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Poland gets public finance all clear

The European Council has taken Poland out of the Excessive Deficit Procedure, saying Warsaw has reduced its deficit to below three percent of GDP.

The Stability and Growth Pact is an agreement among the 28 member states of the EU. If a member state breaches the pact’s maximum limit for government deficit and debt, requests for corrective action are made through an Excessive Deficit Procedure (EDP) and if these corrective actions remain absent after warnings the member state can be hit with economic sanctions.

The formal decision on withdrawing the procedures against Poland was taken by EU members states’ finance ministers meeting in Luxembourg last month. Poland had been covered by the procedure since 2009. “The headline figure for the deficit was 3.2% of GDP in 2014, above the reference value of 3 percent of GDP. Costs are still occurring in 2014 from systemic pension reform in 1999 even after a law reversed the reform in December 2013. Once these net costs of pension reform from 1999 are taken into account, the deficit is below three percent of GDP in 2014 (2.7 percent in 2015).

Thus the Commission considers that Poland respects the deficit criterion of the Stability and Growth Pact,” the European Commission said in May after it made the decision. The decision allows for the Polish government to have a greater say on how public money is spent. It will allow Warsaw to raise public sector wages as well as introduce a tax break on research and development spending. “This means the end of special supervision of Polish public finances,” Finance Minister Mateusz Szczurek said 19 June.

He warned however that this was not permission to “become irresponsible.” EU commissioner Valdis Dombrovskis said Poland had only fallen below the three percent threshold after taking into account the costs of pension reform, estimated in 2014 at 0.4 percent of GDP. “It is necessary to note that Poland has held to the letter of the Growth and Stability Pact, but less so its spirit,” Dombrovskis said.

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