Money matters in Czech presidential race

By bne IntelliNews February 8, 2008

Beth Potter in Prague -

Although both Czech President Vaclav Klaus, a died-in the-wool "Eurosceptic," and his challenger to the presidency, Czech-American Jan Å vejnar, are both economists, the pundits have talked more about the political manoeuvring needed to oust Klaus and/or get Å vejnar into office on February 8 than they have about the country's economy.

That's because even though an economically healthy electorate is of prime importance, the country's president is currently elected by its parliament (though there's a move afoot to make the office directly accountable to the voting populace). Also, the Czech economy is simply humming along at the moment, thank you very much, despite inflationary pressures from rises in energy and food prices, which forced the Czech central bank to hike rates by another 25 basis points the day before the election begins.

The vote can take anywhere from a day to a month to complete, with the candidate who wins an absolute majority in each of the two chambers declared the winner.

A date with the euro

At the moment, setting a date for when the euro will be adopted looks like the most important decision the new president will have to make. The European Commission representation office recently put together a panel of "euro experts" to help speed up the debate, according to Martin Stasek, a spokesman for the government body.

Czech companies that export to Western Europe have been clamouring for more discussion since the koruna's rapid appreciation to record highs began to eat into profits. The Commission "experts" organize conferences to discuss how euro adoption will affect companies and consumers. "The economic cycles of the Eurozone and the Czech Republic are not in sync at the moment, so it might be jumping on the train at the wrong time," says Stasek. "[But] the presidential election might not have much impact."

Prague political analyst Jiří Pehe is more specific about what a second Klaus term would mean. "Klaus in a second term would no longer feel that his hands were tied," Pehe said in a recent interview in the Czech press. "One could expect more aggressive opposition to the European Union and the euro."

In addition, Klaus may go after the social policies of Prime Minister Miroslav Topolanék's Civic Democrats (ODS), which, while necessary, have caused some economic pain. Nominal charges for doctor visits and planned cuts to pensions are politically unpopular. Teacher and doctor groups have protested changes and there's an undercurrent of dissatisfaction.

In response, Klaus might look to replace the prime minister if he is re-elected, Pehe reckons. "He would do some housekeeping within his Civic Democratic party," Pehe says, referring to Topolanék.

Švejnar, on the other hand, would be beholden to the Communists and a "hard core of former president Václav Havel's people," leading to both political and economic problems, believes Bohumil Doležal, another political analyst. "Electing Švejnar could lead to the disintegration of the government - the government could fall," Doležal says.

The Czech National Bank governor serves at the will of the executive, but the current incumbent, Zdeněk Tůma, was reappointed by the president for another six-year term in 2005. So his job looks safe for now. However, there should be no illusions that if turmoil from the US sub-prime mortgage mess were to start hurting the banks here over the coming months, whoever becomes president will need to move quickly to find someone who could solve the crisis.

In fact, that's an issue that should be addressed anyway. Unnervingly, Czech banks are currently making more mortgages than ever before - many of them without much collateral, if any. If Czech politicians have any sense, they'll make more rules sooner rather than later to regulate the growing mounds of debt piling up in the country.

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Money matters in Czech presidential race

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