Poland’s finance minister Andrzej Domanski has admitted the government was about to sign the loan being taken out under the European Union’s Security Action for Europe (SAFE) programme without knowing what exact interest rate will be charged.
That will be dependent on the terms on which the European Commission is able to raise the cash on the financial markets.
Poland is the first of 19 member states that have applied for SAFE funds to sign an agreement and is the largest recipient of funds under the programme, borrowing €43.7 billion out of the €150 billion envisaged under the programme as a whole.
Just hours before the signing ceremony today, Domanski, who serves in the centre-left government led by Prime Minister Donald Tusk, refused to talk about interest rates.
“I’m not going to talk about a specific rate at this moment. I can only say this: First of all, we need to finalise this agreement today. It will be made public and signed today,” he said when asked by commercial Polish broadcaster Polsat News.
He said he was confident that signing the loan was the right move.
“No, absolutely not, my hand will not tremble while signing SAFE. This is a very beneficial agreement for our country, our security, and for strengthening Poland’s resilience,” Domanski said.
“I’m actually proud that I can sign this agreement today, because there is no cheaper or more effective source of financing for the modernisation of the Polish army than the SAFE programme.
“We need the money to modernise the Polish military not in a year, not in five years, but immediately,” he added.
When the Polsat journalist pressed him to say what the exact interest rate might be, Domanski explained that this was not possible because the money would be raised by the EU in tranches.
“But we are borrowing in tranches. First, we will receive an advance payment of €6.5 billion,” the minister insisted.
“The European Commission will gradually borrow on financial markets at a specific interest rate. We will know that rate at the moment when the European Commission actually takes out the loan on the market,” Domanski addded.
He insisted the EU loans would always be on more advantageous terms than Poland could obtain on its own.
One of the reasons Poland’s President Karol Nawrocki vetoed legislation facilitating the loan in March was the lack of clarity about the final interest rate Poland would end up paying.
In addition, there was concern that future tranches of the loan could be stopped via the use of the EU’s conditionality mechanism, in the same way that the last Conservative (PiS) government had its EU post-pandemic funding blocked by the EC.
PiS is now in opposition to Tusk’s government and its ally Nawrocki not only vetoed the legislation on the SAFE programme but also proposed his own project.
That would entail using the profits from Poland’s central bank gold reserves to fund defence spending. Doing so would allow the country to avoid interest payments to the EU and be able to purchase arms from outside Europe, whereas under SAFE 65 per cent of arms have to come from European sources.
Despite the President’s rejection of the legislation, though, the government has decided to proceed via a resolution arguing that the previous PiS government also signed defence loan agreements with the US and South Korea without parliamentary approval.
These agreements, though, were taken out with interest rate arrangements that were specified.
Now that the new loan agreement has been signed the next stage will be for the Polish government to sign, by the end of May, around 40 contracts for arms purchases using the SAFE funds.
The rest of the money would arrivie in twice-yearly tranches each April and October, up to 2030. The details of what these amounts will actually be spent on will not be released until October.
