Books on Czech Republic
% of GDP
Update No: 113 - (26/10/06)
People can have too much of a good thing. The point of
democracy is that you can change your government. This the Czechs could never do
under communism, frozen into an eternal Peoples' Democracy. Now they can do it
all the time.
The result is perpetual strife and disarray, as in Poland.
As regards the constitution, the Czech Republic has a weak presidency and a
strong executive and legislature. Actually, it turns out, it seems at the
moment, to be the other way around.
An apparently endless wrangle is occurring at governmental level, with the
recent government becoming a sitting duck, while the president of the republic
is there secure as a rock.
The Eastern Europeans have not quite got the point of democracy yet, which is
amongst other things that you have to give people time to do their stuff.
The mentor of his country; which Vaclav, Havel or Klaus?
Vaclav Klaus, the honorary chairman of the Civic Democratic Party (ODS) who
patiently put up with three long rounds of presidential elections, lived to see
his political importance confirmed on election in March, 2003. He became Vaclav
Havel's successor, and the longstanding duel with his greatest ideological
adversary continued in a new form. In his five years of office, the ambitious
Klaus was sure to do his best to show everyone that he would be a better
president for the Czech Republic, or at least as good as Havel was.
Havel has a big reputation abroad as a playwright and long-time dissident
against communism. He publicly denounced the Soviet occupation of Czechoslovakia
in 1968 (as did privately a certain Soviet functionary called Mikhail Gorbachev,
whose top-level dissidence was to change world history twenty years later) Havel
became the author of Charter 77, an act of defiance against the communist
regime. He is clearly an admirable and gifted man. Who better to be the
spiritual mentor of his country?
Klaus has a very different track record. He was every bit as opposed to the rape
of 1968, but had been rather more involved than Havel in what gave rise to it,
the Prague Spring of that year, working to fashion a new economy freeing it from
communist shibboleths against market economics as much as was possible in his
post at the Economic Institute of the Czechoslovak Academy of Sciences. He
maintained a stout resistance to the repressive regime and swift dismantling of
pro-market reforms of Husak, who had replaced Dubcek, and was dismissed in 1970.
In this crazy period in Czechoslovak history he was to become the epitome of the
following anecdote, working in lowly positions in the Czechoslovak State Bank.
Faced with practical problems they could not surmount, the minister of the
economy said to his officials, isn't there somebody who can advise us what to
do? They said: 'Yes, but he is in the doghouse.' The desperate minister replied
send for him all the same, which they duly did. When he was summoned he gave the
conventional communist wisdom on the subject which had created the mess in the
first place, at which the minister said: "I know all that. But don't you
have your own point of view?" To which the answer was: "Yes, I do, but
I am wrong."
He was lucky. He got another chance - in 1989. Klaus by then was a leading
member, soon the leader, of Civic Forum, the victor of the Velvet Revolution,
and he became finance minister in December, 1989 in what was now a free country.
After a convoluted series of events, he became the effective leader of the newly
founded Czech Republic in 1993, when Czechoslovakia split into two. He continued
a strong reformist course and is certainly the author of modern Czech affairs -
the practical mentor of his country.
What are his policies?
In the European Union, Klaus is seen as a distinctive critic of European
conditions who does not hold dear the ingrained rituals and sticks to his guns
even at guest sessions of the European Parliament.
Klaus' nationalistically tuned stance on the future shape of Europe is equally
easy to see. At a time when the entire world, in confronting global issues, is
dismissing the old concept of nation-states, Klaus seems to be returning to this
concept. "I do not wage old battles," Klaus said several times,
although he knew very well that this promise would be hard to keep, especially
as regards the EU.
Klaus has always wanted Europe to remain small and fragile, because this is the
only chance for regional politicians with a vision that does not reach beyond
home borders to maintain significance. This is surely a worthwhile point of
CR lags in taking structural funds
The Czech Republic can draw approximately 26.7 billion Euro (Kc 755.6
billion) from European Union funds starting from next year. When it comes to
making use of EU money, however, the Czech Republic has to date been one of
Europe's laggards. It has been trammelled by excessive bureaucracy.
Over the next few years, the EU intends to invest approximately 307.6 billion
Euro into equalizing the differences between the richer and poorer regions. The
Czech Republic can take a 26.7 billion Euro bite from this cake. The fundamental
problem, however, is that when it comes to drawing EU funds, the Czech Republic
on a long-term evaluation is among the worst performing countries. Only Cyprus
has proven to be more inept in this respect.
