WARSAW (Thomson Financial) - Prime Minister Jaroslaw Kaczynski warned Poland could be heading for new elections after he sacked his populist deputy prime minister in a corruption row, sending the ruling coalition spiralling toward collapse.
Analysts said the political upheaval is this morning likely to prompt a fall in the zloty and local stock and bond markets, though most said the possible departure from the government of the leftist Self-Defence party could prove a bonus for public finances and markets longer-term.
Kaczynski said late yesterday that the government, which operates a slender working majority in parliament, could not continue as a minority if the Self-Defence party made good on sacked Deputy PM Andrzej Lepper's threat to leave the coalition.
Self-Defence MPs, however, still have to approve their leadership's decision to withdraw backing for the cabinet and Kaczynski did leave the door open to attempts to form a new coalition.
Kaczynski said this morning that he expects a decision on the future of government to be made in September.
That clarified comments he made at a news conference late yesterday evening, when he stated: "If there will not be a majority, we will have elections."
"But whether they will be in the autumn, in the middle of the autumn or next year - it is too early to say. Given such an aggressive opposition, a minority government is impossible. We have the parliamentary vacation in front of us, the decision for sure will not be taken within the next weeks."
Reacting to yesterday's events Lars Christensen, senior analyst with Danske Bank in Copenhagen, forecast declining markets this morning.
"Of course the zloty will fall," he said. "But it does not have to be a bad thing. Self-Defence leaving the government means we may not have the battle I expected over this year's budget.
"The market is also getting very used to political crisis in Poland - it seems to happen reliably every few months, but the government is still here."
Versions differed on the circumstances of Lepper's departure amid reports that the government's new anti-corruption agency had entered his Agriculture Ministry and detained Lepper aides.
Kaczynski's conservative Law and Justice party has made combating sleaze in public life the cornerstone of their two-year government. Critics, however, say they have used the issue chiefly for political point-scoring in the hope of crafting a clearer majority at the next election, not normally due till 2009.
"I offered Jaroslaw Kaczynski my resignation, while also warning that it would mean the end of the coalition government, but apparently the decision to sack me had already been made," Lepper told Polish news channel TVN24.
"I can't imagine any other outcome than Self-Defence's withdrawal from the government."
Law and Justice now trails just behind its liberal opposition in the polls but analysts say its well-oiled party machinery could well repeat a successful campaign in 2005 when it made back 15-20 points to claim victory.
Self-Defence MPs meet today to discuss a recommendation by the party leadership to withdraw from the coalition and political commentators say some of the party may at some stage split off to remain in government.
"The decision on Self-Defence's role in the coalition is not closed," said senior Kaczynski aide Przemyslaw Gosiewski. "Self-Defence's parliamentary party will decide. I believe in (their) common sense."
Kaczynski sacked populist firebrand and former pig farmer Lepper last year, only to bring Self-Defence back into the three-party coalition with the far-right League of Polish Families (LPR).
With Self-Defence, the coalition controls 224 seats in Poland's 460-member parliament -- PiS has 149 seats, while Samoobrona holds 46 and the LPR 29. In parliament the conservatives rely on support of smaller right-leaning groupings to do business, also supported by Kaczynski's identical twin - Polish President Lech Kaczynski.
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