State interventions are believed to be harmful

Czech Republic
Institute of International Relations
 
The Czech banking sector has so far remained rather immune to the turbulence caused by the financial crisis, thanks to a more conservative approach to loans by Czech banks, which in turn is a consequence of the Czech banking crisis in the 1990s. Therefore, the Czech Republic was not seriously hit by the first wave of the financial crisis. The aftermath of the financial crisis, however, has also affected the Czech economy, with a slight increase of unemployment being the first evidence.
 
The Czech Presidency has chosen the slogan ”Europe without Barriers”, and this is also the Czech recipe for how to deal with the financial crisis. The Czech government warns against protectionism and other potential interventions into the free market which could arise as a reaction to the current crisis. Furthermore, the government emphasises that the EU countries should not loosen their fiscal discipline as a consequence of crisis packages meant to stimulate the economy. Increased budget deficits can, according to the government, have serious consequences for the European competitiveness. Therefore, among others, the EU finance ministers should stick to the goal of reaching consolidated public finances by 2012.[1]
 
In his address to the European Parliament in January, the Minister of Finance, Miroslav Kalousek, stressed the respect of the Stability and Growth Pact as an important condition for successfully combating the economic downturn: “The Czech Presidency considers the Stability and Growth Pact to be the cornerstone of our budget policies which must not be questioned. After the reform of 2005, the pact now offers a framework for bad as well as good economic times.”[2]
 
The Czech Presidency will also insist on the maintaining of regulations concerning state intervention in the economy, i.e. regulations concerning state subsidiaries should not be allowed to be violated, and support of the economy in one member state should not be allowed to have negative affects on other member states. Furthermore, the government stresses that the Lisbon process should be continued, since the only cure for the economic crisis is structural change and investments in research and science.[3]
 
The Economy is one of three priority areas for the Czech Presidency, the others being energy and Europe in the world. Regarding the economy, the presidency will primarily stress the removal of all barriers that still stand in the way of the internal market freedoms (the primary stress being on the removal of barriers for workers from the new member states), reforms that will reduce the administrative burden of small and middle enterprises and increased fair trade on the global level. These are issues where there is a consensus among Czech political actors.[4] Yet, the Czech priorities regarding the economy have been criticized for being one sided while only emphasising deregulations and a more market economy as solutions for a crisis caused by deregulations.[5]
 
President Klaus has, unsurprisingly, despite doubting the seriousness of the crisis, advocated a more radical recipe for the solution of the economic crisis. In general, however, he agrees with the government and has expressed his satisfaction with what the government does to handle the situation. They largely share the view that improvised political solutions might be more dangerous than the crisis itself.[6] Yet, Klaus suggests radical reforms towards the economic downturn that would, during a limited period, violate some individual rights – for instance, concerning the possibility of challenging, and thus delaying, the planned highways in the Czech Republic.[7] Klaus put it in more general terms in an article published in the Financial Times, where he argued: “The best thing to do now would be temporarily to weaken, if not repeal, various labour, environmental, social, health and other ‘standards’, because they block rational human activity more than anything else.”[8] This formulation was criticized on the European level by leading European socialists, e.g. Martin Schulz. Klaus’ statements should not be entitled to too much importance since his office is largely representative. Yet, there have been speculations that Klaus wants to destabilise the governing coalition with his medial appearances.[9]
 
Regarding the solutions to the crisis on the domestic level, the Czech government has been criticised by some economists for not completely realising how serious the situation is. For instance, the economist and former candidate for Czech president Jan Švejnar has argued that the government’s prediction of a slowdown of economic growth is too optimistic;[10] a more realistic assumption would be zero growth, given, among others, the heavy dependence of the Czech economy on the car industry.[11]
 
The biggest opposition party, the Social Democrats (ČSSD), have suggested a more impressive list of 52 proposals to combat the economic crisis. What is striking is that many of these proposals relate to European integration. The first proposal on the list is the Czech ratification of the Lisbon Treaty, which, in the view of the party, would improve the chances of the Czech Presidency to successfully moderate the debates on the economic crisis. The ČSSD also welcomes an increased role for the EU in regulating the European financial sectors and calls for a plan for the introduction of the Euro in the Czech Republic.[12] The party has also accused the government of passivity and called for greater action and involvement with the economy.[13]
In order to handle the slowdown of the economy on the domestic level, the government has established a special national economic council, consisting of 10 leading economists, who should discuss and propose solutions to the current crisis. In addition Kalousek has declared that government action will be necessary if the growth rate drops below two percent of the GDP. One possibility is a reduction of VAT on some services with high added value, such as restaurant services, etc. What is necessary, however, is an agreement on the EU level. Other possibilities include increased investments in infrastructure.[14]