For a long time, the unnecessarily cumbersome administrative mechanisms that the
Czech Republic had set up for drawing the EU funds were the biggest problem in
obtaining the earmarked funds. However, better times are dawning. Politicians
have removed the biggest brakes on the entire process, and Brussels has also
adopted several measures that should make it easier to obtain funds. Yet a clear
possibility remains that these improvements will still be impaired by Czech
politicians' inability to form a lasting government.
The Czech Republic also wants to change the way it will spend the EU money in
the coming years. More money from the EU funds should be spent on construction
of highways and other infrastructure, and less on social projects like
re-qualification or educational programs, said Petr Gandalovic, the minister for
regional development, which is responsible for coordinating the drawing of money
from EU funds.
Out of the amount of money that can be spent between 2007 and 2013, about 14 per
cent would go to social projects instead of the previously allocated 17 per
cent. The saved money would be spent on infrastructure and public transport
projects, Gandalovic said.
Within the tempestuous EU budget discussions, with the outcome still not
finally approved, new member states successfully negotiated several significant
changes. To offset the slight reduction in the total volume of money, they
received better conditions for qualifying and withdrawing EU funds. The current
obligation to exhaust subsidies within two years from the year of their being
granted (the N + 2 rule) will be prolonged by one year; this one-year extension
will be valid for funds authorized until end 2010.
But Danuta Hübner, EU commissioner for regional policy, is not so enthusiastic
about the new rules. "It will result in a slowing down of the pace.
Consequently, the brakes will be put on the entire restructuring process that
these funds aim to set in motion." With regard to the enormous sums of
money that have been offered to the new member states, immensely important is
consensus when it comes to increased co-financing of projects. Whereas
individual states and recipients of this money have hitherto had to deliver at
least 25 per cent of the entire subsidy from their own resources, with the new
rule it has been reduced to 15 per cent. By means of the co-financing mechanism,
the EU ensures that it won't replace national subsidy programs. This rule,
however, will be somewhat hindered by continuous inspections on the part of the
European Commission which, in the case of projects with an exceptionally high
return, will propose that Brussels' participation be smaller than the given 85
Of crucial importance, especially for poorer non-profit organizations and some
municipalities, will be the possibility to apply non-returnable value-added tax
(VAT) as a project cost. "In principle, it concerns equalization of payers
and non-payers of value added tax. VAT will also be partially acknowledgeable in
the case of payers who can write it off at entry. This will result in equalizing
their conditions," said Martin Kristof, an analyst at Raven Consulting.
Brussels' decision has had the biggest impact on Germany, in whose former
communist part there are poor regions possessing the right to draw aid from
structural funds. "For example, the east of Germany has different, more
advantageous rules than the west. It therefore comes as no surprise that the
western provinces are already protesting. Given the differing conditions, it
will be pretty difficult to coordinate the programs within a single federal
country," Hübner points out.
Only time will tell
The patchy record of the Czech Republic to date in utilizing funds has
compelled those in charge to change their approach. Access to EU funds should be
significantly simplified on the Czech side. Several key problems have
disappeared, and the entire administrative process should be fundamentally
streamlined. It's a sad truth that the already relatively strict and
bureaucratic Brussels standards were brought to absolute confusion by the
procedures and interventions of Czech officials.
Hence, the Ministry for Regional Development (MMR) announced a host of
improvements that should lead to EU money flowing to Czech recipients much more
smoothly. The promised administrative simplification should eliminate the
several-month-long procedures for evaluating and selecting projects and,
ultimately, speed up the conclusion of contracts. Rapid and high-quality work
will be carried out by newly employed officials who, in addition, will be
financially rewarded for successfully obtaining subsidies for projects.
Furthermore, certification should shed more light on the dozens of consultancy
companies operating in this sector.
"Sure, administration and applications will be simplified, as has recently
been trumpeted. Drawn-out contract negotiations and other complications that
caused virtually no interest in some programs should become a thing of the past.
The essential question, however, is to what extent these fine-sounding plans
will be reflected in reality, whether or not proposals will ultimately remain at
the level of promises. Merely the fact that it won't be necessary to add several
irrelevant appendices to every application would significantly simplify
matters," Kristof says.
Don't all apply at once!
