Books on Czech Republic
% of GDP
Update No: 114 - (28/11/06)
No proper government
The Czechs haven't had a functioning government since elections in June.
Left-leaning and right-leaning parties split the 200-seat Parliament down the
middle, and neither side has been willing to make the compromises necessary to
form a government.
A caretaker government is holding the reins, but is not in a position to
initiate new policies. But in the new market economy private initiatives can to
a degree make up for that.
Klaus indirectly calls on ODS to seek compromise
President Vaclav Klaus, honorary chairman of the Civic Democratic Party (ODS),
indirectly called on the party at its congress on November 18th to seek
compromise in negotiations about a new government.
Klaus, who founded the party in 1991, congratulated it on its three election
wins this year. "I am convinced that these successes bind you to
responsibility in the effort to translate the voter preferences in the elections
into a specific post-election arrangement, however much difficult this may
be," Klaus said.
Klaus said he respects the election results, and that is why he did not hesitate
in the previous election term to repeatedly assign the then strongest party in
parliament, Social Democrats (CSSD), with forming a government, even though the
party was in a deep crisis in his opinion.
"According to the same logic, I have now given the same opportunity to the
winner of the general election, even though the first attempt to form a
government failed," Klaus said to explain why he repeatedly nominated ODS
chairman Mirek Topolanek as prime minister.
The Velvet Revolution, seventeen years on
As the anniversary of the Velvet Revolution arrived, Prague was decidedly
looking better than ever. On November 17th, 1989, when security forces brutally
beat protesting students, touching off weeks of turmoil that ultimately toppled
the government, the city hunkered a cloud of political oppression that was
little changed since the Soviet invasion of Czechoslovakia 21 years earlier.
Today, newly built apartment buildings rub shoulders with renovated 200-year-old
palaces and sparkling new department stores. On the outskirts of the city,
glistening office parks sport the logos of Microsoft (MSFT), Sony (SNE), DHL,
and Hewlett-Packard (HPQ). At Novy Smichov and dozens of other malls and
shopping zones across the city, the plethora of products, colours, and sounds
would easily have overwhelmed the typical communist-era shopper.
But the changes go far deeper than stores and office complexes. The Czech
Republic is now a member of the European Union, and the economy is likely to
grow at 6% this year and 4.5% in 2007.
Unemployment will likely fall to 8% by the end of this year, down from 10.3% in
2003. In the bad old days the country was a prison. Czechs can now travel freely
just about anywhere they want to go-often on new expressways and railroads that
lead to the West, rather than the communist-era roads and trains that made it
far easier to travel east.
Still, there are signs of distress nearly as visible as the country's newfound
prosperity. While the economy is booming thanks to growing domestic demand and
foreign investment, corruption remains rampant, and outsized government spending
is threatening the country's adoption of the euro as its currency.
The Prague Stock Exchange has seen only one initial public offering since the
bourse was formed in 1993 following the mass privatisation of hundreds of
state-owned companies. A second is in the works.
"There are winners and losers," says Pavel Sobisek, an economist with
HVB Bank in Prague. "People who speak foreign languages, had a good
education, and can be flexible have done well. For others, it's more
It's not hard to find the losers. Down the street from Novy Smichov lies a strip
of pawn shops and casinos where those who haven't made the transition to the new
economy try to wager their way to a better life or sell what's left of their old
one. The slot machines and roulette wheels are crowded, and the shelves of the
pawnbrokers overflow with jewellery, family silver, old paintings, and more.
Haves and Have-Nots
"Before the changes there was work for everybody and everyone had an
apartment," says 16-year-old Alice Kourikova, too young to be nostalgic for
communism, but aware of the profound changes since then. Now there are a lot of
poor, indeed destitute, people, which helps to explain the fact that the
communists still poll 15% in elections.
While cities near the border with Germany are full of factories producing goods
for Panasonic (MC), Siemens (SI), and Cisco Systems (CSCO), towns and villages
farther east remain little changed from the communist era. Potholed roads wind
their way through lifeless, grey buildings. Weeds and grass push up through
crumbling sidewalks. The acrid smell of coal smoke pours from just about every
So does that mean the Czechs are unhappy with the changes? Some surely are.
But few would really want to turn back the clock. Ladislav Kutik has seen both
sides of the market economy. As mayor of Nymburk, a town of 15,000 one hour
outside Prague, he could do little as one state-owned factory after another went
belly-up, eliminating nearly 3,000 jobs.
But today he is presiding over a resurgence in the town as a half-dozen foreign
companies making auto parts, electronics, packaging, and more have set up shop.
