Poland strikes pension deal with EU

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Poland reached an agreement with the European Union aimed at loosening public finance rules in order to take into account costs of pension reform, Poland's Finance Ministry said on Friday (10 December).

The Finance Ministry's press office added that details of the deal will be discussed and agreed on at a meeting of EU finance ministers (Ecofin) in the first quarter of 2011.

"The European Commission is no longer negating the fact that pension reform costs have to be accounted for when calculating public debt and deficit," the Finance Ministry's press office said on Friday.

Poland wanted to change the debt rules in order to avoid overturning reforms, which are beneficial in the long term, but put additional pressures on public finances in the short term.

European Commission spokeswoman Pia Ahrenkilde-Hansen said that Commission President José Manuel Barroso and Poland's Prime Minister Donald Tusk discussed the issue of pension reform costs in EU budget deficit accounting by telephone on Friday.

They agreed that when the EU's executive arm assesses whether a country is in line with the EU's debt and deficit limits, pension systems should be closely evaluated.

A Commission spokesman said such an evaluation of pension systems should be based, among other things, on the structure of the pension system with respect to the ownership of assets and risks related to future pension payments and the impact on the stability of public finances.

The principles of such an evaluation are to be laid out in a revised code of conduct on the implementation of the Stability and Growth Pact – the EU's fiscal rulebook.

Raising the deficit limit?

But specific treatment of pension reforms in the Pact must still respect the definition of government deficit and debt as laid down in the Treaty, the Commission spokesman said.

The treaty sets a ceiling of 3% of gross domestic product (GDP) on government deficit and 60% of GDP on debt.

Government sources had earlier suggested that the Commission had agreed that the costs of pension reform in Poland would be included in public debt and deficit calculations, effectively raising the 3% limit on the deficit.

"According to my information there is a talk about a 4.5% cap for the deficit […] There is a political agreement on the issue of debt too," one of the government sources said.

Poland and eight other EU members want the bloc to allow higher deficits for members that have overhauled their pension systems and also seek more beneficial rules on public debt.

Both are temporarily increased by state's payments to semi-private pension system.

Poland claimed its proposal to loosen rules on pension systems would encourage other countries to carry out reforms necessary because of their ageing populations.

According to some, prospects of EU disciplinary action for a high deficit or debt may encourage a country to dismantle pension reforms. Hungary has already suspended state transfers to private pension funds to cut its deficit faster, prompting Moody's to cut its rating by two notches.

(EURACTIV with Reuters.)

At an EU summit in October, a group of nine EU member states from the former communist bloc demanded that the cost of reforming their costly pension systems be taken into account when calculating their public debt and deficit.

The call was supported by Poland, Bulgaria, the Czech Republic, Hungary, Latvia, Lithuania, Romania and Slovakia as well as Sweden.

However, they failed to secure a majority to get their proposal through.

Romanian President Traian Basescu said "more arguments" would be raised before the 16-17 December summit, when the EU's revised economic governance structure is to be agreed, including sanctions for budget sinners.

Polish Prime Minister Donald Tusk assumes there will be "many debates and quarrels," but insists that the debate should continue.

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