C ZECH R EPUBLIC Author Davide Tarasconi (S081N0057)
[email protected] Course Current European Issues (IREL361) Spring 2008 University of Nicosia Licence This paper is released under a Creative Commons Attribution 1
NonCommercialNoDerivativeWorks 3.0 Licence .
I NTRODUCTION The Czech Republic was among the lastentering Member States in the biggest and historical European Union enlargement of 2004: the former Czechoslovakia widened the European Union roster along with its peacefullysplit neighbor Slovakia and Lithuania, Estonia, Latvia, Poland, Malta, Cyprus and Hungary. This landlocked country presented itself as one of the richest post communist countries and as one of the most promising in terms of integration and economical performances. 1
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The willingness of being the most important addition to the European Union has led and is leading Czech Republic toward better and better performances on both economical and policies’ implementations sides. Anyway the difficulties for the integration of this former Soviet country are solid and real: great efforts must be taken to overcome management and organizational problems as well as social and policies issues. During the next paragraphs I will present a sort of comprehensive profile of the country: economical and social profiles as well as issues regarding integration problems facing European Union’s enlargement.
E CONOMY , P OLITY AND S OCIETY
Economical profile Czech Republic is one of the most promising EastEuropean country in terms of economic growth and “catchingup” abilities: low inflation and interest rates fostered a GDP growth from 2% up to 6% from 2002 to 2005, pushing the growth levels of this postsoviet country far beyond other East an WestEuropean countries.
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Figure 1 Long Term Interest Rates, percentage, 2006. Source: OECD Factbook 2008: Economic, Environmental and Social Statistics ISBN 9264040544 © OECD 2008.
Just after the inclusion in the European Union, an important recognition for Czech Republic’s great effort toward economic and social development came from the World Bank, which entitled Czech Republic, in 2006, as an official “developed country.” 2
In the words of Markéta Šichtařová , a leading Czech economist, Czech Republic “[…]is not a transformation country anymore. Its financial market is very developed, it left Communist Czechoslovakia behind almost 20 years ago, it is a member of the European Union, our interest rates are lower than in the Euro zone. In no regard does it fulfill a general image of a transformation country 2
“Study ranks Czech Republic first among transforming countries” – (see “Other web references”)
anymore.” Czech Republic is by far the most heavy industrialized EastEuropean country: its main exports and imports’ fields are machinebuilding, production of iron and steel, metalworking and in general heavy industries fields along with chemical production. In particular the industrial machine building sector and the chemical production performed a good growing performance due to exports and imports to the European Union, especially with an industrial giant like Germany. Being part of the EU’s common market increased Czech Republic trades with other European countries, finding new markets for its products and offering itself as new market for foreign products: due to its growing and stable growth Czech Republic quickly became an interesting region for foreign investors. Manufacturing
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Services
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Figure 2 Employment in manufacturing and services in affiliates under foreign control, as a
percentage of total employment (2005 or latest available year) Source: OECD Factbook 2008: Economic, Environmental and Social Statistics ISBN 9264040544 © OECD 2008.
Apart from the industrial and agricultural sectors (mainly hops, wheat, potatoes, fodder roots and sugar beets), Czech Republic, and mostly its capital Prague, is a wellknown attraction for European tourists: the low cost nightlife of the capital and the beautiful hiking and skiing landscapes ignite the tourism sector, which accounts for 5,5% of the Gross National Product and employs 110000 people – over 1% of the population.
7 6 5 4 3 2 1 0 France
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Figure 3 Arrivals of nonresident tourist staying in hotels and similar establishments, Average annual growth in percentage, 19962006 or latest available period. Source: OECD Factbook 2008: Economic, Environmental and Social Statistics ISBN 9264040544 © OECD 2008.
The heritage from the communist era is still a burden for Czech Republic’s industry: the country is still undergoing a long process that includes restructuring obsolete industrial sectors, increasing transparency in businesses, fighting a high rate of corruption (which is among the highest,
even if in a decreasing trend, in the EU), as well as continuing the privatization process in banking and health care system. Even with such a good performance Czech Republic’s economy will face some difficulties in the near future: an inflation’s spike is expected during 2008 as a result of new taxations rules, aimed to enforce a more strict fiscal policy required by EU’s standard. The positive trend of Czech Republic’s economy is expected to continue as the country is approachin the last stage remaining for the switching to the Euro currency in 2010.
