Tag Archives: European Union

“Where is Poland going” or “195 days with the new Government”

By Marcin Kovalevskij, Participant in the G-20 at BEF 2016.

Prior to the PiS party (Law and Justice, a right-wing party) achieving a majority in the parliamentary elections in late 2015, Poland has enjoyed eight years of relatively calm state governance by the PO party (Civil Platform, a central-right-wing party). It seems though that the Poles have achieved what they wanted – change. After the new Republic President Andrzej Duda signed the first set of new rules however, many Poles rushed out into the streets complaining about the violation of democracy. The changes adopted in the first months of its mandate by the incumbent Beata Szydło Government are significant. It ought to be said that without a majority in the parliament and the new President coming from the ruling party, the Government would not have been able to succeed in reforming the country, nor adopt controversial Constitutional Court and the public media acts[i] which today are one of the top discussion topics in Brussels. In order to see what is really happening in Poland, a quick overview of the most significant new law is required.

Starting with the most successful PiS coup de maître is the 500+ program[ii] which aims to counteract the diminishing birth rates and stop emigration. The plan is to encourage second and additional children regardless of family income through monthly 500 PLN handouts (EUR 114) until the children reach eighteen years of age. This social programme is a clever step forward considering the European phenomenon of negative birth rates and the associated consequences they may bring in the long-term. The initial secret of the success of this policy is by financing this incentive not through the national budget, but rather through a reform of the fiscal policy, including taxing financial institutions, banks and hypermarkets.

The second great legislative reform, the amendment to the Law on Broadcasting Act, is the one driving Poles to rush out into the streets in protest. The reformed act removes the mandate of the National Council of Radio and Television members to select management and supervisory boards of public radio and television, giving this power instead to the Minister of State Treasury. The outcome is clear – public media will be vulnerable to government pressure. This is therefore a first step in eliminating the main principles of a fair media: objectiveness, accurateness and reliability. Polish-Flag

The next Governmental change is the new reform to the Constitutional Tribunal Act of December 2015. This law has changed the quorum for the Polish Constitutional Court from 9 to 13 judges and amended process of hearing cases chronologically as they enter the court, whereby previously the more important cases were heard first. This change has caused domestic protests and criticism on the European level, as it threatens the rule of law and the human rights of Polish citizens. “Paralyzing the work of the Constitutional Tribunal poses a threat to the rule of law, democracy and protection of human rights,” according to the Venice Commission. In April 2016 however, PiS followed the recommendations from the Venice Commission and submitted a new Constitutional Court draft amendment to the Parliament, with changes to the previous controversial law, including increasing the quorum for the tribunal to 11 out of 15 judges.

It is worth noting that this is simply an overview of the few most significant changes adopted by the Polish Government. Other provocative new regulations were adopted, such as an amendment to the law on the civil service which changes the designation of higher positions in the civil service. Instead of the previous application and competition system, senior civil servants will be hired by appointment. As a result, this may increase nepotism and reduce the competence of the administrative branch. In addition, “coat hanger”[iii] protests took place in Warsaw in order to stop the possible adoption of strict anti-abortion laws which, if implemented, would make abortion almost impossible.

The success of right-wing parties in Europe, such as in Poland, can be explained very simply – there has been a saturation of liberal political systems which have adopted pro-immigration policies in response to the growing exodus from the Middle East. This helped the right-wing PiS to win elections and to pursue its political strategy. Nevertheless, the likelihood of PiS retaining its mandate for the next legislative period is modest, as public opposition to its policy is very significant given that the Government has been in power for little more than 195 days[iv].

Please note that the views expressed are those of the author and do not necessarily represent or reflect the views of Munich European Forum e.V.


 

[i] Constitutional Court and Public Media new laws http://www.bbc.com/news/world-europe-35786650

[ii] Poland +500 program http://inside-poland.com/t/polands-finance-minister-to-press-ahead-with-500-family-benefit-despite-report-that-government-cant-afford-it/

[iii] “Coat hanger” protests in Warsaw http://www.theguardian.com/world/2016/apr/03/warsaw-protest-against-proposed-abortion-ban

[iv] The current Polish Parliament has governed already for 195 days, with the first Parliamentary meeting taking place on 12 November 2015.

IMF Reform – What’s the Big Deal?

by Felix Moldovan – Former Vice President of the MEF Association

The IMF was created as a result of the Bretton Woods conference and was supposed to become a lender of last resort for countries that ran into financial difficulty. Together with the World Bank its main task was to reduce the adverse effects of cyclical downturns of the economy by introducing a fixed exchange rate mechanism and pegging the dollar to gold (which was later abandoned by President Nixon in 1971). Having as its main architects an English economist (John Maynard Keynes) and an American finance minister (Harry Dexter White) the power distribution within the organization, quite rightly, favored the western, developed nations.

