S&P Enters The Latest European Scandal: Downgrades Poland From A- To BBB+

Tyler Durden's picture

Over the past week, Poland's relations with Europe have gone from cordial to abysmal, when first Poland's new Eurosceptic government compared the EU and Merkel to Nazis, with Polish weekly Wprost releasing the following cover saying "they want to supervise Poland again"...


... only for Brussels to retaliate and launch an "unprecedented" review of Polish media laws, a move which Poland angrily responded is far beyond the EU's domain.

Well, as so often happens, whenever there is a political spat in Europe, the rating agencies are quickly involved (thing S&P and Moody's downgrades and upgrades of Greece depending on how well the vassal nation is "behaving"), and moments ago S&P downgraded Poland from A- to BBB+ outlook negative, precisely due to Poland's new media law which has been the topic of so much consternation over the past week.

In other words, S&P is now nothing more than a lackey for Brussels, threatening to send Polish yields higher if Poland does not fall in line.

From the report:

Poland Foreign Currency Rating Lowered To 'BBB+' On Weakening Institutions; Outlook Negative


  • Since winning the election in October 2015, Poland’s new government has  initiated various legislative measures that we consider weaken the independence and effectiveness of key institutions, as reflected in our  institutional assessment.
  • We have therefore lowered our long-term foreign currency sovereign credit rating on Poland to 'BBB+' from 'A-' and our long- and short-term term  local currency sovereign credit ratings to 'A-/A-2' from 'A/A-1'.
  • The negative outlook reflects our view that there is at least a one-in-three likelihood that we could lower the ratings within the next 24 months if monetary policy credibility is undermined or if public finances  deteriorate beyond our current expectations.


On Jan. 15, 2016, Standard & Poor's Ratings Services lowered its long-term foreign currency sovereign credit rating on the Republic of Poland to 'BBB+' from 'A-' and its long- and short-term local currency sovereign credit ratingsto 'A-/A-2' from 'A/A-1'. The short-term foreign currency sovereign credit rating was affirmed at 'A-2'. The outlook is negative.

We also revised our transfer and convertibility (T&C) assessment on Poland to 'A' from 'AA-' (a T&C assessment reflects our view of the likelihood of the sovereign restricting nonsovereign access to foreign currency needed for debt service).


The downgrade reflects our view that Poland's system of institutional checks and balances has been eroded significantly as the independence and effectiveness of key institutions, such as the constitutional court and publicbroadcasting, is being weakened by various legislative measures initiated since the October 2015 election. Poland's new ruling party Law and Justice (PiS), which holds an absolute majority in the parliament (Sejm) and the senate, has set out to make fundamental changes to Poland's institutions. For example, the constitutional court's ability to work efficiently and independently will likely be undermined, in our view, by changes to the court's composition and decision-making process. The government's new media law, as another example, gives the government extensive powers to appoint and control the directors and supervisory boards of public broadcasters. A third law terminates contracts of all current senior, career civil servants and removes a constraint regarding previous party membership, therefore enabling the new government to change the structure of the civil service. In our view, these measures erode the strength of Poland's institutions and go beyond what we had anticipated regarding policy changes from the general election.

The revision of the T&C assessment to 'A', two notches above the foreign currency rating on Poland, reflects our expectation that the Polish government's overall policy inclination will be more interventionist, which could ultimately also impact the foreign exchange market.

The change in the rating outlook to negative reflects our view that there is potential for further erosion of the independence, credibility, and effectiveness of key institutions, especially the National Bank of Poland (NBP). Moreover, we no longer expect Poland’s fiscal metrics will improve as we previously forecast. We also foresee some reversals in Poland’s sound macroeconomic management of the past years, for instance by targeting certain sectors with new taxes.

The ratings remain supported by Poland's relatively moderate external financing needs and strong growth potential. The economy benefits from a floating exchange rate regime and domestic capital markets that permit the government to finance itself in local currency at long-dated maturities. The ratings are constrained by Poland's still low income levels compared with its Western European peers, especially in light of recent Polish zloty (PLN) depreciation and long-term challenges to public finances, primarily stemming from the pension system.

