DOOR TO EUROPEAN FISCAL POLICY REMAINS FIRMLY CLOSED.

By ultimately rejecting the Austrian compromise on reduced rates of VAT, the Polish government has clearly surprised its European partners. Particularly since Warsaw suddenly found itself alone against 24 member states following the Czech Republic's (last-minute) about-turn and the (predictable) decision by Cyprus to back the compromise.

Vain calculations! In a country that remains politically unstable and where the possibility of early elections resurfaced in the New Year, saying No to Brussels is clearly deemed more politically expedient than accepting an inscrutable European compromise that it would be very difficult to sell to domestic public opinion.

The result is that Poland has dug in its heels, even if that means "seriously injuring" the nine member states impatiently awaiting its green light, a spectre raised by the Austrian Presidency. The simple fact is that failing a unanimous agreement to extend the legal basis for reduced rates of VAT for labour-intensive services, the member states that have until now applied such rates will have to change their laws to fall into line with European rules. One immediate consequence if Poland stands its...