Polish President Karol Nawrocki has submitted a bill to parliament that would enable Poland to avoid taking out a loan from the European Union’s Security Action for Europe (SAFE).
The bill indicates the money for boosting defence would come from profits generated by the Polish central bank’s (NBP) gold reserves.
At the end of February, parliament passed a bill facilitating Poland accessing a €44 billion loan from the SAFE. However, countries such as Germany, the Netherlands and Sweden have found the SAFE rate unattractive for financing their rearmament drives.
The centre-left government led by Prime Minister Donald Tusk argues that it is the most easily available money for Polish rearmament.
The President’s chancellery, though, has hit back, saying that Poland, over the period of the loan (40 years), would end up paying back nearly twice the amount it actually borrowed.
In addition, it would have to absorb all the risks associated with loans taken in foreign currency. Poland has its own currency the, zloty, or PLN. The loan would mean adding any risk of the tranches of the loan being blocked via the EU’s conditionality mechanism by which the European Commission could block payments for political reasons.
This is why Nawrocki, who is an ally of the opposition Conservatives (PiS), yesterday called a meeting with Tusk and other government ministers and the head of the central bank Adam Glapiński.
He announced that he had just submitted legislation to set up a mechanism via which the needed money for Poland’s defences would instead come through the central bank’s profits being paid into a special fund.
Nawrocki has called this mechanism “Poland’s sovereign SAFE zero per cent” scheme to access €46 billion by 2035.
Under that, Poland would not have to pay any interest on the money used in buying the armaments the military needs over the coming years and, in addition, it would have flexibility with regard to what this money will be spent on.
The central bank, though, is yet to reveal the details of the scheme it is proposing that would avoid it being unconstitutional. Poland’s Constitution forbids the use of central bank assets to support the state budget, although profits may be used.
At the same time the President said he had not made up his mind whether he would sign the legislation to access the EU’s SAFE mechanism that the government was pressing him to do.
The SAFE is a €150 billion loan facility launched in 2025 that allows member states to borrow low-interest, long-term funds from the European Commission to finance defence investments, military modernisation and joint procurement.
Tusk was visibly irritated at the end of the meeting with Nawrocki yesterday and in his press conference accused the head of state of trying to justify a veto over taking the SAFE money that was available.
He called the proposal to fund the army through NBP profits “a mystification” and “the excuse for a veto”.
“The President and the central bank are not showing where the money is coming from therefore I call their proposal ‘SAFE zero money’.
“All we have is words on a piece of paper and the proposal to create some new structure and bureaucracy to oversee military spending,” Tusk said.
He pointed to the fact that over the past few years the NBP has not reported a profit and therefore asked “how come suddenly Glapiński has found big money” for defence?
In an attempt to put political pressure on the President, Tusk at his press conference also said that the government will attempt to find ways of accessing the EU’s SAFE money even if Nawrocki vetoes the legislation.
Nawrocki’s chief aide Zbigniew Bogucki replied to the Prime Minister saying: “Tusk knows the central bank has been accumulating reserves in gold, the profits from which can now be accessed rather than continue to build up further reserves.”
Nawrocki has until March 20 to decide whether he will veto the government’s legislation.
Tusk at his press conference said parliament will not debate Nawrocki’s alternative until and unless the central bank produces clear evidence that “the money they are talking about actually exists”.