"After the revolution, everybody thought things would be better, and then
they went into a funk as change didn't come quickly enough," says Kutik.
"But now things don't seem so bad. I think that what we've accomplished
over the past 17 years is pretty good."
While many parents apparently say little to help young people such as Barbora
Slezackova understand life before the revolution, others are doing their best to
ensure that their children know what it was like. Every year, Magda Pappova
takes her two boys, now aged 6 and 9, to the simple memorial on Prague's Narodni
Street where the police set upon the students 17 years ago. "They think
communism means only that there were no pre-sweetened yoghurts and vacations at
the beach," Pappova says. "I want to show them that it's about more
than just that."
New Czech government under fire for supporting US missile plan
Within its first week in office in early September, the Czech Republic's new
minority government became embroiled in a major political row with opposition
parties over a US project to base anti-ballistic missiles on Czech territory. It
is not at all clear against whom they are to be deployed.
Ostensibly Washington wants to deploy 10 interceptor missiles and a radar in
Europe to reinforce its defences against the threat of a ballistic missile
attack from North Korea or Iran. But it would say that, not that it still has
Moscow in mind. It currently has its eye on either the Czech Republic or Poland
as the favoured home for the new system, rather nearer to Russia than the other
The Czech Republic's new right-wing Civic Democrat government, which finally
took office on September 4th after three months of political wrangling in the
wake of June elections, wholeheartedly backs the US scheme. The Czech
conservatives have long had a strongly Atlanticist orientation and distrust and
dislike the Russians.
Prime Minister Topolanek has already declared in a television interview that he
is "absolutely in favour" of Czech participation. His foreign minister
Alexandr Vondra, a former Czech ambassador to Washington, has made similarly
upbeat noises. Almost immediately after taking office he said the missile shield
would "reinforce Euro-Atlantic links" and boost his country's security
at a time when "certain threats from Iran cannot be underestimated."
But the country's second biggest party, the Social Democrats, along with the
Communists are resolutely opposed to the plan. The Communists curiously are
rather popular, mainly with the still numerous poor people, who actually feel
nostalgic for communism.
Hot potato that could bring the government down
If the latest opinion polls are to be believed, most Czech citizens seem to
back the left on this issue. A recent poll by the Stem organisation showed that
51 per cent of the population found the project "unacceptable" and 61
per cent thought it should be put to a referendum.
The missile issue has become the country's hottest post-election talking
point, with politicians of all colours making daily comments on the question.
Outgoing Social Democrat premier, Jiri Paroubek, has voiced his opposition to
the project in line with an internal poll of party members.
The Communist Party, which called for an exit from Nato's military structures
ahead of the elections, has launched a petition against the US plan, with the
party claiming more than 15,000 signatures. The Communists this week also
presented a constitutional proposal for a national referendum on the issue.
But despite the findings of the opinion polls, few Czechs have actively taken
part in the small number of pacifist or anti-American demonstrations that have
been organised in opposition to the missile scheme.
Nevertheless, many people here see any type of US installation as a form of
foreign military occupation, sparking painful memories of the seven-year German
occupation of the country before and during World War II and the later Soviet
presence, according to the local press.
Supporters of the project have, for their part, called into question the
validity of the latest opinion polls and complain that people have been
misinformed about the missile shield. They point to one Internet site, for
example, which claimed the system would disturb television reception and air
In a bid to scotch such rumours, the Czech foreign ministry has attempted to
stimulate a public discussion about the plans by holding a conference entitled
"Why the Czech Republic should take part in the MD (missile defence)
project." On the same day, the US embassy in Prague launched an Internet
site aimed at educating Czechs about the project. The site points out that the
missile shield "can integrate with emerging Nato concepts for a missile
defence system," aimed at protecting Europe and not threatening Russia,
which has attacked the plans.
Washington says it is waiting for a "positive signal" from Prague
before making a formal request, but it is still carrying on parallel
negotiations with Poland. Unfortunately for the Americans, public opinion in
Poland does not seem any more keen on the scheme.
The United States is likely to take a final decision about the location of the
missile shield before the end of the year, perhaps after a Nato summit in Riga
scheduled for November 28 and 29, according to US diplomatic sources.
But even if it does choose the Czech option, the final signing of an agreement
would require clearance from the lower house of parliament. That is something
which in the current political context, with left and right wing factions each
having 100 seats, looks unlikely.
With opinions so deeply divided over the issue, Topolanek's Civic Democrat
government could just find itself remembered as one of the most short-lived
administrations in the Czech Republic's short history.