Policy priorities The process of Czech Republic’s integration began in 1999: that was a particular difficult time for the country that was facing an increasing of inflation rate from 1998 (the first serious economic crisis since ’89 revolution), followed by a rising of the unemployment rate that almost jeopardized the speed of the integration processes. After ’98’99 crisis Czech government worked hard to follow EU’s regulations and to implement policies to reduce unemployment and
inflation rate: in 1999, the unemployment rate rose up to 8.7% from 6.5% in 1998. It fell in 2000, 2001 and 2002, and was down to 7.3% in 2002
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(Figure 2 show a stark contrast with the employment situation in neighboring Slovakia). 20
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Figure 4 Unemployment rates, As a percentage of civilian labour force, average 19962006. Source: OECD Factbook 2008: Economic, Environmental and Social Statistics ISBN 9264 040544 © OECD 2008.
There’s no need to say that political life in Czech Republic in the last decade has been animated by support for the integration of the European Union’s common policies’ body, also known as Community Acquis. ECONOMICAL REFORMS On the side of economic reforms, Czech government had to establish a set of shortterm policy priorities, dealing with EU’s guidelines, aimed to reach a balance between country’s internal markets and EU’s common 3
“Czech Republic: Adoption of the Community Acquis” (see “Other web references”)
market. Moreover, the renewal of some strategic sectors, like heavyindustries and banking, was highlighted as crucial by the EU to allow Czech Republic’s main industrials’ drivers to compete against the most developed industries and sectors in the common market. Even if Czech Republic is not in a hurry in joining the Eurozone, a lot of policies and control measures has been taken in order to stabilize and to benchmark the national currency performance inside the common exchange market. ORGANIZATIONAL AND INSTITUTIONAL REFORMS Apart from strictly economical aspects, a lot of decisions have been taken regarding institutional and organizational reforms: being part of the European Union required Czech Republic to undergo a deep revision of its institutions’ organization, both at the local and national levels. Czech institutions require, in general, more efficient supervision abilities, in order to reduce corruption problems and to increase transparency.
TRADE AND MARKETS REFORMS One of the keyword regarding policies implementation is “standardization”, in other words the ability to align national laws and regulation with
European Union’s ones: strong efforts toward standardization have been undertaken to regulate the internal market, especially in the fields of intellectual property rights and antitrust laws. In particular, these last regulations aim to eradicate legal and illegal monopolies that can be easily present in the “organizational culture” of a postcommunist country like Czech Republic. Since the accession process began, Czech Republic, like any other accession country, received a huge amount of financial aid: in order to successfully organize the funds, a complete new set of institutions have been created following EU’s guidelines to ensure the highest level possible of transparency. The same transparency regulations for standardization are applied to the free movement of goods, capital and services in order to strengthen the ties between Czech internal market and EU common market. Needless to say that transforming a communist economy into an almost fully integrated common market in less that 15 years should make both European Union and Czech governments very proud of the work done. Entering the EU and receiving aid scheduled by the Common Agricultural Policy forced Czech Republic to reform some of its agricultural institutions to achieve higher standards on hygiene and public health issues, as well
as modernizing milk and meat production industries. SOCIAL REFORMS European Union’s wellknown social stability comes from a strong, commonlyshared policy that enhance employment and social security: for this reason Czech government is required to apply policies to protect low income workers, for example by reducing high tax wedge to reduce incentives for subcontracting with selfemployed workers. 2000
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Figure 5 Ratio of the inactive elderly population aged 65 and over to the labour force, percentage. Source: OECD Factbook 2008: Economic, Environmental and Social Statistics ISBN 9264 040544 © OECD 2008.
Like the vast majority of other EU countries, Czech Republic has to face a serious social issue coming from an ageing population: discussions about reforming the pension system are one of the main political topics as the country entered the EU.
Being part of a common market has advantages but also some drawbacks: new skills are required by information technology and tertiary sectors and Czech educational systems should be able to change at a higher pace in order to offer potential employees with uptodate knowledge and to improve knowledge of the existing workforce through training programs.
