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(Bloomberg) -- Poland’s government needs to reach out to its disaffected middle class by easing the burden of Swiss-franc mortgages ahead of this year’s general election, the chief economic adviser to Prime Minister Ewa Kopacz said.
Kopacz’s five-month-old government risks a backlash from its core constituency while dispensing cash to contain protests by coal miners and farmers, who won’t vote for the ruling party anyway, Janusz Lewandowski, a former European Union budget commissioner, said in an interview in Warsaw on Tuesday.
The government is seeking ways to ease the pain for 563,000 households holding Swiss-franc home loans after their debt repayments jumped following the surprise Jan. 15 decision by Switzerland’s central bank to lift its currency cap. While the zloty has strengthened almost 10 percent since then, the matter hasn’t been resolved because domestic banks aren’t cooperating, according to Lewandowski.
“Given that this is about the middle class of Poland, we cannot be passive,” he said. “The government needs to send a better message to its electorate.”
Polish banks last month agreed to pass on Switzerland’s negative interest rates to borrowers, refrain from demanding additional collateral and extend loan maturities for clients having difficulty with debt repayments. Lewandowski said he’s been “very disappointed” with the implementation of those measures so far.
“We were counting on the banks to pass along negative Libor this month and give us time to devise a long-term solution,” he said. “That didn’t happen.”
Local lenders have appealed to the country’s financial supervisor to drop a proposal for a voluntary conversion of 131 billion zloty ($36 billion) of Swiss-franc mortgages at the current exchange rate. Banks and borrowers would share the resulting exchange-rate loss equally, according to the plan.
Any steps would need to be applied gradually and require banks to “assume part of the risk,” according to Lewandowski. The government is negotiating with the central bank, the financial-markets regulator and lenders and expects to be ready with proposals at the beginning of March, he said.
“If soft recommendations aren’t enough, we’ll think about legislative measures,” Lewandowski said. “The government hasn’t said its last word.”
Swiss-franc mortgages have been popular with Poland’s big- city dwellers, who helped the Civic Platform win re-election in 2011, the first ruling party to do so since communism ended a quarter-century ago. A map compiled by the Warsaw-based Credit Information Office shows areas where such loans are most popular align closely with districts where Civic Platform polled better than 40 percent.
While the ruling party ran 3 percentage points ahead of the opposition Law and Justice in a Feb. 13-14 poll for Warsaw-based researcher IBRiS, a survey published Wednesday showed the percentage of Poles opposing Kopacz’s cabinet at a record high, exceeding the government’s supporters for the first time since she took office on Sept. 22.
The slippage came as the prime minister backed off from plans to close some unprofitable coal mines and saw roads blocked by protesting farmers. Teachers and doctors are also demanding more money from the budget, while Law and Justice’s candidate in the May 10 presidential election, Andrzej Duda, is promising to reverse the government’s decision to raise the retirement age to 67.
The growing social tensions are “political motivated” and pose risks for the government that go beyond busting this year’s budget deficit cap, set below 3 percent of economic output, Lewandowski said.
“Giving in to miners’ and farmers’ demands relieves groups who won’t vote for us anyway and may displease our own electorate,” Lewandowski said. “Doling out a few painkillers is possible, but not the huge outlays involved with cutting the retirement age or subsidizing unprofitable mines.”
Room for extra social spending is “limited” because meeting the European Union’s deficit limit this year remains the government’s “overriding” priority, Lewandowski said.
“What’s needed right now is to defend Poland’s new normal and Polish stability, because we really are a sort of island of stability amid all the unknowns and threats of today’s Europe,” he said. “This has to be defended against the ambitions of trade unions in the 2015 election year.”
--With assistance from Marta Waldoch, Konrad Krasuski, Maciej Martewicz and Dorota Bartyzel in Warsaw.
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