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CZECH REPUBLIC


 



Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 85,438 69,590 56,800 39
         
GNI per capita
 US $ 6,740 5,560 5,250 66
Ranking is given out of 208 nations - (data from the World Bank)

Books on Czech Republic

REPUBLICAN REFERENCE

Area (sq.km) 
78,866

Population 
10,246,178 

Density 
(per sq.km) 
132.2

Capital 
Prague 

Currency 
Koruna 

President 
Vaclav Klaus

Private sector 
% of GDP 
80%



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. 

Difficulties Remain
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 mixed." 
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 house. 

The balance-sheet
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 two targets. 
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 traffic control. 
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 EU 
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 economy. 
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 have collapsed.
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 view.
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, 2006

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ENERGY

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." 

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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 and Slovakia.

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FOREIGN LOANS

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.

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INFORMATION TECHNOLOGY

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 reported.
"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.

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