Society European Union multicultural and multiethnic society is one of its remarkable features: nonetheless keeping different cultures and populations together it’s a difficult task, especially regarding topdown policies that all Member States have to follow. There can be problems of communication and understanding that can affect how a population perceive European Union, and especially how a population see itself compared to the other EU’s populations. Czechs seem to have a perception of their social reality that is, generally speaking, quite positive if compared with other longtime EU Member States’ populations. Moreover they seem aware about EU’s regional policies and in particular the percentage of Czechs that are aware that their country is benefiting from EU aid is pretty high (73% against EU27
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average of 70%) . Some controversies are shown by recent surveys: although every economical indicator shows consistent improvement, especially on inflation and unemployment rate, Czechs complain about a general feeling of lack of social security regarding jobs and rising prices. Because of their fresh communist past Czech population seem to have a general lack of faith in national government and institutions: the picture is about a population that holds more faith in EU initiatives than from its own government. Only 34% of Czechs trust their government and just 21% trust the Parliament while the 58% of the trust the EU (EU27 average is 5
48%) . The huge change of the economical environment in the last fifteen years put Czech Republic in a delicate, “inbetween” situation where people understand the opportunities coming from the opening markets while they can also perceive that working conditions in some sectors are not going to improve, especially regarding career prospects.
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“Citizens’ perception of EU Regional Policy” – Eurobarometer (see “Statistical References”) Standard Eurobarometer 68, OctoberNovember 2008 (see “Statistical References”)
I SSUES FACING E UROPEAN U NION INTEGRATION Eurozone As we saw before, the brilliant economic performance of Czech Republic 6
is leading the country to be part of the Eurozone : Czech government has no rush in forcing the currency change, no date for this objective has been set yet. Even if its economy is working well, Czech Republic’s figures about price levels and hourly labour costs are quite lower compared to EU and 7
Eurozone averages . However before switching to the Euro currency Member States have to enter a kind of twoyearslong “transition program” 8
called ERM II : unlike other new Member States, Czech Republic didn’t enter this program yet and it’s probably switching the currency not before
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“The latest figures suggest the Czech Republic could easily meet the debt and deficit criteria to
adopt the single European currency, the euro. The Maastricht criteria set a 3.0 percent of GDP ceiling for the public deficit and 60 percent guideline for debt.” – “Czech official data says 2007 public deficit fell to 1.58 per cent” (see “Other web references”)
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“In 2005, the Czech price level was roughly 56% of the euro area average and 58% of the EU
average. Hourly labour costs were about 27% of the euro area average and 31% of the EU average. The process of real convergence and the growth in the relative price and wage levels are likely to continue.”
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ERM II (exchange rate mechanism) is the last procedure a country must follow before switching to
euro: it consist in a twoyear period during which the national currency is locked with an “almost fixed” ratio to the euro.
2010. An interesting result from an Eurobarometer survey is that public opinion perception about the switching is set in reality on 2012.
Environment Czech Republic’s industries are heavily reliant on coalbased power: the country is one of the major greenhouse gases producer of the European 9
Union . On this particular issue there are a lot of controversies involving other postSoviet countries that see themselves heavily disadvantaged from EU pollution restrictions. Czech Republic heavily depends upon external supplies of gas (especially from Russia) and the conversion of its coalbased industries will make the country even more dependant on external energy sources.
Strategies for integration of the Roma As many postSoviet countries, Czech Republic had to face with many social integration problems, especially regarding Roma people. The Roma were officially recognized and politically represented during the communist
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“Threefifths of current Czech electricity production comes from coalfired plants, which are
amongst the biggest producers of greenhouse gases and would be penalised heavily by the allowances purchase plan” – “Czechs urge slow phase in for carbon emissions market” (see “Other web references”)
era, but they lost their “privileges” back in 1989, although they weren’t a political factor, politically speaking, and their only privileges were housing and (compulsory) employment: efforts to reintegrate the Roma population in Czech Republic’s social, political and economical life began again in 1997. For Czech Republic it’s extremely important to recognize and to demonstrate to the EU that the country can overcome the traditional forms of exclusion that historically hit the Roma population in every European Union countries. On the other hand, some of the Roma communities, especially at a local level, are organizing themselves, working with NGOs and the state in order to achieve some kind of political identity. Discrimination and isolation of the Roma are highlighted by high rates of unemployment: in 1999 the average unemployment rate for Czech people was around 10%, rising up to a dramatic 70% among Roma community. The Roma were classified as a “social problem” left to local authorities until the end of 1997, when a report about the Roma conditions was issued by and for the Czech government. During the communist era Roma people were involved with “informal networks” to overcome the difficulties coming from exclusion, very often in illegal ways.