[1] Balanced deficit defined as being less than one percent of GDP. See Kalousek: EU by se měla vrátit ke konsolidaci rozpočtů (Kalousek: the EU should return to consolidated budgets), 20 January 2009, available at: http://www.ceskenoviny.cz/eu/zpravy/kalousek-eu-by-se-mela-vratit-ke-kon... (last access: 21 January 2009); see also Alexandr Vondra: Předsednictví se může podobat italskému catenacciu (Alexandr Vondra: The Presidency could resemble an Italian catenacciu), 8 December 2008, available at: http://www.e15.cz/predsednictvi/alexandr-vondra-predsednictvi-se-muze-po... (last access: 21 January 2009).


[2] Miroslav Kalousek: Presentation of the Czech Presidency’s Priorities concerning Financial and Economic Affairs to the European Parliament, 21 January 2009, available at: http://www.mfcr.cz/cps/rde/xchg/mfcr/xsl/en_45152.html (last access: 21 January 2009).


[3] Mirek Topolánek: Neuhnu ani o milimetr. Mám plnou odpovědnost a dostojím jí (I won’t back away even a millimeter. I have full responsibility and I intend to fulfil it), 7 January 2009, available at: http://www.ods.cz/media/clanek.php?ID=8828 (last access: 21 January 2009).


[4] Jan Hřích: Vnitřní trh a ekonomické politiky (The internal market and economic policies), in: Jan Karlas (ed.): Jak předsedat Evropské unii? Návrh priorit předsednictví ČR v Radě EU v roce 2009 (How to chair the European Union? Proposed priorities of the Czech Presidency of the EU Council in 2009), Institute of International Relations, Prague, 2009.


[5] See, e.g., Jaques Rupnik: Bořme bariéry. Ale jen ty, co existují (Let us remove barriers, but only the existing ones), 7 January 2009, available at: http://vyhledavani.ihned.cz/109-32334760-on-ekonomick%E1+krise+eu-M00000... (last access: 21 January 2009).


[6] Utrácejte, utrácejte, poradil byznysmenům v krizi Klaus ("Spend, spend" was Klaus’ advice to businessmen), 16 December 2008, available at: http://video.ihned.cz/c1-31760190-video-tahle-krize-neni-nejvetsi-od-20-... (last access 21 January 2009).


[7] Václav Klaus: Čím já koho štvu? Že mám pravdu? (Václav Klaus: Why do I upset people? Because I am right?), 2 January 2009, available at: http://vyhledavani.ihned.cz/109-32087290-on-ekonomick%E1+krise+eu-M00000... (last access: 21 January 2009).


[8] Václav Klaus: Do not tie the markets – free them, 7 January 2009, available at: http://www.klaus.cz/klaus2/asp/clanek.asp?id=W12AQlgHr3Yk (last access: 21 January 2009).


[9] Evropští socialisté ostře kritizovali Klause za výroky k EU (European Socialists criticized Klaus for his statements on the EU), Czech News Agency, 7 January 2009.


[10] According to the expectations of the government, the Czech Republic will have a growth of above two percent of the GDP during 2009, and unemployment will increase only by one percent to 6.3 percent. C.f. Kalousek: Hospodářský růst příští rok neklesne pod 2 procenta (Kalousek: Economic growth will not go below two percent), 27 December 2008, available at: http://vyhledavani.ihned.cz/109-31863190-on-ekonomick%E1+krise+eu-M00000... (last access: 21 January 2009).


[11] Jan Macháček: Interview with Jan Švejnar, Respekt, 2, 2009.


[12] PŘEHLEDNĚ: 52 receptů ČSSD proti krizi (Overview: 52 recipes of ČSSD against the crisis) available at: http://ihned.cz/c3-31716380-000000_d-prehledne-52-receptu-cssd-proti-krizi (last access: 21 January 2009).


[13] Jiří Paroubek: Česko v čele EU – úspěch nebo otazníky? (The Czech Republic as EU leader – success or question marks?), 26 January 2009, available at: http://paroubek.blog.idnes.cz/c/67190/Cesko-v-cele-EU-uspech-nebo-otazni... (last access: 30 January 2009).


[14] Kalousek uvažuje o snížení DPH za některé služby (Kalousek considers reduction of VAT on some services), 20 January 2009, available at: http://www.financninoviny.cz/os-finance/dane-a-mzda/zpravy/kalousek-uvaz... (last access: 30 January 2009).