WARSAW (Thomson Financial) - Poland's ruling coalition is "hanging by a thread", sacked deputy prime minister Andrzej Lepper warned Wednesday, demanding proof of the corruption allegations which sparked his dismissal two days earlier.
Lepper's populist Samoobrona (Self-Defence) party on Tuesday backtracked on a promise to quit the government, calming markets after a day of political turmoil following his sacking by Prime Minister Jaroslaw Kaczynski.
Kaczynski's warning on Monday night that new elections were likely drove down prices of bonds, stocks and the zloty currency yesterday.
But dealers say most players are now taking a wait-and-see approach, although some nerves remain ahead of a possible new showdown on Friday, which Lepper has set as a deadline for the conservatives to back up publicly the allegations against him.
"The coalition is hanging by a thread. By Friday we expect to be given the evidence," Lepper told reporters in Warsaw.
Speaking elsewhere, Kaczynski told a news conference he could not guarantee the state's anti-corruption agency would produce evidence in an ongoing case. But he maintained the best solution would be for Self-Defence to stay on.
Samoobrona's departure would likely be a deadly blow for the government, which is steered by Kaczynski's Law and Justice (PiS) party and also includes the far-right League of Polish Families (LPR).
But many commentators said that Self-Defence's turnaround yesterday shows many of its MPs are scared to head for new polls, given the party's low ratings in the opinion polls.
Many of its MPs, they say, would rather defect to the government than face the voters before the end of this parliament's term in 2009. Added to that is Kaczynski's promise that no decisions on the future of the government will be taken before September, were Self-Defence to leave.
"The market has become immune to this political volatility," said Maciej Slomka, head of fixed income with Bank Pekao in Warsaw. "If we do have early elections, we can't get any worse than the current government. It's either that or we are left with the same status quo as before."
The premier fired Lepper on Monday after a raid by the national anti-corruption office -- a unit which was Kaczynski's brainchild -- on the agriculture ministry, during which one of Lepper's aides was arrested.
Kaczynski subsequently alleged that Lepper was personally implicated in "criminal activities" involving "bribes worth millions".
Lepper today reiterated that he was innocent.
"This was a set-up directed against me, as the head of the party and as a candidate for the 2010 presidential elections," he said.
Kaczynski's twin brother Lech Kaczynski became president of Poland in 2005, several weeks after PiS secured a narrow victory in parliamentary elections, and is expected to seek a second term.
The rural-based Samoobrona and the LPR were brought into the cabinet in May 2006 to shore up the minority PiS government.
Kaczynski sacked Lepper last September after a policy battle, but was forced to climb down three weeks later to stave off snap elections.
Even with the two junior partners, Kaczynski's ruling coalition controls only 224 seats in Poland's 460-member parliament -- PiS has 149 seats, Samoobrona 46 and the LPR 29.
The government has managed to stay in power thanks to support from a dozen independent conservatives and divisions among liberal and left-wing parties, so would find itself on the ropes if Samoobrona joined the opposition.
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