If officially confirmed, the result would pivotally change Warsaw, which has fought with the European Union over the rule of law, media freedom, migration and LGBT rights since the current conservative nationalist Law and Justice (PiS) government came to power in 2015.

The zloty and Warsaw's stock market - which has underperformed the rest of Europe by some 30% during PiS rule - both immediately rallied on Monday as former European Council president Donald Tusk looked to be in pole position to be the country's next leader.

As Europe's sixth-largest economy, a revitalised pro-EU attitude in Poland would be particularly welcome.

Daniel Moreno, head of emerging markets debt at investment firm Mirabaud, explained: "It will be a positive development for sure because it will unlock the (EU) money that has been withheld and reduce a lot of the tension that has been created with Brussels".

Some 110 billion euros ($116 billion) earmarked for Poland from the EU's long-term budget and the post pandemic Recovery and Resilience Facility (RRF) remain frozen due to PiS' record of undercutting liberal democratic rules.

"It would be one less headache for Brussels as well," Moreno added, referring to the criticism the EU receives from the likes of Hungary's Viktor Orban and last month's election win in Slovakia for the nationalist Robert Fico.

The 66-year old Tusk and his pro-EU coalition allies may still have to wait weeks or even months though before getting a turn at forming a government.

Polish President Andrzej Duda, a PiS ally, has said he would give the first shot at forming a government to the party with the most votes, which as it stands is PiS.

However, with PiS' only obvious coalition partner the far-right Confederation unlikely to secure enough votes for an overall majority, Tusk should get his chance.


Veteran analysts were keen to stress though that even then it will not necessarily be plain sailing.

Tusk will not instantly unlock the 35 billion euros in post-pandemic grants and loans that Brussels froze in May 2021 due to concerns about political influence of top judges.

Duda has referred the issue at the heart of that row to a constitutional tribunal in Poland. But like all the country's institutions with a PiS leaning, it could be "quite obstructive", abrdn portfolio manager Viktor Szabo said.

The other big question he and others have is what now happens to the big spending promises that both Tusk's coalition and the PiS had campaigned on.

Ahead of Sunday's election, rating agency Fitch was forecasting a whopping 5.3% budget deficit this year.

Poland still has a sub 60% debt-to-GDP ratio but already had to triple what it had previously paid investors when it sold a 10-year bond in its local zloty markets at 6% at the end of last year.

The central bank though has slashed interest rates at its last two meetings as the election campaign burst into life.

Szabo questioned whether that would continue under a new government, especially with the bank's governor, Adam Glapinski, originally installed by PiS. Short-term Polish money rates rose on Monday suggesting the bank may turn more hawkish again.

Simon Quijano-Evans, chief economist with Gemcorp Capital, said probably the biggest issue was whether a pro-EU coalition with Tusk at the helm can hold, although it should at least quell talk of Poland following Britain out the EU or cutting its support for Ukraine.

"Stabilisation in Poland will definitely help in all of Europe," he said.

(Additional reporting by Libby George and Karin Strohecker in London; Editing by Josie Kao)

By Marc Jones