Polish president and PM fail to reach agreement on EU defence loans as potential veto looms

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Opposition-aligned President Karol Nawrocki and Prime Minister Donald Tusk have failed to reach an agreement on the question of almost €44 billion (188 billion zloty) in loans from the European Union for defence spending after the pair held a rare meeting on Tuesday.

Tusk said that he believes Nawrocki intends to veto a government bill facilitating the receipt of the funds from the EU’s SAFE programme, though the president insists he has yet to make a decision.

Meanwhile, Nawrocki submitted his own bill to parliament proposing a “sovereign” alternative to SAFE, with funds coming from the Polish central bank. The government, however, says that the president’s proposal lacks specific details on how the money would be generated.

Last month, the EU gave final approval for Poland to receive its €43.7 billion share of the SAFE funds, which is the largest among all member states. Shortly after, the government’s majority in parliament adopted a bill setting up a mechanism for Poland’s National Development Bank (BGK) to receive and disburse the money.

The legislation then passed to the president, who has until 20 March to either sign it into law, veto it, or send it to the constitutional court for assessment. Nawrocki has expressed concerns about SAFE, echoing those of the right-wing opposition, which has urged him to veto the bill.

They warn that the funds will bring Poland under greater control by Brussels because the EU can withhold the funds through its so-called conditionality mechanism. They also say that, because the funds must mostly be spent in Europe, the programme risks damaging relations with the United States.

The government, however, insists the funds are vital to ensure Poland’s security and will boost its domestic arms industry, because almost 90% of the money will be spent at home. It also says that the loans are on much more favourable terms than would otherwise be available to Poland.

Last week, Nawrocki and central bank governor Adam Glapiński, who is also associated with the opposition, announced their own alternative to the EU programme, which they dubbed “Polish SAFE 0%” because it would supposedly involve no loans or interest payments.

The pair provided few details on how the plan would work in practice, but suggested it would involve the central bank transferring profits from its gold reserves to the government to be used for defence spending. They said it would be able to provide 185 billion zloty, matching the EU’s SAFE funds.

As part of his push for “Polish SAFE”, Nawrocki invited Tusk to discuss the plan. On Monday, the prime minister confirmed he would visit the presidential palace the next day.

However, hours before the meeting, Tusk announced that the government had “received information that the president has already decided to veto the [EU] SAFE programme”.

Meanwhile, as the two leaders gathered, Nawrocki’s chancellery announced that he had submitted his own Polish SAFE bill to parliament for consideration.

The draft law proposes creating a special Polish Defence Investment Fund within the BGK to finance defence spending. The money would come from central bank profits; credits, loans and bonds; and interest on deposits and funds, according to the bill.

The defence minister would prepare a multi-year spending plan for the fund, subject to approval by newly established governing bodies composed of government and presidential representatives.

However, figures from the ruling coalition immediately pointed out that the draft law does not make clear how the money would be generated. They note that the central bank, which already transfers most of its profits to the state budget, has not actually made a profit since 2021.

Many financial analysts also expressed scepticism about the idea, saying that it appears to rest upon creating profits on paper based on the value of the bank’s gold reserves, and that it risks damaging the central bank’s credibility as an independent institution.

Leszek Skiba, a presidential advisor, confirmed at a press conference that the plan rested upon “the management of gold and reserve currencies [that] will allow [the central bank’s] profit to increase significantly, ending the years of losses in [its] annual results”.

Glapiński also insisted in a social media post on Tuesday that the central bank has “earned and accumulated the appropriate funds for this purpose”. He pledged to present further details on Wednesday of how the process would work.

Speaking to the press following his meeting with Nawrocki, Tusk dubbed the president’s proposal “SAFE zero zloty”, saying that it offers “no money”, just “new bureaucracy and dozens of unnecessary regulations”.

The prime minister also confirmed that if, as he expects, Nawrocki vetoes the bill on EU SAFE funds, the government has a “plan B” that would still allow Poland to receive the money.

However, the government has warned that, in that scenario, it would not be possible to spend all of the money. For example, the billions of zloty designated for non-military security spending (such as for the border guard or security services) could not be used.

Notes from Poland is run by a small editorial team and published by an independent, non-profit foundation that is funded through donations from our readers. We cannot do what we do without your support.

Main image credit: Przemysław Keler/KPRP

Olivier Sorgho

Olivier Sorgho is senior editor at Notes from Poland, covering politics, business and society. He previously worked for Reuters.