In a statement, Moody's said:
"This is credit negative for Poland because it escalates a constitutional crisis that began late last year and will likely increase tensions with the European Union, with a higher risk of further impairing Poland's investment climate. Although we expect private consumption to support real growth of 3.0 to 3.5 percent this year, the impaired investment climate threatens to reduce growth."
In December 2015, the Polish Government added five "politically friendly" judges to the country's Constitutional Tribunal, among other things, in a move seen by critics as making it easier to push through legislation with less opposition. Poland's Chief Justice ruled the changes unconstitutional, but the government ignored the ruling.
In July 2016, however, further changes were made — which came into force on August 16 — allowing for rulings to be made a simple majority, with 11 judges being present. It also allowed for rulings on the constitutionality of a law to be made by only five judges.
The most controversial provision is an article that introduces the so-called blocking mechanism: during a full bench debate, four judges may veto the ruling proposition, which would lead to a three-month adjournment. The veto may be repeated once more. Despite a court ruling that the new law is unconstitutional, the government has enacted it.
Warsaw Vote at Risk?
Finally, after months of negotiations, the European Commission adopted a "Rule of Law Recommendation" on the current situation in Poland, setting out the Commission's concerns around the functioning of the Constitutional Tribunal.
"The rule of law is one of the common values upon which the European Union is founded. It is enshrined in Article 2 of the Treaty on European Union. The European Commission, together with the European Parliament and the Council, is responsible under the Treaties for guaranteeing the respect of the rule of law as a fundamental value of our Union and making sure that EU law, values and principles are respected," the Commission said.
However, with rising antipathy towards the Brussels machine across Europe, the Commission is thought unlikely to exacerbate an already tense situation. It has recently stepped back from imposing fines on Spain and Portugal over breaches of EU deficit rules for the same reason. However, the Moody's recommendation is a sign of nervousness on the markets over the row.