Since winning the Oct. 25, 2015, parliamentary election, Poland’s new government, led by PiS with an absolute majority, has introduced a number of legislative initiatives. A law that changes the decision-making process of theconstitutional court, which in our view would undermine its ability to work effectively and make decisions in a timely fashion, was signed into law by President Andrzej Duda before year-end 2015. Similarly, a law that moves the power to appoint the management and supervisory board of public broadcasters to the Treasury Ministry significantly weakens the independence of these institutions and has the potential to make them political instruments, in our view.

While PiS' absolute majority has removed pre-election concerns about increased political instability resulting from fragile coalition arrangements, we expect significant friction will persist between PiS and the opposition. In addition, we see a risk of internal tensions within PiS between more conservative and  moderate forces, especially given the growing public discontent about these new measures. Similarly, taxes on banks, insurers, and large retailers seem to be more focused on sectors that are predominantly foreign owned, thereby raising questions about Poland’s attitude toward growth-driving foreign direct investment. Moreover, pronouncements about, for instance, the refugee crisis,  may heighten tensions between Poland and many Western-European EU states.

We have upwardly revised our fiscal deficit forecast for 2016 to 3.2% because we consider that various spending-side measures, either planned or announced, are not fully offset by revenue-side measures or expenditure cuts. These  measures include a reversal of the previous pension reform so that the retirement age for women will again be lowered to 60 and for men to 65, higher childcare benefits through the Family 500+ program, a higher tax-free  allowance and minimum wage, and free medicines for the elderly. Proposals on  the revenue side are so far are limited to a 0.44% tax on bank and insurance  company assets and a yet-to-be-decided retail turnover tax. In addition, the  PiS-led government has decided to amend the expenditure-stabilizing rule, only recently introduced, by substituting actual inflation rates with the 2.5% NBP  target, in turn increasing potential expenditure levels. Lastly, the government has decided to amend the 2015 budget to give itself more spending  flexibility in 2016, for instance by booking the proceeds of the October LTE  (long-term evolution) cell phone network auction (PLN9 billion or 0.5% of 2016 GDP) in 2016 rather than in 2015. Moreover, we do not expect revenue-side  measures will be sufficient to compensate for higher spending, and view the  macroeconomic assumptions underpinning the 2016 budget as too optimistic. We  therefore expect that larger fiscal deficits than we initially forecast will persist in the coming years.

Nonetheless, we expect general government debt will remain broadly stable at about 51% of GDP through to 2018. At the same time, lower debt resulting from last year's pension change and low interest rates continue to contain the government's interest burden, which decreased to 4.6% of general government revenues in 2015. In an environment of changed risk perception and continued political uncertainty, we expect this trend will reverse and push interest costs back up to 5% of general government revenues by 2018. The share of foreign currency debt in total government debt remains somewhat high at 34%, as does the proportion of debt held by nonresidents at 56%. However, the relatively high share of long-term oriented nonresident investors, for instance foreign central banks and public institutions that own around 23% of domestic securities, reduces the risk of sudden large sales of Polish government bonds, in our view.

After a further acceleration over 2015, we expect real GDP growth in Poland will remain strong and average 3.3% over 2016-2018. Stronger domestic demand resulting from income-boosting government policies and a continued recovery in the eurozone, Poland’s main trading partner, bode well for robust economic  expansion. Stronger wage growth and subdued inflation will likely continue to boost real incomes further, while a potentially looser monetary policy stance  could also help contain household and corporate borrowing costs.

Additional long-term challenges to the Polish economy could arise if the economy fails to move from a growth model relying on cheap labor and labor-intensive industries to higher-value-added and more innovative industries. In that sense, a reform of the loss-making, primarily state-owned coal mining sector might become an important factor, although such reform seems less likely under the PiS government. Similarly, the 2014 change to the pension system, such as the dismantling of its defined contribution pillar, raises questions about the long-term sustainability of the Polish pension system, which will likely be pressured by the government’s decision to revert to a lower retirement age.

