Abstract
The short term development that continues to dominate is Poland’s
agreement, on August 20 2008, to
allow the US to install 10 interceptor
missiles on Polish territory. The agreement calls for deployment of
interceptor missiles in Poland and an advanced radar station in the Czech
Republic. The defenses are
designed to protect U.S. European allies from
the threat of long-range ballistic missiles and are, in
particular, aimed
at protecting Europe from potential attack by Iran. All 26 NATO allies are
backing the
deployment, which is, however, vehemently opposed by Russia.
The U.S. denies that the missile defense
poses any threat to
Russia’s ballistic arsenal, but their deployment has strained relations
between Poland
and Russia. In response to the development, Russia could
make an ‘asymmetrical response’ by supplying
Venezuela with
the superior S-300 air-defence system.
Poland is also currently attempting
to reduce its troop numbers, in line with NATO requirements. Thus
far the
scheme has proven successful, with the armed forces having fallen drastically
from a post-Cold
War level of 400,000 to 148,670 in 2007. The 2007 level
is expected to remain constant through the
forecast period. Key to reform
plans is the creation of a more professional defence force. In 2010,
Polish
armed forces will be around 70% volunteer compared with less than
65% in 2004. By 2010, the armed
forces should have 110 fully professional
units, with 40% of all units compliant with NATO standards.
The political
situation in Poland is still dominated by its push for Eurozone entry in 2011.
We are
doubtful that this timeline will be reached and forecast entry for
2013. Given that the EU will be faced
with managing the aftermath of the
global financial crisis and the Eurozone economic downturn, as well
as
potentially bailing out troubled states such as Romania and Bulgaria,
resources will be stretched thin
and the political will to expand the
Eurozone within the next few years may be lacking. Though the EU
will have
to accept Poland' s application at some point, we still maintain that 2011 will
be too soon given
that we expect the Eurozone slowdown to linger on well
into 2010.
The Polish economy continued to unwind during the second
quarter 2008, with growth of 5.8% year-onyear
marking the third successive
quarter of slowing expansion. While we expected to see economic
activity
continuing to moderate during the second half, we also believe that our
full-year growth forecast
of 5.4% was still on target. Moreover, with
external demand from the Eurozone likely to remain subdued
over the medium
term, and with tighter global liquidity feeding through to household spending
and
domestic investment, we expect economic growth to continue moderating
towards 3.5% in 2009 and
2.8% in 2010. While we believe that Poland' s
broad-based economy, relatively stable banking sector and
moderate degree
of external exposure will deflect the worst of the credit crunch, we
nonetheless continue
to highlight the risk of economic growth
undershooting our forecasts. Indeed, should the Eurozone
slowdown prove to
be more severe and protracted than we had expected, or a financial crisis
breaks out
and spreads through the more vulnerable economies in the
emerging Europe region, our relatively robust
growth forecasts may be
compromised.
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