Pension transfer to state will go ahead: Polish finance minister

Legal advisors warn pension overhaul could be unconstitutional
By Carolyn Cohn
||Last Updated: 11/04/2013

WARSAW (Reuters) – Poland's transfer of privately-run pensions to the state will go ahead early next year, despite a legal opinion that the move could be unconstitutional, finance minister Jacek Rostowski told Reuters on Monday.

Rostowski, who is also deputy prime minister, said in an interview that the economy would grow by around 1.5 per cent this year and 2.5 per cent next year, helped by a recovery in the euro zone.

But he said the currency bloc needs to have better safety measures to avert future crises among its members. Poland is a member of the European Union but has yet to adopt the euro.

Legal advisers to the Polish state said last week a planned overhaul of its pension system could be unconstitutional, dealing a blow to the government and potentially throwing next year's budget into disarray.

"In no way will it be an obstacle for the policy," Rostowski said, adding the process would take place on schedule. "We will be looking at (the opinion), analysing it and drawing conclusions."

The pension transfer, due to take place in February 2014, is designed to cut the country's debt to GDP ratio. But the State Treasury Solicitor's Office said the move amounted to "classic expropriation".

Market concern about the measure was short-lived. Analysts now say the overhaul may even underpin the bond market thanks to lower debt supply and the overall lower public debt burden, although stocks may be affected, depending on how much cash remains in the funds for investment.

If the reform is blocked or delayed on legal grounds, the immediate impact would be on next year's budget, which is built on the assumption that a large chunk of the assets in private pensions funds will come onto the state balance sheet.

Without this, the government would have less to spend on economic stimulus before a series of elections starting next year.

The move has met with criticism from ex-premier Jerzy Buzek and from the joint coordinator of Poland's transition from a planned to a market economy, Leszek Balcerowicz. President Bronislaw Komorowski also expressed doubts last month.


Poland has no schedule for euro zone entry. But Rostowski said the government plans to cut the country's debt to gross domestic product (GDP) ratio to below 40 per cent and to reduce unemployment in readiness for adopting the shared currency.

Prime Minister Donald Tusk said in 2008 that Poland would join the euro in 2012. But the financial and euro zone debt crises struck, and enthusiasm among voters has waned.

Rostowski said the euro zone, Poland's largest trading partner, was showing some signs of recovery, and would help Poland to grow more strongly next year.

"The euro zone economy has certainly stabilized and is slowly improving," he said, speaking on the sidelines of a Confederation of British Industry conference.

But the bloc should have a stronger raft of measures, he said, similar to the International Monetary Fund's standby loans, to support countries facing problems.

"The euro zone is a more demanding place to be than was maybe thought before the crisis. Not only does the euro zone needs to be repaired, we need to be far better prepared."

He said it was important that the ECB's review of bank assets next year was accompanied by a financial backstop for banks.

"Given that all that is properly sorted out, we see slow but steady recovery in the euro zone."

To complete the roll-out of Europe's banking union, European Central Bank executive board member Joerg Asmussen has called for a levy on banks to fund future rescues or closures. In the meantime, he has said the European Stability Mechanism Rescue fund should provide a backstop.

The EU is considering using a fund for non-euro zone states with balance of payments problems as a backstop for banks in those countries that fail regionwide financial health checks, EU officials said on Monday.

Polish central bank governor Marek Belka chairs the Vienna 2 initiative to prevent a disorderly deleveraging of western European banks from central Europe.

But Rostowski said he was not worried western banks would withdraw from Poland, one of the central European countries where homes and businesses have been hit by exposure to foreign currency loans.

"They didn't do it from Poland in 2009, they didn't do it in 2012, we do not have the least worry that they would in 2014," he said.

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