Since its creation, the IMF has showed a remarkable resilience to modernize itself, the developed countries fiercely hanging on to the powers and influence within the organization that they received in 1944. Not trying to state the obvious, but the world economy has changed a lot since the 1940s. The past 30 years can best be characterized by an increasing shift in manufacturing and services from developed countries to developing countries. This has resulted in countries such as Brazil, Russia, India, China, and South Africa (BRICS) to produce such high levels of economic growth that in some aspects it resembles an economic miracle. Although the projections vary, some economists argue that the size of the BRICS economies might overtake that of the G7 as soon as 2027. The BRICS countries are the fastest growing emerging markets that encompass 25% of the world’s land and nearly 40% of the world’s population. The potential is enormous, the possibility is almost palpable, but the playing field is tilted in the opposite direction.

The three points I will discuss below have been talked about ad nauseam, but these are the key areas where the IMF needs reform. Please bear with me.

1) The executive board (Board) is comprised of chairs (one for each country represented on the board) and shares (voting power). Currently, the configuration of the Board perfectly represents the world economy of the 1940s. It is dominated by European countries and the only veto power belongs to the USA. This is clearly unfair and non-representative of our current global economy. That is why I think the following steps should be considered first in the reform of the executive board: (i) the European countries should send, with an equal voting share as the USA, one director to represent the European Union in front of the Board and (ii) the freed up seats should be distributed between heavily underrepresented areas of the planet (e.g. Asia and Africa). This would allow the developing nations to have a stronger influence on the decisions the IMF makes and possibly help change the unilateral and “universal” reform package defined by Washington Consensus and applied by the IMF.

2) The managing director should be appointed on merit and not on a political agenda. Since its creation, as a general rule, the USA and European countries have divided the role of Managing Director of the IMF and that of President of the World Bank between them. The World Bank was led by an American and the IMF by a European. It was and still is in fact a bullet proof way of defining the topics that make it to the discussion table and the topics that don’t.

3) Voting distribution. The voting power of each country is determined by the share it has in the capital of the fund. 15% of the votes are required to block any discussion in the Fund. The USA has always had a threshold that is higher than that (17%). Add to it the votes of France, Great Britain and other developed countries and you have a majority sufficient to push through any reform in the IMF. The latest crisis showed best how ill-equipped and ill-prepared the IMF actually is to combat the negative effects of a global economic downturn. The countries stuck in the periphery of the global economy were abandoned and disregarded because they did not have enough votes in the IMF to get the attention of the Fund.

There has been ample talk about reforming the voting system of the IMF and the 6% figure has become as big of a celebrity in the midst of economists as Paris Hilton in the midst of emotionally unstable teenage girls. The whole idea is to shift 6% of the voting rights that developed countries hold to developing countries (in this case mostly the BRICS). This would result in China having the third largest voting share and all of the BRICS countries making it to the top 10. A decision has been made on this effect during the G20 summit in Seoul of 2010 that would see the adoption and implementation of these measures by 2014. Whooohaaaa! Right? Wrong!

In order to implement major reform of the Fund an 85% majority needs to be reached. Do you know of any single country with voting rights exceeding the required 15% to unilaterally block any reform? That’s right, as the biggest contributor to the fund the United States of America has been blocking this initiative ever since the idea came under discussion. It is, rightly so I might add, afraid that it might lose its tight grip over the fund. Considering the alternatives I wonder if that would be such a bad thing. Here’s one alternative that might happen if nothing changes:

The veto power exercised by the USA with regards to the voting rights might please other western European countries, which have ratified the changes, but in the long term might prove to push the IMF, as a leading global financial institution, to the edge of a cliff. There have been rumors that the developing countries, led by the BRICS, are growing increasingly impatient with the USA and are discussing the creation of an alternative fund with similar scope and purpose as the IMF. China has started the business of lending money in 2001. The total volume of aid promised and given by China in 2001 was of USD 1.7 billion which a decade later has increased to USD 190 billion. Not only has China become a strong influence in the global market, it has the financial resources (it has foreign exchange reserves of 3.82 trillion dollars which is just above the GDP of Germany) and the increasing support of developing countries to create an institution that could financially as well as economically challenge the IMF.

Overall, if the IMF and western developed nations really want to put their money where their mouth is in terms of fighting economic inequality, then reforming the IMF will have to be the first step they take. Allowing developing countries to sit at the table where important decisions are made is not just an economic question but a moral and ethical one as well. Beyond the rhetoric of change, beyond all the numbers and statistics developed countries have a moral responsibility towards developing countries, ignoring it might come at a high price.

Please note that the views expressed are those of the author and do not necessarily represent or reflect the views of Munich European Forum e.V.