The biggest integration problem is coming from the European Union and it’s a sort of “missing actor” in the strategic efforts Czech Republic is taking at local levels: EU’s policies regarding employments and social aid rules are totally unsuitable for the resolution of the Roma issue. These policies define in a very strict way what is a wanted recruit for the labour market (and Roma people are not) and what is an unwanted migrant. 10
There are two main alternatives for the Roma in Czech Republic : one can be called “exit option” and it’s about finding personal, individual and informal (often illegal) ways to organize the communities, as well as migrating from the country in an endless research for a better place. On the other hand, the “voice option” is a more collaborative and civil one, but needs to be supported by Czech government and requires local policies that must be understood and supported also by an almost absent European Union. The Roma situation in Czech Republic must be used as a positive example, a benchmark programs meeting local willingness to integrate minorities as well as an important role for a European Union finally able to understand local policies regarding minorities.
10 “Local Strategies for Civic Inclusion in a European Context: the Roma in the Czech Republic” – (See “Other web references”)
C ONCLUSIONS THE ENLARGEMENT AND THE FUTURE OF C ZECH R EPUBLIC
The 2004 enlargement “experiment” has been an economical success: all the new Member States had a long period of strong economic growth, outperforming the “old” Member States’ economies (from ’97 to 2005 new Member States had and average GDP growth by 3.75%, compared with 2.5% by EU15). The incomes of the new Member States are still quite lower than the ones of old members, and this aspect highlight how much the legacy of the communist era influence today’s economy: these incomes are anyway slowly rising from 44% to 50% of the EU15 average while skeptical voices highlights that with these type of rate the new Member States will attain the same income levels of the old Member States in more than 50 years. The overall picture of this enlargement is quite positive and all the growing trends of economical, financial and trading sectors seem to be confirmed also for the near future in all the new Member States: the opening of the markets between old and new Member States increased the volume of trades and the foreign investments are also increasing, creating new
opportunities for jobs and ventures.
80 000 70 000 60 000 50 000 40 000 30 000 20 000 10 000 0 Spain CzechÊRepublic
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Figure 6 GDP per capita, US dollars, current prices and PPPs, 2006 or latest available year. Source: OECD Factbook 2008: Economic, Environmental and Social Statistics ISBN 9264 040544 © OECD 2008.
Euroskeptical comments about negative factors affecting European Union budget can be easily avoided showing that, even if the contribution of the new Member States to the European budget is obviously less than old members one, the EU15 countries contribute only with 0.1% of their GDP to the economic aid for the new Member States: following new directives for new Member States development, this ratio is going to increase by 2013. To overcome organizational problems coming from municipal fragmentation and the integration of the Roma are for sure two of the main issues that Czech Republic’s government must face in order to achieve
higher benchmarking abilities and improved human rights’ standards and to become one of the bestperforming new country of the new European Union. If we think that the Velvet Revolution was just in ’89 and that at the present days Czech Republic is outperforming the vast majority of European Union’s countries in most of the economical indicators we should forget about the critics for a while and rather think about a miracle: all the difficulties that Czech Republic is facing come from its recent past but there are a lot of reasons to imagine that the country is able to face all the future challenges. Since enlargement is mainly about integration, it should be a twoway integration: European Union showed little comprehension of local problems, especially regarding the Roma while there is a sure need of openness toward less restrictive topdown regulations and more tolerance and diplomatic abilities to find ways to implement local and finally effective policies.