The following is an address President Klaus gave in Vietnam recently.
There is a poignancy in the fact that the Prague Spring of 1968, snuffed out by
Soviet intervention in the summer of that year, came just after the Tet
offensive in January, 1968, which, although a military setback for the Vietcong,
was a great propaganda victory in the West, especially in the US, where it
undermined the will to continue the war, leading to the retirement of LBJ from
the November presidential race.
It was a turning point in history all right, the making of modern Vietnam, but
the unmaking of communism. A certain unknown Soviet apparatchik at the time,
Mikhail Gorbachev, drew historic conclusions that the use of force between
socialist counties should never be permitted again, leading to the Velvet
Revolution on November 17th, 1989 twenty-one years later.
President Klaus was an ardent proponent of the Prague Spring, whose career was
adversely affected by its demise. He was a massive activist in the Velvet
Revolution and afterwards as a reforming finance minister, then deputy premier,
and then premier from late 1992. He was at the helm when the Czech Republic and
Slovakia split in January 1993. His reflections on the problems of transition
are of great interest, speaking in fluent English, released on November 18th:-
The Czech Republic: Almost 17 Years of Transformation and of Approaching the
This is my first speech at a university not just in Vietnam, but in the
whole South-East Asia.
I can assure you that we have followed the developments in your country with
great interest and attention for many years and decades and I dare to say that
we are aware of all the difficulties and tragedies you had to go through. We are
also the witnesses of your rapid economic growth and overall development in
recent years and came here to improve our understanding of what happened here
and how it happened.
It was, however, suggested to me to speak here about ourselves, about the Czech
Republic, about our transition, about Europe.
Based on our experience, we understood that all the countries, sometimes called
transition economies or perhaps emerging markets, had to undergo a difficult
transformation (or in another terminology a fundamental systemic change) and we
know as well that all of them - with all their differences and very different
starting conditions - had to find their own path towards the efficiently
functioning society and economy.
We, in our country, understood that it was necessary to find our own "Czech
way", we understood that it was not possible to import any
"ready-made", prefabricated solution from outside. There are,
undoubtedly, some general principles, valid for all such countries, but there
are important country-specifics and there are alternative ways how to organize,
structure and sequence the transition.
Knowing that, we did not in the past and do not intend now to advertise our
approach or to try to sell it to anyone else, which is probably very much
different from what some other countries and especially many self-appointed
"experts", advisors and consultants do.
I am convinced that we, in the Czech Republic, have already created a
democratic, normally functioning political system based on free competition of
political parties and an economic system based on private ownership and market
Our transition, the building of a new political, economic and social system,
wasn't done in a vacuum. It was done together with our gradual approaching the
European Union, with our adjusting to its requirements and - in 2004 - with our
formal entry into it. Whereas our transition was basically characterized by
radical liberalization, deregulation and opening up, the entry into the EU was
in several respects different - it brought us less freedom, less democracy, less
sovereignty, more of regulation, more of extensive government intervention.
The radical transformation of our society was not brought from outside. It was
done by ourselves, by our own domestic efforts, by our own decisive political
activity, and it was made possible by the existence of an elementary political
support of millions of the Czechs who wanted to get rid of the past. The unusual
unity which existed in this moment was extremely important.
This unity was, however, mainly negative. The people were united "against
something," not in "favour of something." Utopian "third
ways" were being sought and promoted. Proponents of these approaches
opposed the establishment of political parties, because they were in favour of
the so-called non-political politics and because they claimed an exceptional
role for intellectual and cultural elites in the running of the country. In
essence, they advocated "post democracy."
In the economic sphere, they did not want to fully abandon the old economic
system, but merely to deepen "perestroika." They did not trust the
market and reiterated the old dreams about the possibility of convergence of
totally opposite economic systems.
In the field of foreign policy, they were idealists without a realpolitik
understanding of foreign policy. They planned to make the Czech Republic a
bridge between the East and the West.
In this crucial situation, a relatively small group of people was not afraid to
say that the goal of our transformation was capitalism and a standard
parliamentary democracy. We knew that there was nothing to wait for, because the
existing euphoria did not provide us with an unlimited time for unpopular and
often painful measures.
The political transition was conceptually easy. It was sufficient to liberalize
the entry in the political market. That was all. In the economic sphere we faced
many unrepeatable challenges, in many respects similar to yours.
The economic transition was not without costs. The key to the minimization of
the transformation costs was radical opening-up of markets together with very
cautious fiscal and monetary policies. We had to liberalize prices in the
environment of a monopolistic structure of the economy and before privatisation.
