Polish Government’s Vetoing of EU Budget Is Harmful, Uses False Argumentation

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The Board of the Association of Polish Economists opposes the veto of the EU budget and emphasizes importance of the rule of law for Poland.

  • Without the rule of law, there will be no economic development;
  • Poland has gained more from the EU membership than a pure inflow of EU funds and much more than large richer countries, and falsifying the above is pure manipulation;
  • Economic openness, foreign investments are beneficial for economic development;
  • Vetoing the EU budget by the Polish government is harmful to Polish society, it will cause irreversible losses.

Increasing the prosperity of our society requires building a modern, innovative and resilient economy. And this requires openness to the world and the rule of law. Openness enables companies to specialize and increases efficiency, and the rule of law protects citizens and companies from discretionary actions by authorities.

Therefore, in the interest of further prosperity of Poland and well-being of its citizens, we are protesting against the unjustified undermining of the importance of the rule of law, the benefits of our membership in the European Union and the presence of foreign investors in Poland.

The Regulation of the European Parliament and of the Council on the protection of the Union’s budget in case of generalized deficiencies as regards the rule of law in the Member States refers to the provisions of the rule of law contained in Article 2 of the Treaty on European Union.

In art. 2 (a) of the regulation, we read that the term “rule of law” refers to the principle of legality, meaning “a transparent, accountable, democratic and pluralistic process of adopting legal acts; legal certainty; prohibition of arbitrariness of executive authorities; effective judicial protection by independent courts, including of fundamental rights; separation of powers and equality before the law”.

The governments of Hungary and Poland want to veto the next EU budget perspective for 2021-2027, presenting the issue of the rule of law as an attack on the sovereignty of member states. Discussions on this subject are accompanied by voices questioning the benefits of Polish membership in the EU, or foreign investments located in our country.

How dangerous it can be to try to capture political capital by attacking Brussels can be seen from the example of the United Kingdom. Contrary to its original intentions, the Conservative Party, under pressure from the extreme part, led to Brexit, the negative economic effects of which will be felt for years.

We protest against:

  1. Opposing the rule of law and sovereignty. The rule of law is primarily in the interest of Polish citizens and companies, protecting them against the discretionary actions of the authorities. Numerous works document the positive relationship between the rule of law and economic development. Problems with the rule of law not only in a visible way reduce GDP growth (see e.g. Guillemette et al., 2017; Barro, 2015; Haggard and Tiede, 2011; Bakker et al., 2020), but also make entrepreneurs less inclined to expand their companies (Estrin et al., 2013). A very important aspect of the rule of law is the independence of the judiciary system – countries where the courts are not independent develop slower (Voigt et al., 2015).
  2. Questioning the benefits of Poland’s membership in the EU. Poland is a relatively small country (38 million inhabitants), but thanks to our membership in the EU, Polish companies have access to the huge internal EU market (almost 450 million inhabitants). The benefits for Poland from the access to the common market are estimated at over 10% of our GDP (in ‘t Veld, 2019). The benefits of the EU membership are reflected in the potential losses associated with leaving the EU – the British government estimates that the lack of an agreement with the European Union will reduce British GDP by 7.6% in the next 15 years, and even in the most optimistic scenario of a comprehensive agreement, the UK GDP will be 1.4% lower. For a smaller country with a much weaker negotiating power, the potential losses related to leaving the common market would be even higher. Moreover, Poland, unlike the UK, is a net beneficiary of the inflow of the EU funds, which additionally increases our membership benefits.
  3. Questioning the benefits of foreign investments. The data presented in the media on the profits of foreign companies in Poland are intended by the authors to evoke a feeling of economic exploitation of Poland. However, they overlook two fundamental issues – the value of the funds they had previously invested and the resulting benefits for the Polish economy. Foreign firms’ profits are a reward for prior investment – no one should expect private firms to act pro publico bono. Secondly, most of the profits are reinvested in the development of these companies, and only a part is transferred to their owners. There is extensive literature showing that not only investors themselves benefit from foreign investment, but also the economies of host countries. The benefits of foreign investment go well beyond the jobs they create, or the taxes and social security contributions paid. They are related to technology transfer and stronger integration of the national economy into global supply chains. Based on the literature review (Lamsiraroj and Ulubaşoğlu 2015), it can be estimated that thanks to foreign investments, the Polish economy is approximately 17% larger; The Polityka Insight (2016) draws similar conclusions when estimating the positive effects of foreign investments in Poland at 15.6% of GDP.

Full statement in English is available here

Written by Sławomir Dudek, Ludwik Kotecki, Aleksander Łaszek

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