Yet the greatest expectations for improvement are connected with two
specific changes to the current rules set up by the Czech government. Firstly,
the practice of periodical calls for submitting applications should be replaced
by a continual system, with the possibility to constantly bring forward new
projects. The aim is to remove bottlenecks within the entire system; in the last
week prior to the deadline for handing over projects, registries of the
respective institutions were bursting at the seams.
The entire Czech system's effectiveness will also be significantly enhanced by
changes in the system of paying money. One of the biggest problems for those
applying for Brussels funds was the fact that they only received the required
money after the project had been completed. Thus, they first had to finance its
implementation from their own sources. For the future, however, the MMR promises
a transition into a system of continuous payments with applicants not having to
wait on cost reimbursements.
"This is a crucial aspect. In addition, it complements the drawn-up
advanced payments mechanism. It will allow for substantially better use of money
allocated to non-profit organizations and non-business subjects in general; they
will receive a portion of the whole sum as an advance before commencing a
project," Kristof said. The introduction of the advance payments that the
MMR has provided to non-profit organizations since May has elicited a very
positive response - witnessed by the consequent growth in the number of
All these proposals should become a reality over the next few years. However,
there's a long way from promises to their fulfilment and only their
implementation into practice will allow the Czech Republic to make full use of
the offered funds.
One large problem with the existing Czech system is its operating programs (OPs).
These specifically define the strategy and conditions for distribution of money
within the framework of individual subprograms. The total of 24 programs is sure
to make individual applicants' orientation far more difficult since many of
these OPs will be so similarly focused as to seem overlapped, and applicants
will be uncertain where they should direct their efforts. Also, turf wars seem
likely between individual ministries and authorities, while dispersion of the
entire system will result in unnecessary confusion. In no other EU country is
there a system with a similar number of programs.
Arguing in a vacuum
An uproar was caused in political circles by the statement of Jaroslav Míl,
president of the Confederation of Industry and Trade (SP CR), who warned against
possible problems that may arise owing to drawn-out negotiations about forming a
new government. "In the vacuum that will occur in the event that a new and
strong government doesn't emerge, it won't be possible to complete negotiations
in Brussels about the conditions of distribution of the offered funds, and
submission of projects will stop, too," Míl pointed out. Even though the
majority of experts don't consider the situation to be quite this serious, their
optimism has faded with the ongoing uncertainty.
The National Strategic Reference Framework (NSRF), the crucial document defining
the position of the Czech Republic, its priorities, weaknesses and strengths,
and describing the fundamental structure of individual operating programs, has
already been sent to the European Commission for review. Completion and final
modifications of the operating programs are now in progress at the level of
individual ministries. The snag is that these programs must ultimately be
approved at the highest political level and subsequently, just like the NSRF,
defended in Brussels. In the absence of a government with a firm mandate, the
Czech Republic's negotiating position is weakened, while governmental
instability also contributes to a deceleration of the entire process. In ideal
circumstances, on Jan. 1, 2007 the first calls should be announced and the
system will start up. However, even today a delay of several months can be
expected, with this probably being a conservative estimate.
Czech's Tatra plans to increase production next year
Czech truck maker Tatra plans to increase production to 1,600 vehicles in 2007,
says the new owner Blue River, New Europe reported.
Blue River is comprised of KBC Private Equity, Vectra, US entrepreneur Sam Eyde
and the Meadow Hill Company owned by Adams and his wife, and has acquired an 81
per cent stake in Tatra for US$26.2 million. New CEO Ronald Adams said that next
year Tatra is planning to produce at least 1,600 vehicles and this year the
output will be 1,300 trucks. He added that the output should reached 2,500
vehicles in 2009 and Tatra's subsidiaries should raise output by 11 per cent
annually. Blue River will change the name to Tatra Holdings and wants to focus
on Russian and eastern European markets.
Government to sell off 16% of CEZ energy supplier
The new Czech Government plans to sell 16 per cent of CEZ energy supplier on the
Prague stock exchange, Czech Finance minister, Vlastimil Tlusty said on
September 17th, New Europe reported.
The Czech state currently holds a 67 per cent stake in the company. Two years
ago, experts valued the sale of such a package at a minimum of 516 million Euro.
Tlusty's predecessor, Bohuslav Sobotka, of the opposition Social Democrats
rejected the planned sale as badly timed. CEZ is the largest supplier of
electricity in the Czech Republic and operates the controversial nuclear plant