Bad news from the EU? The MPC member warns: Poland will be subject to the excessive deficit procedure

– The Commission may impose an excessive deficit procedure and give, for example, 4 years to adjust to a deficit of max. 3 percent GDP. Then it is not painful, although it disciplines and tightens fiscal policy, which is very important from the point of view of monetary policy. So far, we have had inconsistent economic policy: monetary policy has been tight and anti-inflation, while policy has been loose and pro-inflation. The fact of imposing the excessive deficit procedure will cause it to be an additional factor disciplining public finances in the coming years and will support the operation of monetary policy, Kotecki said in an interview with .

Is Poland at risk of excessive deficit procedure?

A member of the Monetary Policy Council stated that even excluding military spending from the deficit, as Prime Minister Mateusz Morawiecki sought, would not be that simple and “possibly it will only help a little in the future, but not at the stage of the decision on the excessive deficit procedure itself.” Ludwik Kotecki also estimated that the deficit of the government and local government sector (so-called general government) may amount to approximately 6%. GDP in 2023

This triggers the excessive deficit procedure and only at this point does some nuance begin, i.e. looking at why these finances are so unsustainable. We are to have the second highest deficit in the EU. If it were the case that our deficit was 3.5%. GDP and we would have higher military spending this year, for example by 1 percentage point. GDP than in previous years, we could count on the recognition of a certain “relevant factor” and refraining from imposing an excessive deficit procedure on us. But this has nothing to do with Poland’s situation at all

– says the MPC member.

Ludwik Kotecki also said that if the European Commission, and then the EU Council, expects moderately restrictive actions towards Poland, the current expansionary fiscal policy, being tightened, will strengthen the effects of the monetary authorities’ actions. Paradoxically, it may also reduce the costs of servicing public debt.

Prime Minister Mateusz Morawiecki talked about the budget deficit. “Where is the objectivity here?”

The European Commission can launch an excessive deficit procedure, approved by a vote of the EU Council, if a member state breaches or is at risk of breaching the 3% deficit threshold. GDP. The second variant enabling the activation of the mechanism concerns a situation in which the public debt exceeds 60%. GDP and is not decreasing at a satisfactory pace. Being included in the procedure requires a country to submit a corrective action plan and the policies it will implement, as well as deadlines for achieving these goals.

Poland was subject to the excessive deficit procedure in 2004-2008 and 2009-2015. The current draft budget for 2024 assumes a deficit of almost PLN 165 billion. This is 4.5 percent. in relation to GDP. This means that Poland may be at risk of the EU’s excessive deficit procedure.

During the EU mini-summit in Zagreb, the Prime Minister expressed his belief that military spending should be excluded from the EU excessive deficit procedure. – I gave the example that Poland spends over 4%. GDP for defense and ours is over 4.5%, so the vast majority of this deficit depends on defense spending. Where is the objectivity here? Where is the justice compared to those countries that spend far less on defense? And this postulate also met with great interest here, said Morawiecki.