Poland's finance minister quits

Mr Kolodko favoured early euro entry

Poland's finance minister Grzegorz Kolodko has resigned in a row over the reform of public finances in the preparation for entry into the European Union.

The move comes less than day after Prime Minister Leszek Miller's cabinet backed Mr Kolodko's core budget proposals for the country's entry into the EU next May.

But the cabinet only backed half of Mr Kolodko's legislative programme, leaving the government in disarray, two days before a crunch parliamentary confidence vote.

Mr Miller said on Tuesday he was shifting control of overall economic policy to economy minister Jerzy Hausner, apparently prompting Mr Kolodko's resignation.

Job cuts

Mr Kolokdko's replacement was named on Wednesday as Andrzej Raczko, in a move designed to underline Poland's commitment to its new EU role.

There is a big danger that public finances may slip out of control

Michal Dybula, analyst at BNP Paribas

Mr Raczko, 50, took part in hard-fought negotiations on Poland's membership of the EU, focusing on free circulation of capital, budgetary policy and taxation.

In a parting shot, Mr Kolodko compared handing control of the economy to Mr Hausner to a bank raid.

"In the current situation any attempt to move the centre of economic control out of the finance ministry would be nothing less than a grab for the cash box," he told reporters.

Poland is battling to cut huge budget deficits and also needs to find 6.5 billion euros to pay for EU entry.

This could mean thousands of public sector job cuts at a time when the economy is growing at its slowest rate since the collapse of Communism in 1989.

Market reaction

Mr Kolodko was keen to prepare for early euro entry by keeping public spending down and leaving taxes largely unchanged.

But Mr Hausner wants to cut taxes and run large budget deficits in the hope of stimulating growth and creating jobs. He is also thought to favour delaying euro entry.

Some analysts fear Poland's public finances could spiral out of control as a result.

The zloty weakened by 1% on news of Mr Kolodko's resignation, but the markets remained calm.

Michal Dybula, analyst at BNP Paribas in Warsaw, said: "Since the beginning of the week we have only been betting when, and not if, Kolodko would resign. It is not a surprise.

"Kolodko's hands were tied and only snippets of his programme remained.

Confidence vote

He added: "It seems that prime minister Miller will not want to cut spending and the deficit will widen.

"There is a big danger that public finances may slip out of control."

Mr Miller is struggling to shore up support for his minority Democratic Left Alliance government following a weekend referendum in which Poles voted overwhelmingly in favour of joining the EU.

A vote of confidence is expected to take place on Friday.