We expect the current account deficit will gradually widen over our forecast horizon. Lower import prices and strong exports have helped narrow the deficit, but we expect the import component of Polish exports will remain high and net exports will stay negative. Nevertheless, we think Poland's demonstrated ability to draw on EU funds, and a revival in foreign direct investment, should comfortably finance most of these deficits, despite  perpetually high net errors and omissions. However, with tensions between Poland and the EU on the rise, access to EU structural funds may become more difficult. Nonetheless, Poland benefits from some important buffers that we expect will help keep external borrowing costs down. These include a flexible exchange rate regime, which helps the NBP pursue an independent monetary policy, and a flexible credit line with the International Monetary Fund, which was reduced in January 2016 to $18 billion and is expected to be phased out  over the coming years.

We anticipate a very gradual reduction of Poland's external debt because the current account deficit will be funded largely through non-debt inflows. We  forecast narrow net external debt (external debt net of reserves, plus financial sector assets) will decline to 52%of current account receipts (CARs)in 2019 from about 57% in 2015. Nevertheless, with net external liabilities at 125% of CARs in 2015, a prolonged deterioration of external sentiment or increased volatility on global financial markets could weaken Poland's ability
to finance its net external liabilities. Our base case is that gross external  financing needs will remain fairly constant at approximately 86% of CARs and  usable reserves until 2018.

While the financial sector is generally profitable and predominantly (63%) deposit funded, and we classify it in group '5' of our Banking Industry  Country Risk Assessment (see "Banking Industry Country Risk Assessment: Poland," published June 30, 2015, on RatingsDirect), we nevertheless believe it may experience a period of heightened stress. We expect three factors will affect banks in Poland in 2016. The introduction of a banking sector tax of 0.44% on assets is going through the parliamentary process, while a decision on a conversion of about 570,000 Swiss-franc-denominated mortgage loans (into zloty) has yet to be made. In addition, the government is requiring Polish banks to step up their contributions to the deposit guarantee fund following the bankruptcy of a small lender, SK Bank. Although the issue of a conversion of Swiss franc mortgage loans had moved out of focus since the elections, the President unveiled a proposal on Jan. 15, 2016. While the exact consequences of this proposal for the financial sector remain uncertain, we expect certain institutions will come under more stress. Lastly, PiS will have significant power to shape the future path of monetary policy because the Polish president, parliament, and senate can nominate a total of nine new monetary policy council members, including the governor of the NBP, in 2016.


The negative outlook reflects our view that there is at least a one-in-three possibility that we could lower our ratings on Poland in the next 24 months.

We could lower the ratings if we perceived a further weakening in the independence, credibility, and effectiveness of key institutions, most importantly the NBP. In addition, we could lower the ratings if public finances deteriorated beyond our current baseline scenario as the revenue and expenditure balance becomes more negative.

On the other hand, a reversal of the government's efforts to change and control Poland's key institutions, as well as sustained strong external performance, leading to further reductions in net external debt could lead us to revise the outlook to stable.

* * *

The immediate response:


We can't wait.

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Temporalist's picture

They had one of the best economies in the EU iirc.  They must be witches!  Burn them!

Wulfkind's picture

Q:  How many Pollocks does it take to get a AAA rating?


A:  Who knows.  But let's send a million Germans in to find out.

froze25's picture

So if I remember correctly there were internal S&P memo's stating to "Just mark them AAA" referring to sub-prime mortgage trounces. So they were caught not doing their job and purposely deceiving would be investors on the credit rating of those products. No one was prosecuted, why does anyone give them (S&P) credibility any more?

HowdyDoody's picture

There is absolutely no connection between the recent evidence that Poland is pissed off with EU and the timing of this downgrade.

Piss off Big Mafia by rocking the boat and Mig Mafia messes with you.

Tarshatha's picture

Oh pesky Jews are at it again,

just more more financial terrorism for those who don't want to march in lock step to the JWO.

Early Retirement's picture
Early Retirement (not verified) Jan 15, 2016 1:38 PM

S&P has been nothing more than a lackey for the neocon NWO for years now. My "favorite" was when they recently claimed Russia was less likely to repay its ruble-denominated debt (despite a printing press for rubles) than Glencore its in dollars, since Russia was pro-Iran (bad to The Jew) and Glencore is King Jew.

