Risks and Trends

What was discussed at Risks and Trends

Chatter 2022-10-25
The participants shared their views on the difficult situation in Ukraine. While bankers pointed to problems with providing funding to companies, the business sector called for an accelerated energy transition.



Four debates, six topical roundtables. In the plenary session, Polityka Insight's moderators and experts discussed how to defend the West, rethink climate and energy policies in times of war, stitch together the European Union and survive stagflation. The speakers who participated in our debates included, among others, former President of the Republic of Croatia Kolinda Grabar-Kitarović, World Bank’s Country Director for European Affairs Gallina A. Vincelette, European Stability Initiative Chairman Gerald Knaus and President of the Polish Development Fund Paweł Borys. During round-table discussions, we talked about ways to end the war, how the war changes the energy transition, and how a period of destabilisation affects the banking sector. We discussed new forms of work organisation, looked at how to use data in medicine, and whether EU regulations will help ensure cyberspace security.

Experts were concerned about Ukraine's future. Behind the scenes at Risks and Trends, experts assessed that Ukraine's request to join NATO was premature and obscured the most important effort, which is the delivery of equipment. It will be impossible to obtain a NATO security guarantee for Ukraine similar to that obtained by Sweden and Finland. Ukraine's integration with the EU also has a bleak prospect. As a result, other ways of bringing Ukraine closer to the EU should be considered - for example, by allowing Kyiv to access structural funds but not the EU's policy tools. The longer it takes for the West to impose sanctions, the sooner Russia will regain its resilience to harass both Ukraine and Europe. Experts are also convinced that winter will bring a humanitarian crisis larger than the one we witnessed at the beginning of the war, for which the EU does not seem to be prepared.

Business calls for an accelerated energy transition. During the discussion on the impact of the war on energy transition, business representatives pointed to the difficulties associated with the need to simultaneously deal with the rapidly rising prices of fuels and the need to invest in the energy transition they view as necessary. According to the speakers, a two-speed transition is underway in Poland. While businesses are trying to abandon fossil fuels, the government is pursuing the opposite policy, increasing the share of coal in energy production. Experts pointed out that an auction system should be created to encourage the industry to reduce energy consumption. The participants in the debate also talked about the need to strengthen efforts to combat smog, because, in the face of the drastic increase in the prices of energy carriers, there is a risk of a radical deterioration of air quality as a result of the burning of harmful materials in furnaces. Among the key activities that may accelerate the transition, the speakers pointed to education, effective communication, and planning long-term changes.

Uncertainty makes it difficult to finance the economy and rebuild Ukraine. During the roundtable, bank management representatives spoke about the economic, market, and regulatory uncertainty they are facing. As a result of provisions for Swiss franc settlements and the cost of credit holidays, the profitability of the sector's equity capital (2.9 per cent at the end of August 2022) is much lower than the cost of this capital (several per cent), which puts into question the profitability of running a banking business in Poland. Faced with such challenges, banks are focused on their own needs rather than on providing funding to companies that struggle with high inflation and need to access cheap operating capital. The heads of Polish companies agreed that when the winter is over, Polish companies might emerge as not very profitable, and some may even go bankrupt. As a result, they will definitely lose their chance to participate in the rebuilding of Ukraine.

The administration calls for a more long-term perspective. The administration pointed out that for years the sector only focused on short-term profits, selling products that were not beneficial to customers, for instance, Swiss franc loans or insurance deposits. For this reason, it should come as no surprise that the government has chosen to burden the banks. Governments formed by other parties would likely have taken a similar step. The administration representatives called on the sector to focus on a more long-term perspective and adopt, for instance, fixed-rate loans, which in the event of sudden changes in the monetary policy do not burden borrowers and make it possible to create safer loan portfolios, more resistant to market fluctuations. The banks replied that most of the mistakes of the past, such as Swiss franc loans, were not the result of their craving for short-term profits; they were dictated by the science of building - at various stages - the banking sector in Poland.

Joanna Sawicka, Piotr Sobolewski, and Piotr Łukasiewicz contributed to this report.

Risks & Trends 2022 partners include Amazon, Deloitte, Grupa Żywiec, IKEA, Janssen, KGHM, Żabka Group, European Council on Foreign Relations and Clean Air Fund.

