Implications of war for the Czech Republic

Czech anti-chemical unit, photo: CTK

The affects of the war in Iraq on the Czech Republic could be widespread across both the political and economic spectrums. By trying to appease both those who support the war and those who are strictly against it the Czech Republic is hoping to minimise the damage to its image on the international stage.

Czech anti-chemical unit,  photo: CTK
The political implications of war are obvious, to support the United States at a time when public backing for a war in Iraq is limited, or, to accept the position of future EU partners such as Germany and France, and risk antagonising a powerful ally. To date the Czech Republic has essentially chosen to appease both sides - on the one hand, it verbally supports military action in Iraq while at the same time refuses to commit the country's anti-chemical unit to enter the war without a new United Nations mandate.

Economically, the implications of a war in Iraq are much more clear cut. Although the war is still in its early stages, the first effects are being seen. One of the Czech Republic's largest exporters, car maker Skoda Auto, has already signalled that exports to the Middle East have been damaged. More importantly, oil prices could have a huge impact on the Czech, as well as the world, economy. To discuss these implications for the Czech economy I spoke to David Marek who is chief economist at Patria Finance.

"Yes, exporters could be affected, mainly in some sectors which are exporting to countries in the Middle East. For example, textile producers, and to some extent steel producers. But other sectors should not be affected significantly."

What about an increase in oil prices, how would that affect the Czech economy?

"It can be a much more serious problem, not just for the Czech economy but especially for Western European economies. Then, there is a negative impact indirectly through a slowdown in the European Union, this can be serious for the Czech economy."

Would an increase in oil prices affect inflation or the strength of the Czech crown?

"As for inflation, it will depend on a hike in oil prices and it is a question of timing of the war. If the war should be longer then currently expected, in commodities markets, then the negative impact on inflation could achieve as much as one percentage point."

The Czech Republic does so much of its business with the European Union, specifically Germany. How would a long war affect Czech exports and Czech foreign markets in general?

"Currently the German economy is stagnating and if the war should be seriously negatively affecting the German economy then our exports could suffer seriously. 40 percent of the total export volume is going from the Czech Republic just to Germany, so the link is serious for the Czech economy."

By trying to appease those who are for and against a war in Iraq it is unclear how much of a role, if any, the Czech Republic would play in the eventual reconstruction of Iraq. The potential business for Czech firms in a post war Iraq is considerably large, however, only time will tell how the Czech Republics' political stance will effect its future economic interests in the region.