Czech crown seen resistant to political uncertainty

Photo: Štěpánka Budková

Czechs are still waiting to see what government will result from elections to the lower house of parliament won by billionaire businessman Andrej Babiš. But some conclusions for business and the economy can already be drawn if Babiš converts his win into a stable government.

Photo: Štěpánka Budková
Some dramatic changes pledged by parties during the campaign, such as the Social Democrats’ pledge to bring in taxes on the high profits of the mostly foreign owned big banks in the Czech Republic already look like history. The party’s disastrous election results mean it is very unlikely to have the muscle to push that through even as part of a coalition government.

And the promises of some opposition parties, such as the centre-right Civic Democrats to scrap the flagship tax evasion of Andrej Babiš as former finance minister, electronic cash registers look doomed as well if the ANO leader is in government. The roll out of the controversial registers across the economy is still taking place with two more stages due at the start of March and June in 2018.

Michal Skořepa is an economist with the bank Česká Spořitelna. He says Babiš as prime minister is unlikely to make too many innovations on the domestic economic scene:

"He might push on further in the improvement of the collection of taxes. There might be some slight changes in the electronic evidence of sales as he already indicated. Overall I don’t think there will be a very strong change in economic policy. Maybe there might be some simplification of the tax system. That’s actually what most parties have promised. There could also be some strengthening of progressive taxation."

With many of the successful parties, including ANO, having a hostile or sceptical view on the single European currency, the euro, early or mid-term Czech membership of the euro zone looks out of the question as well although the country meets all the entry criteria for starting the process.

Temelín nuclear power plant, photo: Filip Jandourek
If Andrej Babiš has a relatively free hand in government, he could move dramatically with regard to near 70 percent state-owned power giant, ČEZ, one of the country’s biggest companies and earners. Babiš has been a long-time critic of the current management.

The ANO leader and a new government will have to wrestle with the question of how to pay for the new nuclear reactors that most parties want to see constructed before existing Czech capacity starts to shut down probably around 2035.

Michal Skořepa sees little likelihood the rate of the crown will be much influenced by the moves to create a new government:

"I don’t think that the negotiations even if they take several weeks or months that they will present a big threat for the crown exchange rate. We have seen in recent months, or even years, that the exchange rate was very stable and little influenced by what’s going on. We can recall the crisis in the government in May this year and the exchange rate did almost nothing to react. So I don’t think the crown will be strongly influenced."