The so important competition was not created by the visible hand of the
government but imported by liberalizing foreign trade and by radically
devaluating the currency.
We tried to minimize inflation in the moment of an unavoidable and very sizable
loss of output.
We privatised the economy without having capital and capitalists. We privatised
the whole economy, not just individual firms. We privatised businesses as we
found them and not, as some of our critics wanted, after bailing them out
financially first. If we were to wait for the financial bailouts to happen,
transformation and privatisation would have never started and the economy would
Requests to postpone the beginning of these radical changes until all the
institutions of market infrastructure and the whole legislation would be perfect
were similarly wrong. In a democratic society, institutions as well as
legislation are endogenous rather than exogenous variables of the system. We
knew, therefore, that they had to gradually evolve. We knew as well that the
rule of law can't be "introduced", it has to evolve as well. This is
very often misinterpreted.
Our experience with the EU is a different story. What we usually see or hear
abroad is the unstructured, unanalytical and to some respect almost naive
pro-integrationist argumentation, based on the false assumption that the more of
unification of the whole continent we achieve, the better. I don't share this
The two crucial shifts which have been going on in recent years - from
intergovernmentalism to supranationalism and from liberalizing, which means from
removing various barriers and constraints to a massive introduction of
regulation and harmonization - are not seen or fully understood.
To put it in a proper historical perspective, institutionalisation of the
centuries lasting spontaneous process of European integration originated in
Rome, in 1957, in the form of the European Economic Community (EEC). To do it
was an economic inevitability (after the Great Depression and the Second World
War, which brought into Europe economic nationalism, protectionism, autarky,
competitive devaluations, economic planning and a wide-ranging government
interventionism). On the other hand, it was the result of political ambitions of
an influential group of European politicians who interpreted the Second World
War as a consequence of the existence of nation states. And, therefore, wanted
to get rid of them.
I myself have always considered the economic unification as a beneficiary
process, whereas the political integration as a non-necessary, over-ambitious
and in principle dubious project which brings more problems than positives, more
minuses than pluses.
The European Union, as we know it today, is much more than an economic
integration and much more than an intergovernmental cooperation of sovereign
countries. Whether this is what the citizens of the EU member states wanted and
want has been the subject of many discussions and, recently in some countries,
even the topic of peoples' referendums with differing results. I see many
problems in moving towards political union and towards supranationalism. That is
why I am not I favour of it.
Václav Klaus, University of Economics, Ho Chi Minh city, Vietnam, October 2nd,
LUKoil reportedly vying for Czech petrol stations
LUKoil is a top candidate for a chain of petrol stations that could give
Russia's largest energy group its first foothold in the Czech Republic consumer
market, Czech media reported on November 1st.
LUKoil is interested in buying the 44 Jet stations across the country from its
US strategic partner ConocoPhillips, the Czech financial web site Euro Online
reported. A Jet spokeswoman declined comment and referred reporters to a
ConocoPhillips spokesman in Houston, who was not immediately available.
ConocoPhillips holds a 17 per cent stake in LUKoil. The two companies launched
an alliance in 2004. The owners of two, other Czech petrol chains - Austria's
OMV and Poland's PKN Orlen - are also reportedly interested in the Jet stations.
Last month, Russian media reported that LUKoil wants to expand its relatively
small refinery assets in the Czech Republic by buying the 16 percent stake in
Ceska Rafinerska, now controlled by ConocoPhillips. But any sale of Ceska
Rafinerska stakes must be approved by the company's other stakeholders, which
include Shell, Agip and PKN Orlen. Russian media recently reported that LUKoil
may invest USD 200 million in the Czech Republic. Jet stations also operate in
Germany, Hungary, Poland and other countries.
Czechs, Austrians clash over nuclear plant permit
The Czech and Austrian governments clashed on November 8 over Prague's decision
to grant an operating permit for the controversial Temelin nuclear power plant,
Deutsche Presse-Agentur (dpa) reported.
The Czech Ministry of Foreign Affairs said it received a protest letter from the
Austrian government following the permit's recent approval by the Czech
Authority for Nuclear Safety (SUJB). But ministry spokeswoman Zuzana Opletalova
said the permit was issued "within the scope of correct procedures and in
accordance with the valid, legal regulations of the Czech Republic."
