Czech News Daily

The pronouncement of no-confidence against the Czech Government will undoubtedly have an effect on the economy. A couple of minutes after the fall of the government for example the Czech Crown reacted sharply and the currency continues to weaken today. The political instability also weakens much needed trust in the markets and the stature of the Czech economy in the world. On the other hand the markets are becoming quite used to hearing bad news. So what are the likely effects?

Regional Effects: Investors may again view Central and Eastern Europe as a whole and the situation in the Czech Republic could unsettle the whole region. The recent resignation of Hungarian President Ferenc Gyurcsány doesn’t help this view. We’ve already felt the effects of this dangerous generalisation last month when the Czech Crown fell on bad news from other Eastern European countries.

Effect on the Czech Crown: Immediately following yesterdays vote of no-confidence the Czech Crown fell 30 hellers against the Euro. It further weakened today reaching 27.40 Kč per Euro. According to Next Finance analyst Vladimír Pikora the market is waiting for further developments from the political scene. ‘The London players will be uncomfortable until the situation stabilises and will prefer to sell the Czech Crown’, said Pikora. In his opinion the Crown is also showing weakness from a technical perspective and he expects further falls.

Effect on confidence: The office of statistics revealed today that economic confidence grew in March for the first time since last February. Both households and business have higher expectations. It isn’t however possible to judge the what effects the fall of the government will have on this data. The study also shows however that confidence from our most important trading partner has fallen to an all time low. Managers and owners of German businesses are convinced that the economy is currently in decline, but also that it has to rebound.

According a member of economic advice team to the government (NERV) Tomáš Sedláček the vote of no-confidence against the Topolánek’s government is very unfortunate. It happened almost perfectly in the middle of the Czech Presidency of the EU and so damages his credibility. Sedláček added that in-spite of the fact that the fall of the government was in no way related to any economic factors, the foreign press may connect the two things.

‘In the case that ratings will be assessed by single country the Czech Republic could find itself in a disadvantageous position. That naturally has serious consequences for the obtain-ability of credit and the price of credit,’ said the president of the alliance for Industry and Transport Jaroslav Míl.

Effect on economic performance: Risk analyst for ČSOB Bank Jan Čermák supports the prediction that in the coming months the market will be weighed down by speculation that political instability will endanger public finance or even worsen, as in nearby Hungary. Other analysts however confer that political instability doesn’t always affect the market.

The alliance for Industry and Transport however consider a vote of no-confidence during the EU Presidency a negative signal to the whole of Europe and an incident which worsens the country’s image. The economic commission reacted in a similar way - in their opinion the fall of the government doesn’t in any way help to solve the current serious economic state.

Effect on the state budget: According to ČSOB Bank analyst Petr Dufek it’s a question of what will happen with the bond market. ‘Nevertheless in the case that the Czech Republic won’t have a strong government, no one knows how the public deficit will be managed and if the Ministry of Finance is going to be able to address this negative situation, and the growing deficit which is expected this year. We see already that actual bonds are falling in price and so becoming a burden on state borrowing’, said Dufek to Czech TV.

‘This declaration by the Czech Republic supports the argument of French President Sarkozy, who points out that small countries are unstable and not significant enough to take on the role of leading Europe. The bad name which we’ve made for ourselves will be around many years,’ said Industry Alliance boss Míl.

Following overthrow of the Czech Government there is worry across Europe about a weakened EU leadership and the failure of the Lisbon agreement. Analysts and politicians agree that the failure of Topalánek’s government didn’t come at an opportune moment with words like regret, sadness, annoyance being frequently heard from European politicians. In spite of this all believe that the Czech’s should see the EU Presidency through to the end of it’s term.

Leader of the socialists in the European Parliament Martin Schulz advised that he wouldn’t comment on internal matters of the Czech government. ‘We hope however that the Presidency will be smoothly continued, as will the process of the ratification of the Lisbon Agreement in the Czech Republic’. Indications from within the fractured government is that the socialists are not at all happy with the steps taken by the opposition yesterday. They’re worried about the increasing influence of Václav Klaus on the fate of the country, and in particular the fact that the chance of smooth passage of the Lisbon Agreement through the Senate has now shrunk to a minimum.

‘Frankly speaking it’s a shame for the whole of Europe, that in this key moment, we will have at a non-functioning government the head of the European Union’, said German member of the European parliament Bernd Posselt. He warned that the decision didn’t come at an advantageous time, when Europe is fighting the effects of a global economic crisis and requires strong leadership.

The weakened government will have a narrower influence

‘I’m disappointed. I think that the government was actually quite successful to date. This wasn’t a very responsible decision’, said German European member of parliament Elmar Brok. In her opinion European States will indeed have to respect the Czech Presidency going forward, but it’s true that a government in demise doesn’t cut the same figure as a government which carries the trust of its parliament.

The Presidency will in any case continue, even though the political party has been diminished. This was the reaction of Brussels analyst Piotra Kaczyńského from the office of European political development. ‘Normal civic functions will of course run their course. At this level a vote of no confidence won’t have an immediate effect. The Presidency will continue to operate’, said Kaczyński.

Straight away however he added that on the other hand the decision of the Czech parliament will have a very strong, even harmful effect on the political representation of the Czech Republic in negotiations with other European and world politicians and leaders.

He also said that all member states which have weak government will have a more limited influence in the EU. Other statesmen have less appetite to listen and negotiate with these kind of politics. ‘As far as the current Presidency goes, it has huge consequences for it’s leadership charisma’, highlighted Kaczyńsk.

He recalled that next week the long awaited meeting of the worlds richest economies, the G20 will meet in London. The position of Mirek Topolánek, who will be representing the EU, will be undermined by yesterdays events.

The Czech Presidency seemed to have a lot on it’s plate, said Katinka Barishová from the London office of European reform. She also admitted that any country holding the presidency during the current crisis would hardly find it easy.

Nonetheless it seems that the Czech Republic wasn’t as effective as others could have hoped and and larger countries had to work harder on co-operation and co-ordination to compensate. It’s terrible news right before the G20 summit, said Barishová. ‘Right now we could do without any further problems.’