Czech Trade Unions have warned against fast growing indebtedness of families

The Czech Confederation of Trade Unions has warned people against already excessive and fast growing indebtedness. Every Czech household on average owes nearly a half-year's wages. Although the Central Bank has repeatedly expressed concern about the trend, commercial banks have not started worrying as yet.

An average Czech family with two children owes 90 000 crowns to banks, which is five and a half times the average monthly salary - this according to a fresh analysis by the Czech Confederation of Trade Unions. The analysis warns against the risks of such a development, mainly against insolvency in the event of job loss.

The trend has aroused concern among Czech economic analysts as well as the Czech National Bank, which enabled the mass borrowing by slashing interest rates to an all-time minimum of two percent last year. Earlier, I spoke to economic analyst Vladimir Pikora of the Prague branch of Volksbank:

"The Czech society has been changing slowly and now, there is no fear of debts. People therefore start to take consumer loans and buy almost everything with them, which is a very significant change of psychological approach in the Czech society."

After May 1st, Czechs will experience the effects of the country's EU accession, which will increase uncertainty and make it more difficult to predict their economic behaviour, the Trade Unions said in their analysis.

Although prices are likely to grow in some categories of products due to changes in Value Added Tax, the overall price level is not expected to rise significantly. However, many have warned against the adverse impact of joining the single market on small and medium-size enterprises, which are largely unprepared. That carries the danger of bankruptcies and layoffs, something people may not realise when taking credit, as Mr. Pikora points out:

"We think that many people do not realise the danger of taking credit. Many people do not realise that in the future, they could lose their job and have difficulty repaying their debts. This also worries the central bank, because Czech authorities can see this threat that many households are not used to consumer credits and do not realise all the threats."

Over the past ten years, between 1993 and the end of 2003, the volume of bank loans to households grew from 46 billion to over 200 billion. The volume of consumer loans has grown fastest in the past seven years and in 2003, the growth rate reached 30 percent.