Poland Expects to Face EU Infringement Procedure Over Deficit

(Bloomberg) -- Poland’s Finance Minister Andrzej Domanski expects the country will face the European Union’s procedure for its excessive deficit last year.

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Domanski told reporters on Monday he hopes the EU’s executive will be lenient in demanding budget cuts because the government needs to increase defense spending.

“The procedure will be definitely launched,” he said on the sidelines of a financial congress in Sopot, northern Poland. “We invest in the security for the whole of the European Union and if the EU’s recommendations are imposed on Poland — and I still hope they aren’t — they will be very mild.”

The government of Prime Minister Donald Tusk has inherited a budget gap of 5.1% of economic output last year as spending surged ahead of October parliamentary elections, which his coalition unexpectedly won.

Since taking office, Tusk had been reluctant to curtail spending for the fear of alienating voters as his party faced local election in April and a European parliament ballot on Sunday. Meanwhile, defense spending reached around 4% of economic output.

“Punishing Poland for spending that much on defense is unfounded in the context of European solidarity discussions,” he said.

EU members need to keep their deficit below 3% limit and breaching it triggers recommendations for bringing the shortfall under control.

Budget constraints mean there is no room for the government to give up on significant sources of budget revenue, including a bank tax. according to Domanski. Finance minister is ready to talk about the levy with the industry to help boost lending.

Tight fiscal situation may also affect the pace of Poland’s energy transition. While it needs to accelerate, the budget can’t suffer from a potential spin-off of debt-heavy coal assets from state-run utilities, he said.

--With assistance from Konrad Krasuski.

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