S TATISTICAL REFERENCES EUROBAROMETER Source for statistics and surveys about the European Union. http://www.ec.europa.eu/public_opinion/index_en.htm
EUROSTAT European Union statistical service. http://ec.europa.eu/eurostat/
OECD STATISTICS OECD’s statistical portal. www.oecd.org/statistics/
W IKIPEDIA R EFERENCES “CZECH REPUBLIC” From Wikipedia Date of last revision: 8 April 2008 06:52 UTC Date retrieved: 8 April 2008 11:05 UTC http://en.wikipedia.org/w/index.php?title=Czech_Republic&oldid=204167350
“MILITARY OF THE CZECH REPUBLIC” From Wikipedia Date of last revision: 29 March 2008 20:38 UTC Date retrieved: 8 April 2008 10:50 UTC http://en.wikipedia.org/w/index.php?title=Military_of_the_Czech_Republic&oldid=20188 6121
“ECONOMY OF THE CZECH REPUBLIC” From Wikipedia Date of last revision: 30 March 2008 18:36 UTC Date retrieved: 8 April 2008 11:03 UTC http://en.wikipedia.org/w/index.php?title=Economy_of_the_Czech_Republic&oldid=202 106434
“POLITICS OF THE CZECH REPUBLIC” From Wikipedia Date of last revision: 18 March 2008 13:21 UTC Date retrieved: 8 April 2008 11:09 UTC
http://en.wikipedia.org/w/index.php?title=Politics_of_the_Czech_Republic&oldid=19907 7142
“VELVET REVOLUTION” From Wikipedia Date of last revision: 6 April 2008 17:36 UTC Date retrieved: 8 April 2008 11:07 UTC http://en.wikipedia.org/w/index.php?title=Special:Cite&page=Velvet_Revolution&id=20 3789170
OTHER WEB REFERENCES “WORLD BANK MARKS CZECH REPUBLIC'S GRADUATION TO 'DEVELOPED' STATUS” Article from Radio Praha by Jan Velinger Date of publishing: 28 February 2006 http://www.radio.cz/en/article/76314
“CZECH REPUBLIC TO JOIN SCHENGEN” Article form Prague Post by Jeffrey White Date of publishing: 16 December 2006 http://www.praguepost.com/articles/2006/12/13/czech-republic-to-join-schengen.php
“CZECH REPUBLIC: INFLATION SPIKE” Article from OECD Observer OECD Observer No. 264/265, December 2007January 2008 http://www.oecdobserver.org/news/fullstory.php/aid/2372/Czech_Republic:_Inflation_spi ke.html
“COURT RULES AGAINST SPECIAL SCHOOLS FOR ROMA” Article from Euractiv Date published: 15 November 2007 http://euractiv.com/en/socialeurope/court-rules-special-schools-roma/article-168424
“EQUAL OPPORTUNITIES” Dossier from Euractiv Date of publishing: 17 January 2007 Date of last revision: 13 July 2007 http://euractiv.com/en/socialeurope/equal-opportunities/article-160979
“INTERVIEW: CZECHS TO PUSH FOR 'EUROPE WITHOUT BARRIERS' AT EU HELM” Interview from Euractiv Date of publishing: 21 February 2008 http://euractiv.com/en/opinion/interview-czechs-push-europe-barriers-eu-helm/article170428
“CZECH OFFICIAL DATA SAYS 2007 PUBLIC DEFICIT FELL TO 1.58 PER CENT” Article from EUbusiness http://www.eubusiness.com/news-eu/1207068791.03/
“CZECHS URGE SLOW PHASE IN FOR CARBON EMISSIONS MARKET” Article from EUbusiness http://www.eubusiness.com/news-eu/1204740124.29/
“STUDY RANKS CZECH REPUBLIC FIRST AMONG TRANSFORMING COUNTRIES” Article from Radio Praha by Jan Velinger Date of publishing: 19 February 2008 http://www.radio.cz/en/article/101027
“THE CZECH REPUBLIC’S UPDATED EUROAREA ACCESSION STRATEGY” Ministry of Finance of Czech Republic, 2007 http://www.mfcr.cz/cps/rde/xchg/mfcr/hs.xsl/eu_acc_stra_33780.html
“LOCAL STRATEGIES FOR CIVIC INCLUSION IN A EUROPEAN CONTEXT: THE ROMA IN THE CZECH REPUBLIC” Essay from “One Europe or Several?” by M. CastleKanerova and B. Jordan http://one-europe.ac.uk/pdf/w34kanerova.pdf
“EXCHANGE RATE MECHANISM (ERM II) BETWEEN THE EURO AND PARTICIPATING NATIONAL CURRENCIES” Institutional and economic framework of the Euro, from EU’s website. http://europa.eu/scadplus/leg/en/lvb/l25082.htm
“ENLARGEMENT, TWO YEARS AFTER AN ECONOMICAL SUCCESS” Economical and monetary affairs: Enlargement, from EU’s website. http://europa.eu/scadplus/leg/en/lvb/e50026.htm
“CZECH REPUBLIC ADOPTION OF THE COMMUNITY ACQUIS” Summary from EU’s website. http://europa.eu/scadplus/leg/en/lvb/e02107.htm
“PARTNERSHIP FOR THE ACCESSION OF THE CZECH REPUBLIC” From EU’s website. http://europa.eu/scadplus/leg/en/lvb/e40107.htm
OTHER REFERENCES “EUROPEAN UNION POLITICS” Michelle Cini Oxford University Press Second Edition, 2007 “CURRENT EUROPEAN ISSUES” Slides from the course’s material.