Wednesday, August 10, 2011

Tusk to voters: We don't care

CHF/PLN over last 12 months. Source: Stooq.pl
"Where are you Mr. Prime Minister?" So asked main opposition leader Jaroslaw Kaczynski on Tuesday as global markets plunged and the zloty's value sank. PM Donald Tusk replied Wednesday, holding a presser to tell Poles...the government sold 6 billion zlotys in bonds on heavy demand. You see, nothing is wrong. Nothing at all.

Just in case that wasn't enough, Tusk did try to address potential frayed nerves by telling Poles he could not actually do anything about the markets. He also said it was not his job to weaken the Swiss franc (CHF), whose meteoric rise to record strength of late has massively jacked up the cost of CHF-denominatd loans, and public funds would not be used to help borrowers.

Ha ha ha ha! Take that voters! I am sure Law and Justice (PiS) leader Kaczynski LOVED his answers. Why? Well let's take a look.

Some 700,000 Poles are, or in few days will be, paying 30 percent higher mortgage payments than they paid in January (let's not get nasty and look further back) due to the Swiss franc's jump. At the same time, real estate prices have fallen. Equity on their homes has thus been wiped out or significantly reduced.

Given that the franc has strengthened by about 1 zloty to over 4 zlotys, recently passed legislation aimed at shaving some 0.10-0.15 zlotys off the fees charged by banks is too late and way too little.

One can say that 700,000 Poles is not that many if you compare it to the population of 36 million, so let me rephrase. A full 700,000 households have to deal with a 30 percent rise in their mortgage payments. That is 5 percent of all households and, given the average of two adults per household, affects about over 1 million voters. That in turn is 8.5 percent of all votes cast in the 2007 general election.

Let's darken the picture. According to the daily Rzeczpospolita, the ongoing sell-off has eliminated some 12 billion zlotys from Poles' pension accounts, some 5.2 billion zlotys off their mutual funds, and individual investors playing directly on the market lost another 7.7 billion zlotys. That was BEFORE Wednesday's drop of over 5 percent.

Who are the most likely victims of this situation? Poor, small-town pensioners who vote for PiS regularly? Or rather young, well-educated big-city families that should lean towards Tusk's Civic Platform (PO)?

Oh, and the market also took Prime Minister Tusk's soothing words very well: the Swiss franc strengthened to well over 4 zlotys. Double ouch.

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