January 15, 2006	Sunday	Zilhaj 14, 1426

WARSAW: Renewed political turmoil in Poland, which could end up with populist, anti-market parties joining the government, is a taste of things to come as elections loom across ex-communist “New Europe”.

Poland, the largest nation to enter the EU in its eastward enlargement in 2004, held elections last September that gave a clear majority to parties either mildly or strongly eurosceptic.

The biggest, Law and Justice, formed a minority government promising a more “patriotic” course and a more cautious approach to economic reforms than Poland pursued for 16 years as it chased the European Union dream.

This week the party again spurned a pro-business former ally as a likely coalition partner and signalled an alliance with forces on the left and right which are openly hostile to market economics and which had opposed EU entry.

A regional spillover is likely, analysts say, as parties with similar rhetoric to Law and Justice and anti-market populists are set to make gains in elections in neighbouring Hungary, Czech Republic and Slovakia.

“Last year’s elections in Poland might be a sign of things to come this year for most of the rest of Central Europe,” said Paul Lewis, a Prague-based analyst with the Economist Intelligence Unit.

“There could be a major shift ... we’re looking at a more nationalist type of opposition party, rather than a pro-market side, so on the whole this would be negative for investors.”

The prospect of a turn towards euroscepticism is worrying financial markets which bet billions of euros on Poland’s and the region’s speedy convergence with the rest of the EU and adoption of the euro around the year 2010.

But with Law and Justice and its allies opposing deep fiscal reforms and saying adopting the euro would mean surrendering even more power to “Brussels”, markets are pushing back expected entry after 2012.

“There is a clear delay in the euro adoption timetable in Poland from 2009 to 2012,” said Arkadiusz Krzesniak, analyst at Deutsche Bank in Warsaw. “This is because of the political cost of meeting the fiscal criteria for entry.”

In Hungary, the conservative opposition Fidesz party is a whisker ahead of the ruling Socialists in surveys ahead of elections likely in April or May.

Its leader Victor Orban, although supporting euro membership in principle, shows little appetite for deep reforms to curb the country’s bloated budget deficit and strikes populist tones vowing to curb “wild capitalism” and stop privatisation.

In the Czech Republic, openly eurosceptic President Vaclav Klaus may soon see his hand strengthened if his conservative allies, ahead in surveys, defeat the ruling leftists in elections likely in June.

A prospect of a hung parliament and Polish-style wrangling between parties or a weak minority rule is also likely there because the conservatives may not win an outright majority.

But the biggest risk is in Slovakia, a darling of investors thanks to the steady, pro-market course of Christian Democrat Prime Minister Mikulas Dzurinda.

Polls show Dzurinda’s ruling alliance may be unseated in elections due around the summer by anti-market, leftist Smer, who like some of the Polish parties opposed EU entry.

Analysts and Western diplomats say the political upheaval across the region this year is likely to make it more introvert after years of focus on the overarching goal of joining the EU.

They say, however, that any instability is not going to be acute as no party in the region is seriously suggesting pulling out of the EU or reversing market reforms in a significant way.—Reuters