland contributed about 3.55 billion euros ($4.35 billion) to the budget, while EU spending in Poland totaled nearly 10.64 billion euros. By comparison, Germany – among the top contributors to the EU budget – sent more than 23.27 billion euros to the budget but received only 10.08 billion euros, less than Poland did. This is how the system was designed – member states contribute a percentage of their gross national income – but the difference between net winners and losers can be stark.


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Most of the EU budget is dedicated to promoting economic growth in poorer member states for the sake of cohesion. In 2015, 34 percent of the budget went to the bloc’s poorer regions. The wealthier countries like Germany and France are net contributors, while the Eastern Europeans and countries like Greece, Portugal and Poland are net recipients.

But the status quo will be up for debate in 2020. The EU sets budgets for a multiyear period. The current budget started in 2014 and expires in 2020. The European Union has undergone two major changes since those budget discussions: the refugee crisis and Brexit. The European Commission has already said the remaining member states will need to contribute more funds than they have in the past for the next budget, which will begin in 2021 and last at least five years. But some member states have argued that EU funding should be directed not so much toward poorer states but toward those states most affected by the migration crisis.

Given how much Poland’s economic development hinges on EU funding, Warsaw needs to be sure it has a say in the next budgetary framework. For Poland, it is less important that migration policy gets more funding in the new budget. After all, most migrants go to Northern and Western European countries, especially Germany. Poland and the Eastern European countries don’t feel threatened by the security challenges posed by the wave of refugees. Warsaw is, however, in favor of increasing member states’ contribution quotas so that it can have access to more funding to invest in its own economic development.

For this to happen, Poland needs to stop the Article 7 process. The consequences would be severe if Poland were to lose access to EU funding, which it uses to invest in infrastructure development and private business. And if it loses its voting rights, Warsaw will have no say in the upcoming budgetary framework.

Membership Benefits

Before the 2008 economic crisis, there were scenarios in which Germany, not wanting to shoulder the cost of maintaining the EU, might have loosened its ties with the bloc and moved closer to Russia. This would have been disastrous for Poland, but the alternative hasn’t been much better. The crash heightened Germany’s economic dependence on trade with the bloc, and the Ukraine crisis in 2014 significantly altered European countries’ perceptions of Russia’s intentions. Germany instead became the de facto leader of the EU in dealing with the economic crisis and Ukraine.

Poland feels safest when the countries to its west and east – Germany and Russia – are weak. Throughout history, when Germany and Russia are powerful or aggressive, it is Poland that suffers. Neither is especially strong right now, but weakness can just as easily lead them to aggression. Russia lost its pro-Russian government in Ukraine to the West, and now its economy is in shambles. Germany has had to manage the migration crisis while trying to keep the EU together. Both have geopolitical imperatives to control the North European Plain – which runs through Poland.

Historically, when Germany or Russia emerge as potential aggressors on the North European Plain, Poland has had three options. First, if it is politically and economically stable (which, at the moment, it is not), it can simply resist. Second, it can ally with either Germany or Russia for protection – but dependence on either of them for security invites the possibility of occupation or absorption. Third, it can find an outside power to guarantee its interests. The downside, of course, is that it may not always be in the outside power’s interest to come to Poland’s aid when it needs it.

After the Cold War, a fourth option appeared: membership in multilateral organizations such as NATO and the European Union. Both NATO and the EU bring Germany and Poland under the same umbrella, removing Germany as a security threat and leaving only Russia to worry Poland. But this solution is effective only as long as both organizations are reliable and functional and keep member states more or less committed to common goals.

The European Union, of course, isn’t as unified as it once was, and NATO’s ability to field a force to resist Russia is currently dependent less on the Europeans and more on the Americans. It’s in Poland’s interest to stay in the EU and, most important, for the EU to continue to contain Germany. But deepening ties with the U.S. must be Poland’s top priority.

It’s a dangerous position to be in, so Poland is trying to develop its own means to assure its national security. To do so, Warsaw needs to not only invest in improving its own military, but it must also strengthen the country’s overall security infrastructure. This means building up its economy, which at the moment depends on Poland’s relationship with the EU and, ultimately, with Germany. Fortunately for Poland, there are some partners to the east that can help it reduce its economic dependence on Germany.

Among NATO’s easternmost members, and with the support of the U.S., a new containment line has been formed from the Baltic to the Black Sea. Poland is a critical part of this defensive effort. It is also growing its trade relationship with those countries and the United States. In its dream scenario, Poland will build its own coalition within the EU that will enable it to push back against Germany’s attempts to define EU rules. So long as the EU exists, Warsaw must have a say in it to prevent Berlin from taking over.

Conclusion

The European Union began as a free trade zone. Now it’s an economic union defined by a single market. No one country’s government is in control of it – it’s governed by a complex system where the member states’ politics interact with Brussels’ bureaucracy, defining rules and laws for the entire union. Warsaw, in the bureaucracy’s eyes, crossed a line. Brussels started the formal process of condemning Warsaw’s perceived misdeeds, and Warsaw took steps to change its government in a way that, it hopes, will make negotiating with Brussels possible.

In the long term, Poland is destined to become a regional power. Its economy is dynamic, and its rivals to the east and west are weakening. The cracks in Russia’s foundation are too deep to ignore, and Germany’s will appear in time. But for now, Poland still needs EU funding to facilitate its economic growth, and it needs access to the EU market to sell its goods.

It can’t afford to lose the privileges of EU membership. But while it tries to patch things up with the bloc, it will also be working to cement alliances with the other Eastern European states, and one day take a leading role in the region.

Editor’s note: An earlier version of this analysis incorrectly identified the party Andrej Babis represents. It is the ANO party. The error has been corrected on site.