The plant's approval "was already a long-awaited step, which was preceded
by longstanding collaboration with experts, in a process entirely supervised by
the SUJB," Opletalova said in a prepared statement. Temelin is a twin-unit,
Soviet-era plant built 60 kilometres from the Czech-Austrian border. It was
launched in 2000 despite protests from Austrian leaders and anti-nuclear
activists, who dispute Czech claims that western safety controls rendered the
plant safe. Austria's protest letter followed a visit on November 7 to Prague by
the country's farm and environment minister, Josef Proell.
Proell criticised Czech officials for failing to "clarify all the open
safety questions" before granting the permit.
Persistent technical problems, unplanned shutdowns and radioactive-water spills
have cast a shadow over Temelin for years. In recent weeks, the government-owned
plant has been hobbled by fuel problems. A treaty signed by the Czech and
Austrian governments in 2000 was supposed to prevent disputes by fostering
communication over plant issues.
Now some Austrians in the government and parliament say the Czechs broke this
so-called Melk treaty. But Opletalova said the Czechs disagree. At the November
7 meeting with Proell, she said SUJB officials "verbally informed the
Austrian side about the implementation of the (permit) approval through good and
open relations. Subsequently they'll also get written information."
FOOD & DRINK
Delhaize joins retail exodus from Central Europe
Belgian-based retailer Delhaize on November 9th became the latest western retail
chain to abandon an emerging market in Central Europe, news reports said. In its
latest financial report, Delhaize unveiled plans to sell its 96 Delvita grocery
stores in the Czech Republic, where the company lost 59 million Euro in the
third quarter, New Europe reported.
Delhaize's exit came a few days after Dutch retailer Ahold said it would sell
its chain of Albert grocery stores in Slovakia and Poland. And less than a year
ago, Austria's Julius Meinl and France's Carrefour sold their operations in the
Czech Republic. Ahold bought the 60 Julius Meinl shops around the country, while
Britain's Tesco took over the Carrefour stores. Experts say the consolidation
reflects a maturing retail environment in the post-communist countries, where
consumers with rising incomes increasingly shop at large
"hypermarkets" instead of neighbourhood groceries.
Analyst Zdenek Skala, of Prague's Incoma Research, said Czech supermarkets - the
country's first foreign retailers after the Cold War ended - have lost nearly
half their loyal customers in the past five years owing to competition from
discounters and hypermarkets. A recent Incoma report said Central Europe's
retail market "has matured and is coming through a phase of catharsis that
only the most successful companies can survive."
Delhaize pioneered western-style retailing in the Czech Republic by opening the
first Delvita store in Prague in 1991, less than two years after communism
collapsed. Delhaize President and CEO Pierre-Olivier Beckers said the Czech
divestment "will allow us to focus our resources in higher opportunity
markets." A Delhaize statement said: "we believe there are several
interested buyers" in the Czech stores. Although neither company would
comment, Czech media speculated that the Delvita chain may be bought by Ahold,
which recently said it would strengthen its Czech presence while exiting Poland
Czech Export Bank financing power station in Russia
The Czech Export Bank (CEB) recently provided a loan worth over two billion
Czech crowns for the construction of a power station in Russia, CEB spokesman
Jan Stolar announced on October 18. The gas and steam energy unit would be built
by Czech company PSG International Zlin, he added. The contract is a combination
of a 10-year export loan and a short-term loan. "The project comes in
reaction to an increasing demand for new electricity sources in the Russian
Federation," Stolar said, adding there were good chances for Czech
companies to participate in modernisation of energy capacities in Russia. The
CEB granted loans and provided guarantees worth more than 18 billion Czech
crowns last year, a year-on-year increase of 6.5 per cent. Most investment
headed for countries outside the European Union. The largest volume of CEB
support went to exporters to and investors in Azerbaijan, Russia, Ukraine and
other former Soviet Union countries, but also in the Netherlands, for instance.
Microsoft to build mobile support centre in Prague
Microsoft will open a support centre in Prague for European mobile-phone
business, the US-based software giant announced on October 31, New Europe
"The centre will house a team of Windows Mobile platform experts to provide
services for mobile phone operators, their consumers and producers of mobile
equipment across Europe," a company statement said. Though the company
revealed that the centre would open in January with "a considerable
investment," details were not released. The company said it picked Prague
because of the Czech Republic's strong market for mobile-phone and information
technologies, its location in Central Europe and "the availability of
high-quality specialists." Michal Cupa, Microsoft's director for the Czech
Republic, said the centre "boosts our three-year strategic plan" for
the region of Central and Eastern Europe. Microsoft did not say how many jobs
would be created in Prague, but currently the company employs more than 1,500
people in 20 countries across Central and Eastern Europe.