Last Friday The Financial Times reported that the London Stock Exchange had opted out of bidding for the WSE.

Of the four short-listed potential investors – the others being NYSE Euronext, Nasdaq OMX and Deutsche Börse – the German exchange seems to be the favorite.

For one thing, Deutsche Börse has been pretty vocal about its interest. At the Krynica Economic Forum last month, a managing director of the company took time out to talk up the firm's credentials with our correspondent (find the interview here). He mentioned better synergy and the capability of derivatives trading (which the LSE doesn't offer), as reasons DB is the perfect fit for the WSE.

When contacted by reporters for a reaction to LSE's pullout, Deutsche Börse's spokesperson confirmed that it was still on track to bid, while all the others declined to comment. Earlier this year, Nasdaq OMX announced that it would be competing with the Warsaw Stock Exchange by offering Central European blue chips through a multilateral trading facility. That seems to count out its bid.

That just leaves the silent NYSE Euronext. It could submit a bid, but it hasn't been very active or vocal. It may want to shore up its positions in Western Europe and the United States before it makes a large takeover bid – and it is understood that the government won't sell the WSE for peanuts.

We should see how all of this plays out in the coming months, as the privatization process was supposed to be completed by the end of the year. If the bidders don't make an attractive offer, or if a snafu appears – as has occurred in several of the government's plans for privatization of state-owned companies this year – all bets are off.

52.2 billion złoty – that is the Finance Ministry's estimate of Poland's budget deficit next year, nearly twice what it is this year. The figure inches towards some 7 percent of GDP, far higher than the 3 percent limit mandated by the European Union.

The media are bursting with outrage and amazement. Was this not the same government that purported to be fiscally responsible? That only a few months ago was assuring us that we would be entering the ERM-II pre-euro zone waiting room in the second half of this year?

Interestingly however, analysts seem unsurprised and un-alarmed. As the global economic crisis deepened and continued to affect Poland, everyone was sure the country's budget deficit would grow sharply over this year's. And taking Poland's growth this year into account – as likely the only EU country to avoid recession – such a high deficit seems a small price to pay for relative economic prosperity.

Indeed, many analysts believe the FM has overshot the mark, purposefully underestimating economic growth next year, in order to bring the deficit in even lower during a presidential election year, allowing PM Tusk – who will certainly run for president – to claim that things are better than had been predicted.

Still, the announcement brings into question the government's credibility. When it was telling us earlier this year that we would be entering ERM-II, few bought it, and no one was worried when it didn't happen. The same now goes for these vastly upwards-revised budget figures. When we know the government isn't telling us the truth, why isn't anyone calling them on it? Why aren't PO's poll numbers dropping dramatically?

Part of the reason is that there are very few options to choose from – practically no one expects that PiS or SLD, the other viable parties in the Parliament, would do much better with Poland's fiscal headaches. Next week's cover story in WBJ (available in stores Monday, September 14) will examine this phenomenon. The PO-PSL government has promised much and delivered little, with its inability to sell off the country's distressed shipyards to a foreign investor being the latest example. Still, PO currently looks well-placed to hang on to power.

And one final note: This week WBJ is pleased to announce the publication of Investing in Poland 2010, a new annual publication on the investment climate in Poland's cities and regions, with special sections on Poland's macroeconomics, its Special Economic Zones and its Technology Parks. It is simply an essential resource for anyone with an investment in Poland, or considering locating one here. Investing in Poland 2010 will be available starting tomorrow at the Economic Forum in Krynica, and thereafter at shops and kiosks across the country, as well as at embassies, consulates, chambers of commerce and via WBJ.pl.

Ah, finally... The “silly season” is at an end and here at WBJ we are excited about news-making events coming back. And they are coming back with a bang – there's plenty to talk about.

Most importantly and most recently is the commemorations of the outbreak of World War II that took place at Westerplatte yesterday. While Germany was the main aggressor in that war, most of the media attention was focused on Polish-Russian relations, which were strained even further in the run-up to the ceremonies by the publication of some scurrilous historical claims that had been widely publicized in the Russian media. The most outrageous of these was the idea that Russia was forced into the Molotov-Ribbentrop Pact due to suspicions that Poland was set to cooperate with Germany to overtake Russia. Russian historians claimed that Poland a secret agreement to this effect was contained within Poland's non-aggression pact with Germany in 1934. The historians offered zero proof. (Historian Norman Davies has written an excellent article exploring all of this for Britain's The Independent. click here to read it.)

Such historical revisionism is typical for the Russian government and media, so that was no surprise. But everyone was waiting with baited breath to see how the meeting between Russian PM Vladimir Putin and Polish counterpart Donald Tusk would go. Would Putin give credence to these historical revisions? Would he criticize Poland for being “anti-Russian”? Or would he apologize for the Soviet Union's invading of Poland two weeks after the Nazis did, as most Poles would have liked him to?

The answer, of course, was none of the above. By all accounts the meeting between Putin and Tusk was civil. Both expressed a willingness to move forward, to increase future partnership. While dissatisfying for Poles, it is a good move. Poland gains nothing from being at constant odds with Russia. And despite his government's oftentimes anti-Polish rhetoric (and actions), Putin made the right decision too – Poland is one of Russia's biggest trading partners, and Polish opposition to Russia's energy plans in Western Europe could give it headaches. Russia also gains from positive relations with Poland.