Dr. Engali's picture

It's amazing watching the NWO globalists bring all their tools to bare in order to keep people in their place. So long soverignty. It's been nice knowing you.

two hoots's picture


Just thinking same.  At least we know when the S&P acts, we have no idea what the Federal Reserve and CB’s do on a global scale?


Captain Willard's picture

It's worth considering that the Eurocrats wouldn't have done this to Poland unless they were fearful of the exercise of the sovereignty you now mourn. We could be at the beginning of the return of the nation state in Europe. Merkle may be gone before Poland is downgraded again.

Blankone's picture

Poland needs to simply state that the S&P is now a political tool used in economic warfare - and declare it's ratings will not be used and not increase in payments granted.  It would be messy after that, perhaps with Poland needing to kick out any NATO presence in their country.

Personally, if some of what has been published about Poland helping WUke and other actions, then I could care less what fate Poland has.

BandGap's picture

Wow, bullshit wrapped in bullshit.

The EU should be downgraded for bringing in millions who contribute nothing to their respective economies, in fact draining them. Throw in the political and social instability brought on by the unacceptable breast fondling of these invitees and I give Brussels a BBB- rating.

WTF, if actions have consequences should ALL actions have consequences? Do these assholes think no one is looking?

Wulfkind's picture

It's an enigma shit sandwich.  Layer after layer of crunchy brown goodness.

KnuckleDragger-X's picture

Should be fun. I wonder if Germany knows Poland has a larger, better trained and equipped army this time around.......

outlaw.guru's picture

PPleasee. Not that there is going to be a war between these two. But that's what the Poles thought during 1930s while Versay treaty limited German army and kept little incursions and ethnic cleansing on their side (mostly deportation of germans not accepting polish identity). It didn't end well.

Spooky Polish's picture

Yeap , holy german emprire ... Comparing Poland 12 year after regaining imdependence after 123 years of partition, with even crippled Weinmar Rep ... 

astoriajoe's picture

Whatever happened to that Russian/Chinese/Eagan-Jones credit rating agency. 

Maxter's picture

Economic hitman

MrNosey's picture
MrNosey (not verified) Jan 15, 2016 12:19 PM

Put it this way, the mafia have nothing on our governments and their 'agencies', it's just a question of perceived legality!


It has been reported that the German Chancellor Angela Merkel is allegedly ‘Hitler’s Daughter’ and the Fourth Reich is about to become a reality......





Niall Of The Nine Hostages's picture

It's not just the media law. S&P's target audience is not amused by the plans of Poland's new government to weaken foreign bankster control over Poland's financial system, by tightening Warsaw's control over the central bank among other things.

Nobody's panicking yet though. The Poles hate the Russians far too much to throw over the EU in favour of the Eurasian Union any time soon. My impression is that the bad guys consider the extra risk manageable.

Bond markets already expressed their disapproval of the new government in November by raising 10-year bond yields from the 2.6-2.7% to the 2.8-2.9% range---not an especially large change. BBB+ is still investment grade, and Spain has the same rating.

WTFUD's picture

Moody Blues, lover's tiff. FUCK ZATO & their non-entity rating's agencies. It's a New Dawn.

Never forget, no head shots with the Poles, go to the body.

pebblewriter's picture

I can't read this without being reminded of the whole Egan Jones debacle.   Zerohedge covered it nicely, and I dedicated most of the Jan 23, 2013 post to it: http://pebblewriter.com/now-what-2/  Here's an excerpt:

Like any government-managed enterprise, the market is subject to the policy goals and needs of those who attempt to control it.

Even to my cynical ears, this sounds a bit like rants from the tin-foil hat crowd.  But, consider the news on Egan-Jones yesterday.  This is one of the biggest stories of the month, yet predictably earned only this from WSJ/Marketwatch:

CNBC was slightly more generous, yet still presented only the SEC’s side of the story.  It’s a story that deserves to be told because it speaks volumes about the degree to which the market is presently being controlled.  And, I’m not just talking about quantitative easing, though I suppose we’d have to consider QE exhibit #1.