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Wojciech Szacki
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PI Alert

EU summit: Member States launch discussion on financing joint defence initiatives

State of play

Leaders approved appointments to top posts. At the EU summit that ended on Thursday night, they nominated Ursula von der Leyen for a second term as head of EurCom, former Portuguese Prime Minister António Costa as head of EurCou and Estonian Prime Minister Kaja Kallas as head of EU diplomacy. Italian Prime Minister Giorgia Meloni abstained from voting for von der Leyen and voted against Costa and Kallas. This means that Meloni is preparing for tough negotiations and may demand a high political price in return for his party's support for von der Leyen in her approval in the EurParl. Prime Minister Viktor Orbán voted against von der Leyen and abstained on Kallas.

They adopted the Union's strategic agenda for 2024-2029. Over the next five years, the Union's goals include a successful digital and green transformation by "pragmatically" pursuing the path to climate neutrality by 2050. Another objective is to strengthen the EU's security and defence capabilities.

Von der Leyen spoke of EUR 500 billion for defence over a decade. This was the EurCom estimate of needed EU investment presented by its head at the EurCou meeting. Poland and France were among the countries that expected the EurCom to present possible options for financing defence investments before the summit, such as EU financing of common expenditure from a common borrowing. This idea was strongly opposed by Germany and the Netherlands, among others. In the end, von der Leyen decided to postpone the debate until after the constitution of the new EurCom, i.e. in the autumn. And the summit - after von der Leyen's oral presentation - only launched a preliminary debate on possible joint financing of defence projects.

Poland has submitted two defence projects. These might be co-financed by EU funds. On the eve of the summit, Poland and Greece presented in writing a detailed concept for an air defence system for the Union (Shield and Spear), which Prime Ministers Donald Tusk and Kyriakos Mitostakis had put forward - in a more general form - in May. In addition, Poland, Lithuania, Latvia and Estonia presented the idea of jointly strengthening the defence infrastructure along the EU's borders with Russia and Belarus. Poland is pushing for the EU to go significantly beyond its current plans to support the defence industry with EU funds and agree to spend money on defence projects similar to the two proposals. But EU states are far from a consensus on the issue.

Zelensky signed a security agreement with the Union. The document, signed by President Volodymyr Zelensky in Brussels, commits all member states and the EU as a whole to "help Ukraine defend itself, resist efforts to destabilise it and deter future acts of aggression". The document recalls the EUR 5 billion the EU intends to allocate for military aid and training in 2024 (in addition to bilateral aid from EU countries to Kyiv). It says that "further comparable annual increases could be envisaged until 2027, based on Ukrainian needs" i.e. it could amount to up to EUR 20 billion. Ukraine's agreement with the EU comes on top of the bilateral security "guarantees" Ukraine has already signed with a dozen countries (including the US, UK, Germany, France, Italy). As Prime Minister Donald Tusk confirmed in Brussels, talks are also underway between Ukraine and Poland on the text of mutual commitments on security issues.

PI Alert

KO wins elections to the European Parliament

KO received 38.2 per cent of the vote and PiS 33.9 per cent, according to an exit poll by IPSOS. Konfederacja came in third with 11.9 per cent, followed by Trzecia Droga with 8.2 per cent, Lewica with 6.6 per cent, Bezpartyjni Samorządowcy with 0.8 per cent and Polexit with 0.3 per cent. According to the exit poll, KO gained 21 seats, PiS 19, Konfederacja 6, Trzecia Droga 4 and Lewica gained 3. The turnout was 39.7 per cent.

According to the European Parliament's first projection, the centre-right European People's Party (EPP), which includes, among others, PO and PSL, will remain the largest force with 181 MEPs in the 720-seat Parliament. The centre-left Socialists and Democrats (S&D), whose members include the Polish Lewica, should have 135 seats, whereas the liberal Renew Europe club (including Polska 2050) will have 82 seats. This gives a total of 398 seats to the coalition of these three centrist factions (EPP, S&D and Renew Europe) on which the European Commission under Ursula von der Leyen has relied on so far. The Green faction wins 53 seats according to the same projection, the European Conservatives and Reformists faction (including PiS) 71 seats and the radical right-wing Identity and Democracy 62 seats.