Shame on you, Mr. Obama...
All of this leaves one wondering about where Poland's supposedly close partnership with the United States stands in all of this. US President Barack Obama was not present at the ceremonies marking the 70th anniversary of the outbreak of World War II, a huge and regrettable snub for one of the US's closest allies. With the US already considering pulling out of the missile shield agreement, there rumblings in Warsaw are that the government is getting tired of putting more in to the relationship that it gets out. Mr. Obama certainly has a lot on his plate on both the domestic and international fronts, but what could be so important that he couldn't attend a ceremony marking the beginning of what was arguably the most significant war in the history of the world? Heads of governments from Germany, Russia and Italy were there. Other notable absences included Britain's Gordon Brown and Israeli Prime Minister Benjamin Netanyahu.

The US was represented by National Security Adviser James Jones. Were the ceremonies so unimportant that Mr. Obama couldn't even have sent Secretary of State Hilary Clinton?

Economic news
There has been plenty recently on the macroeconomic front – almost all good. Exports are keeping the economy afloat and while domestic demand and investment are slowing, private consumption remains strong. Analysts are divided as to what this means – some say that Poland is out of the woods, while others expect unemployment – always a lagging indicator – to grow in coming quarters, and thus cool private consumption. For more have a look at our “Economy” section – we're covering developments extensively as more data comes out.

Two bits of macroeconomic news dominate the headlines today. Poland's PMI (Purchasing Managers Index) came in far higher than expected, and the złoty keeps moving up, up, up - especially against the dollar.

Analysts were eagerly awaiting the Purchasing Managers Index figures yesterday, as many see it as an indicator of business sentiment, and hence economic growth. A higher index means more businesses are buying goods and supplies, meaning they are ramping up production - presumably in response to some demand or expected demand. In June, PMI was at 43 points, and most analysts had expected a slight improvement in July to between 43.5 and 43.8. But the numbers were far better than that, and came in at 46.5 points. That seems to indicate that businesses are bullish about the economy, and beleive that they can produce more than they were at the nadir of the slowdown.

As if on cue, the IMF also announced yesterday that it may revise up its GDP growth forecast for Poland. It currently foresees growth of 0.7% this year, and 1.5% in 2010. Poland's GDP grew by 0.8% in the first quarter of this year.

As for the złoty, it continues its rise, and is well under zł.3.00 to the dollar - at zł.2.88 today. Puls Biznesu reports that the złoty is close to breaking records, and says that the analysts it surveyed expect the złoty to continue strengthening, after a small correction. That small correction will happen this month, the paper says, and the złoty will be just a tad weaker than it is now against the dollar, euro and Swiss franc. Nevertheless, it is expected to remain far stronger than it was at the end of last year and the beginning of this year.

One interesting thing to consider is, if this really is the beginning of a recovery (which is far from certain), what will it mean for the PO government, which has been slowly but steadily losing popularity? Will they be able to claim their "economic miracle" and keep taxes low? It is important to remember that only last week President Kaczyński signed Poland's anti-crisis bill, and we are not likely to see its effects until the beginning of next year. Will the recovery already be in full swing then? Will we find that the government had unnecessarily spent billions on a recovery bill that was not needed, or was implemented too late? Will the resulting gaping deficit mean that it will have to raise taxes in the middle of a fragile recovery?

We will just have to wait and see to get the answers.

Prime Minister Donald Tusk hasn't been great at keeping his promises. During the 2007 election campaign, he promised an 'economic miracle' if his party was brought to power – so much for that. Last September, he said that Poland would enter the euro zone in 2012 – that now looks impossible.

And just this weekend the Prime Minister made another promise – one that many of us wonder if he will be able to keep.

“[O]n the basis of premises that have emerged while drafting next year’s budget, I can finally settle this matter once and for all ... Estimates indicate that the Polish economy is in a better situation than those of the neighboring countries, and this allows me to say this with 100-percent confidence: taxes will not be raised in 2010.”

Does anyone else cringe when they read the words “100-percent confidence”?

Being a child of the 80s, when I heard this I was immediately reminded of George H. W. Bush's now infamous “Read my lips: No new taxes” promise. Of course, after he was elected, Bush 41 was promptly forced to raise taxes.

This promise has that type of smell to it: Despite Poland doing better than its neighbors, the economy isn't going gangbusters. Plenty of analysts believe that Poland will head into recession this year, and estimates for economic growth next year are anemic. How will the government raise funds to cover the expected gaping budget deficit, if not by taxes then? There is too much political pressure against cutting government spending – President Kaczyński would likely be dead-set against it.

The only choice then, would be to speed up privatization, which the government has said it will do. (Admittedly privatization revenues are not counted against the budget deficit. However they can be used to finance the deficit instead of borrowing.)

But in this tough economy, it's unlikely that the government will be able to get what it wants for its state-owned giants. Currently, the government is trying to resolve the PZU situation amicably, getting a good price for the stake in PZU that it is obligated to sell Dutch insurer Eureko – things don't seem to be going well. Also, the government has already ruled out selling KGHM, since the price the state would get for it would only amount to 5 years worth of the copper-miner's profit.

Buyers know that now is a time to get a good deal, and won't accept anything less.

This reporter certainly hopes that Prime Minister Tusk will be able to come through on his promise and not raise taxes ... but that is looking increasingly unlikely. You don't have to read his lips – just take a look at the government's balance sheet.