Last summer the market crashed 22%.  It was an analog (replay) of the 2007 top, so we saw it coming in plenty of time to profit quite handsomely (http://pebblewriter.com/learn/analogs/) But, it was a huge wake-up call for The Powers That Be, or Plunge Protection Team, Wall Street Cabal — whatever you want to call it.

With virtually unlimited power and unlimited resources, why couldn’t they prevent something like that from happening?  More importantly, if the top was a replay of the 2007 top, might the rest of 2011 play out like 2008-2009?

It didn’t, because they learned from the crash of July-August.  First, they tweaked the markets just enough to bust important chart patterns that were playing out.  Second, they tweaked the rules to provide for more time to contain any damage which might otherwise occur (circuit breakers, etc.)  Third, they attacked those who had “caused” the crash.

S&P CEO Deven Sharma was one of the first victims.  In the wake of the 2007 financial crisis, S&P was rightly pilloried for having pulled its punches — particularly on mortgage and banking related debt.  This was no surprise to anyone who’s ever worked on Wall Street — which pays for these supposedly unbiased views.

An infamous exchange between two S&P analysts in April 2007 aptly illustrates:

“BTW, that deal is ridiculous.”

“I know, right . . . model def(initely) does not capture half the risk.”

“We should not be rating it.”

“We rate every deal. It could be structured by cows and we would rate it.”

Imagine if Hollywood studios funded the reviews of their movies.  Would you care if they received thumbs up or down?  So, in August 2011 S&P found religion and bravely downgraded US debt.  Seventeen days later, Sharma was fired and replaced with the COO of Citibank, the bank whose existence relies on the absence of any future downgrades.

Egan-Jones beat S&P to the punch, downgrading US debt on July 16.   Two days later, the SEC’s Office of Compliance Inspections and Examinations called looking for information on the downgrade.

On October 12, Egan Jones was formally notified of a Wells Notice — they were being investigated.  On April 24, the SEC filed a cease and desist order against Egan-Jones — the only rating firm not on the take — stating the action was “necessary for the protection of investors and in the public interest.”

The financial establishment’s interests, sure.  But, to frame this obvious smack down as “in the public interest” is laughable alarming.  Egan-Jones was the one rating firm with the balls to point out the country’s crumbling financial condition and stick to their guns.  Now they’ve been branded as deceitful, dangerous.  George Orwell spoke the truth in 1984:

“In a time of universal deceit, telling the truth is a revolutionary act.”

That other deep thinker, Jim Morrison, provided a similarly profound observation:

“Whoever controls the media controls the mind.”

Then there's the man himself, W., inadvertently telling the truth about telling the truth. "You gotta catapult the propaganda."  https://www.youtube.com/watch?v=VxnegxNEDAc

besnook's picture

so the zionazis chase another nation into the arms of putin and china with their dominatrix game.

Kaeako's picture

Hah! Seems like you don't know much about Poland. Suffice to say the Poles would be leading the charge in a second Barbarossa. 

besnook's picture

i know the poles don't like the russians but i think they are learning the consequences of trying to be the independent nation they want to be doesn't work with their new friends either so it becomes a choice between two evils, a bad choice but their only choice.

Spooky Polish's picture

Most poles love russians, but they are indoctrinated to hate Russia. We have planty of bad history - still better than with Germany, which runs IV reich ... i mean EU. 

Lucky Leprachaun's picture

The rating agencies have no credibility whatsoever.

markar's picture

All these former Soviet bloc countries are going to regret joining the EU. They'd be better off crawling hat in hand back to Russia before Brussels bleeds them dry.

forgottenozonehole's picture

Media Laws my ass... here's real reason


Poland’s lower house of parliament on Friday approved a new tax that will see banks and some financial institutions paying an annual levy of 0.44 percent on their assets.
Peter K's picture

And on the same day that Poland passed the new bank tax law. Coincidence?

As to the checks and balances, in the last parliament, the present post-communist opposition had the presidency and a controling majority. They had 11 of the 15 court justices, and they tried to stack the court since they nominated 5 of the 5 vacancies that came up at the end of last year. So they would have had 15 of 15. And this is the same court that confiscated the private retirement assets in the OFE scandal.

