Clash Over UniCredit Testing Powers

Clash Over UniCredit Testing Powers

Poland's refusal to back down in a dispute with the European Union over the continent's largest banking deal is emerging as a key test case of the EU's aim to create an open market versus a growing wave of protectionism.

While older bloc members have their own spats with Brussels over single market laws, newcomer Poland has defied the EU by blocking Italian bank UniCredit's takeover bid for local Bank BPH.

The disputes are being closely observed to see if the EU can rein in national interests as it aims to create an unobstructed market.

UniCredit's bid for BPH, part of its larger takeover of German lender HVB that is firmly backed by the European Commission, is also being watched for signs of whether Poland's new conservative government will embrace protectionist policies in the largest of the new, mostly former communist EU members.

Prime Minister Kazimierz Marcinkiewicz and his government came to power last fall pledging to protect Polish interests in the EU, and their stance on the takeover has resonated with people who believe post-communist privatization deals were rigged to benefit the elite.

"It is more about giving a signal to their voters that 'we are the first government in many years trying to defend national interests, and we aren't selling everything to international investors,'" said Marek Juras, an analyst at Bank Zachodni WBK SA.

Still, he said the core of the dispute, which has dragged on since late last year, lies in the balance of power between national governments and the European Commission.

The European Commission contends that Poland broke EU law when it blocked UniCredit Italiano SpA's bid for BPH _ part of its euro15.4 billion (US$18.7 billion) merger with German lender HVB Group AG.

The Polish government denies charges of protectionism, saying it is merely upholding a 1999 privatization agreement UniCredit signed when it bought a 53 percent stake in Poland's second-largest bank, Pekao SA. That deal forbade the Italian bank from engaging in any other "competitive activities" in the Polish banking market, a provision meant to prevent a concentration of the banking sector by one entity.

"The privatization agreement for Pekao SA was sealed in goodwill," Treasury Ministry spokesman Marcin Mazurek told The Associated Press. "Nobody forced anybody to sign the agreement. And UniCredit is now breaking that agreement."

Marcinkiewicz's socially conservative Law and Justice party is also concerned that the merger of Pekao SA and BPH under UniCredit would create a foreign-owned rival to the state-owned market leader, PKO BP. Poland's new government has floated the idea of creating national champions _ state-controlled companies to lead the way in specific sectors.

"This government is fascinated by the idea of building national leaders," Juras said. "It is convinced that not only the private sector should play an essential role in the economy."

Charlie McCreevy, the European Union commissioner for the internal market and services, criticized France and Luxembourg last week for moves he said were designed to protect steel maker Arcelor SA and other companies from takeovers. And Spain approved measures Friday designed to block German utility E.On AG's takeover bid for power and gas company Endesa, placing itself on a collision course with EU regulators.

McCreevy threatened Poland with a lawsuit over the bank takeover, saying its attempts to prevent the deal showed that the problem was not just confined to old members of the EU.

But Marta Jezewska, an analyst at BRE Bank in Warsaw, played down the role of protectionism in Warsaw's opposition to the bank takeover, saying the government could be trying to wrangle a better position for the Polish banks in a combined HVB-UniCredit.

Despite threats by the European Commission to take Poland to the European Court of Justice, the EU's highest court, Poland's government is sticking to its defenses and has itself filed an appeal with the court against Brussels' approval of the UniCredit deal.

"We didn't break European law," Mazurek said. "We are waiting on a decision from the European Court of Justice."