Business Briefs

Crown drops on fears of political instability. Draft 2005 budget in circulation. Tax breaks for married couples, families with children. Popular Eurobond issue increased by 50 percent. Power utility faces $25m arbitration claim.

Crown drops on fears of political instability

Fear of political instability after the centre-left coalition government's extremely poor showing at the weekend in Czech Republic's first-ever elections for the European Parliament has weakened the crown. The Social Democrat-led government has a razor-thin majority of one in parliament and the party placed fifth in the European Parliamentary elections, leading to speculation that Prime Minister Vladimir Spidla will be forced to step down as party chairman and later face a vote of confidence in parliament. The Czech currency slipped to about 31.80 crowns against the euro on Wednesday with foreign banks predicting it would drop to 32.50 crowns in the coming weeks.

Draft 2005 budget in circulation

Finance Minister Bohuslav Sobotka handed the first draft of the 2005 budget to the Social Democrat's coalition partners on Tuesday. The cabinet has agreed that the spiralling budget deficit should not be allowed to exceed 114 billion crowns, including the 19 billion loss at the Czech consolidation agency, CKA, and is still looking for ways to save about 30 billion crowns.

Tax breaks for married couples, families with children

Meanwhile, the cabinet has approved tax breaks for married couples and families with children, as well as quicker depreciation for corporate taxpayers. The government is also looking at putting a cap on social security payments.

Popular Eurobond issue increased by 50 percent

The government this week increased its Eurobond issue by 50 percent, to 1.5 billion euros, due to strong demand by investors. The Czech government decided to issue the euro bonds despite opposition from the Czech National Bank, which fears the issue may excessively strengthen the Czech crown. The 10-year bonds pay 4.625 percent - that's 25.5 basis points over the equivalent German Bund issue - and were priced at 99.772 percent of their nominal value. The yield is slightly higher than the yield of similar German Bunds. However, the Czech state will borrow for the lowest price compared with other Central European countries.

Power utility faces $25m arbitration claim

The Czech power utility CEZ is facing arbitration to the tune of $25 million dollars, or about 660 million crowns, stemming from the French energy company Dalkia's claim that CEZ failed to enter into a Czech-based joint venture as promised, back in the year 2000.