Region: Polish-German austerity alliance a tough sell

 Since French President Nicolas Sarkozy lost his re-election in May of last year and the United Kingdom's David Cameron is entertaining the notion of leaving the European Union altogether, German Chancellor Angela Merkel's government find itself with precious few conservative allies in Europe. Neighboring Poland looks like a natural partner when it comes to economic and fiscal policy, but strategically it cannot afford to lean too much on the Germans.

Even if Germany still holds the purse strings in Europe - it is an engine for growth in the eurozone, and its taxpayers are the main creditors of peripheral nations that teetered on the brink of sovereign default during the Continent's debt crises - the "austerity camp" has been shrinking, forcing Berlin and its representatives to the European Central Bank in Frankfurt into compromises it may have been loath to make a few years ago. The conservatives have been ousted in France. Italy's technocrat Prime Minister Mario Monti looks certain to be replaced by a left-wing leader later this month. Even Dutch Prime Minister Mark Rutte, previously a stalwart German ally in the campaign for fiscal consolidation in Europe, now governs with a Labor Party and is struggling to keep his deficit under 3 percent of gross domestic product as prescribed by European treaty.

Meanwhile, UK Prime Minister Cameron has cast doubt upon his country's future membership of the European Union with the announcement of a referendum after the next election, enabling Mediterranean and more instinctively protectionist countries to dismiss his calls for liberalization of the single market, especially in the service industries. Why bother with British demands when they could be out in a few years?

The Germans, who share the United Kingdom's goals of strengthening Europe's internal market and boosting trade with rising powers in Asia and Latin America, can hardly afford to push for such reforms on their own while their priority is to contain the debt crisis and maintain confidence in the single currency. Without solid allies, it's difficult enough to convince the rest of the bloc to go along with fiscal changes to that end.

But, there is Poland. Like Germany's, its government is committed to fiscal consolidation. Like Germany, it keeps taxes low. Poland's 23 percent top income tax rate is even lower than Germany's 45 percent while the latter's 15.8 percent corporate tax is far lower than France's 34.4 percent.

Like Germany's once was, Poland's central bank is focused on taming inflation, not financing the deficit spending of the state. And, like Germany, Poland would like to see Common Agricultural Policy spending reduced.

France's farming industry is relatively smaller than Poland's, yet it gets larger subsidies from Brussels while structural and cohesion funds, designed to accelerate economic expansion in former Soviet satellite states like Poland, are cut. "All those who want growth in Europe, all those who think seriously about more jobs, investments to emerge from the crisis, should support Poland in our efforts for a bigger cohesion fund," argued Prime Minister Donald Tusk ahead of European budget talks Nov. 22 last year. But while several billions of euros were added to the cohesion budget, agriculture subsidies were also raised.

German and Polish policy priorities are aligned on these issues, yet Merkel seeks to strengthen cooperation with the Socialist government in Paris instead of Warsaw as she must recognize the divergence in strategic interests with the latter. Especially as Germany plans to abandon nuclear energy altogether and is unlikely to meet its renewable energy targets in the short term, the country will depend all the more heavily on Russian natural gas imports in years to come which raises the specter of an axis Berlin-Moscow in Poland.

The construction of the Nord Stream pipeline in the Baltic Sea embodies Polish and Central European fears of Germany balancing its relations with Russia at the expense of its neighboring EU member states which depend even more on Russian gas. If they are embroiled in energy disputes with Russia, Germany is unlikely to stand up and advocate their interests when it cannot afford a suspension in gas transits itself.

The Poles, moreover, remember all too well the consequences of a German-Russian understanding. On the eve of World War II, its neighbors carved up the country while pledging nonaggression toward each other. Germany invaded western Poland; the Soviets annexed the eastern part of the country as well as the Baltic states.

Hence Polish Foreign Affairs Minister Radosław Sikorski's warning Feb. 3 last year when he told the Germans they "shouldn't even try" to attain hegemony in Europe because his country "always automatically adds allies" when its western neighbor gets "too big for its boots."

France, too, has a stake in preventing too close a relationship between Berlin and Moscow that would dilute its own influence in Europe. It therefore shouldn't push for too much compromise on austerity, even if President François Hollande campaigned passionately against it, or risk hardening the Germans in their resolve.

As for the Poles, their economic and strategic interests contradict each other. They appreciate Germany's insistence on fiscal consolidation and liberalization, which the French are wary of, but should be more concerned about a rift in Franco-German relations that could force Berlin into a condominium with the Russians. The latter has the priority, which is why Poland ultimately cannot afford to be an ally for German austerity.

Nick Ottens can be reached at
news@praguepost.com