Czech government approves 38 billion crown loan to IMF as part of European debt crisis scheme

Photo: European Commission

Czech government leaders on Wednesday agreed on the sum that the country would contribute to the European debt crisis scheme. Coalition leaders backed Finance Minister Miroslav Kalousek’s proposal to loan 38 billion Czech crowns, about 1.5 billion euros, to the International Monetary Fund – an amount that is significantly lower than the 90 billion Czech crowns EU leaders had originally requested Prague commit to at a crisis summit in Brussels last month.

Petr Nečas
The Czech Republic will contribute a total of 38 billion Czech crowns to a European debt crisis scheme that EU leaders drafted at a summit in December. Prime Minister Petr Nečas announced the government’s decision to aid the eurozone with a loan to the IMF on Wednesday.

“I consider the political signals that we are sending with this step very important. First of all, we are sending the message that we value the economic stability of the eurozone, with which we have close economic ties. The second signal is that, with a few exceptions, the countries that are contributing a loan are economically stable, while those who are not making a contribution in most cases aren’t. With this loan, we also want to make it clear that we belong in that first group.”

The proposal for the Czech Republic to contribute funds to the IMF did not win easy approval from Czech government leaders, who eventually backed Finance Minister Miroslav Kalousek’s proposal to loan less than half of what had originally been requested by Brussels. The finance minister, who was the government’s strongest advocate of a Czech contribution, said that the country had a moral obligation to participate.

Miroslav Kalousek
“We have received 176 billion crowns from EU funds to date. For that reason, to now say that we will not contribute anything in my opinion is immoral and inacceptable.”

The money will come from the foreign exchange reserves of the Czech National Bank and will have to receive a guarantee from the government, which has yet to be approved by the lower house of Parliament. Amidst continuing pressure to introduce further austerity measures and thus lower the state budget deficit by an additional 30 billion Czech crowns, the proposal to contribute any funds to the European debt crisis scheme was by no means a popular one.

While Mr. Kalousek and the TOP 09 party, of which he is a member, were strongly in favor of a Czech contribution, Prime Minister Petr Nečas was initially hesitant whether the Czech Republic should give funds to the 200 billion euro IMF loan at all. He announced last week that if the Czech Republic would contribute money, the amount would be “very significantly lower” than the sum originally requested. Meanwhile, Czech President Václav Klaus, a vocal Euroskeptic, made it clear he vehemently opposes any financial aid to the eurozone.

Photo: European Commission
The EU’s central banks are expected to channel a total of 200 billion euros through the IMF in exchange for fresh pledges of fiscal probity from European governments, with 150 billion coming from eurozone members. The remaining 50 billion are expected to be financed by EU members outside of the common currency zone. Non-eurozone members that have refused to contribute funds to the loan to date are Bulgaria and the United Kingdom.

Also on Wednesday, the Czech government gave its conditional approval for the Czech Republic to join the eurozone’s fiscal compact, which is aimed at tightening budgetary controls. However, this step will have to be approved by either a constitutional majority or put to the vote in a referendum.