Anyways, the move is good for the Poles. It weakens an overvalued currency. It allows the economy to regain some advantage since the idiotic CB is keeping rates high (1.5% - idiots) when the inflation is running at -1.0 to -1.5% per annum with energy prices at historic (post 1989) lows.

So all in all, this is most likely a case of the law of unintended consequences that will turn out well for the Poles.

Reader1's picture

My spouse is Polish and says this is all baloney.  According to them, this is government-funded media and the government appoints the leadership.  They explained to me when the government changes, it's just like the Spoils System in the US; the incoming government replaces the old appointees with their own appointees.  This time, the conservative government came in and replaced the employees, as always happens, and this time Europe decided to stick their noses into it.  I'll be curious to see what they say about that one commenter above who claims this is really about the bank tax...

saldulilem's picture

You forgot Poland

Puncher75's picture

I'm bullish on Poland.  In fact, I'm opening several businesses there very soon despite the S&P "warning".  Eff them! 

Fuku Ben's picture

This is a great example of ratings companies, especially S&P, seeing the "catch-22" of working inside the big fraud.

Every Corporation acting as a Nation that gets downgraded might just start suing S&P until they go bankrupt. After all when the - S&P Ends Legal Woes Paying $1.5 Billion Fine (that's a lot of dough) to US - starts happening too often they'll have to rethink their business model completely or go bust.

Maybe they can switch from selling rose colored glasses to the masses over to pink fluffy unicorns and rainbows one fraudulent corporate Nation State with their 100% accurate bond rating at a time. If not, they'll need a bailout to stay relevant. It is one thing to bail out a car company. They don't validate your legitimacy as a fraudulent operating government providing you the ability to sell multi-layered fraudulent bonds. Which just like Puerto Rico not only are allegedly "covered" with fraudulent non-existent insurance coverage they will also be guaranteed to default leaving investors and citizens holding nada.

If you aren't laughing yet you'll be crying by the time this whole thing unravels. Some from pleasure. Others from pain. Oh the inhumanity.


johnnycanuck's picture

The Italian mafia have all the panache but this syndicate has the best enforcers.

RevIdahoSpud3's picture

What? No mention of the impending invasion of Poland by Russia?? A potentially usurped and conquered nation would automatically be a prime candidate to have a lowered credit rating. As it is NATO's Central front to contain Russia against imminent attack, at least that was the Western/Polish storyline last October. As a county that is about to be stolen (like Crimea) and placed behind the iron curtain (again) Poland should have ccc- Outlook None and be damn glad they have BBB+ Outlook Negative.

From the XX Committee October 2015 Propaganda Report:

But Poland is the real issue when it comes to defending NATO’s exposed Eastern frontier from Russian aggression. Only Poland, which occupies the Alliance’s central front, has the military power to seriously blunt any Russian moves westward.


Guentzburgh's picture

Europe is at war, a hybrid war fought by Germany using media and banking oligarchs of other countries to dominate and strip them of their wealth.

The German problem has started a new War that has spread to Ukraine, Poland, Greece, Portugal, Spain, soon everywhere .... interestingly it is engulfing Germany itself.

The German short sighted establishment with Merkel as its top agent has commited suicide with the open immigration policy, intended to lower wages without social upheaval but instead creating massive social upheaval which is teetering on uncontrollable. 

The Joy! 


Peter K's picture

Fitch reaffirms Polish A- rating, positive outlook.

Can another lawsuit agianst S&P be only a matter of time?

Enquiring minds want to know. :)

copernicus's picture

Haha, what a bullsh.t downgrade! Poland was actually due for an upgrade before this...

the chosen race lost the last election and since then, strange things are happening. Well maybe not strange to a thinking man, Soros and his lackey Petru are paying people to protest on a street in a so called protect the democracy movement, now this downgrade, i wonder whats next...? Somehow when last party jacked 150 billion out of social security that wasnt even mentioned anywhere....

On a sidenote, Warsaw is probably the last truly "European" big city in Europe, no multi cultural enrichment yet, Prague and Budapest are amazing cities in their own regard, but they dont have that big city feel like Warsaw does. I would not be surprised to see a shift and influx of the more entreprenurial white Western Europeans into Warsaw in the next 5-10 years.