Moody's says Poland's top court ruling is credit negative

Andrew Gombert/PAP/EPA

Poland's constitutional court ruling strains relationship with the European Union and is credit negative, rating agency Moody's said in its October 8 report.

The country's Constitutional Tribunal ruled on Thursday that several articles of the EU Treaties do not comply with the Polish constitution, calling into question the primacy of European Union law over national legislation.

According to Moody's, the recent judgment by Poland's highest court may result in further delays in the disbursement of funds from the EU Recovery Fund and a lower GDP growth in 2022, which is negative for Poland's credit profile.

Ursula von der Leyen, president of the European Commission, on Friday said she was "deeply concerned" by the Polish Constitutional Tribunal ruling and instructed the Commission's services to analyse it "thoroughly and swiftly."

She added that the EC would decide on its next steps after inspecting the Polish judgement.

The rating agency said in its October 8 report that the European Commission will hold up the approval of the National Recovery Plan and move "deep" into 2022 the payment of billions of euros in EU recovery aid to Warsaw.

The Polish judgment may also trigger a mechanism that allows the EU to withhold EU payments from the regular budget due to perceived violations of the rule of law, Moody's added.

Although the effects of such measures on real GDP growth in 2021 will be negligible they will weigh on GDP growth in 2022, according to the report.

The prolonged delays in the disbursement of funds from the EU Recovery Fund could reduce the GDP growth in 2022 to approximately 4 percent against Moody's current forecast of 4.5 percent, the agency wrote.

At the same time Moody's experts do not believe that the further deterioration of relations with the EU would lead to an increased risk of Poland leaving the EU.

Apart from the economic benefits of EU membership, a large majority of Poles favour remaining in the bloc, the agency wrote.

Among the three major rating agencies, Moody's is the author of Poland's highest rating. According to Fitch and S&P, Poland's rating is 'A-.' All three give Poland a 'stable' outlook. Moody's will publish its new rating review for Poland on October 29.