Moody's sees Polish ruling on EU treaties as strain on relations

Poland's recent Constitutional Tribunal ruling on the unconstitutionality of certain provisions of EU treaties may further strain the country's relations with the EU and could lead to delays in EU fund flows, which is a credit negative, Moody's wrote in a comment.

The rating agency's reaction came four days after the ruling by the tribunal and amid worsening relations between Poland and the EU.

"The court's ruling is likely to sour Poland's already strained relations with the bloc and delay the disbursement of EU Recovery and Resilience Facility (RRF) funds even further," Moody's said. "It may also trigger a mechanism that allows the EU to withhold funding for Poland from its regular budget for perceived rule-of-law breaches.

"The EU funds would support the country's GDP growth, and with resulting higher nominal GDP and more favourable funding costs, suppress debt burdens and improve debt affordability indicators," the agency noted.

A "protracted" delay in EU fund flows could seriously weigh on the 2022 GDP growth, Moody's warns.