Business News

Changes are in the pipeline for both the employed and unemployed - a new Labour Code is being processed and parliament has passed a new bill on employment policies. The European Commission has expressed serious worries about the state of Czech public finances, and the heads of the largest Czech banks and the prime minister have agreed on the need to strengthen creditors' rights by streamlining bankruptcy procedures. The Trade Unions warn against already excessive and rapidly growing household indebtedness. The Finance Ministry is reportedly seeking an exception from the ban on state aid in the privatisation of the black-coal mining company OKD. German telecommunications company Deutsche Telecom is reportedly interested in acquiring the Czech national operator Czech Telecom.

Business News

New Labour Code in the pipeline

Photo: European Commission

The Labour and Social Affairs Minister, Zdenek Skromach, has announced that he is working on a new, more liberal Labour Code. The announcement comes just weeks after an amendment to the Labour Code came into force in March, harmonising Czech legislation with the EU's Acquis.

The concept of the new law should be completely different from the current Labour Code, which dates back to 1965, although there have been numerous amendments since then. While the current law stipulates precisely what is allowed in employer-employee relations and prohibits everything else, the new version should only define the limits and leave the rest to be agreed on in collective bargaining between employers and trade unions.

Employers and unions alike have been pressing for greater liberalisation of labour relations. According to the labour minister, Mr. Skromach, the new law should maintain approximately the same level of protection for employees, while catering for the needs of the present-day labour market.

Trade unions warn against household indebtedness

The Czech Confederation of Trade Unions has warned people against already excessive and rapidly growing indebtedness. An average Czech family with two children owes some 90,000 crowns to banks, which is five and a half times the average monthly salary. 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.

The Trade Unions' analysis warns against the risks of such a development, mainly against insolvency in the event of job losses. After May 1st, Czechs will experience the effects of the country's EU accession.

Although prices are likely to grow in some product categories due to changes in VAT, overall price levels are not expected to rise significantly. However, many have warned against the adverse impact that joining the single market will have on small and medium-sized enterprises, which are largely unprepared for accession. This carries the danger of bankruptcies and layoffs.

In the period between 1993 and the end of 2003, the volume of bank loans to households grew from 46 billion crowns 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.

EC sees state of Czech economy as critical

The European Commission has expressed serious worries about the state of Czech public finances. Although the country's level of indebtedness is not extremely high, the Commission is worried about its rapid growth over the past few years.

The Commission has recommended that the Czech Republic systematically work to reduce its public finance deficit, reform its health and pension systems, and reduce risks stemming from claims lodged with the bail-out agency CKA.

The Czech Republic should take steps to boost employment and cut social welfare payments. The recommendations are included in the Broad Economic Policy Guidelines, a new form of assessment for the economies of EU members and their convergence.

The European Commission is highly concerned about off-budget expenditures and fast-growing spending on social security and health care. The report recommends adopting measures that would encourage the unemployed to seek jobs, and improving labour mobility by deregulating rents and enhancing the transport infrastructure.

It draws attention to a number of structural problems on the labour market, such as big differences in unemployment in different regions, an excessive number of long-term unemployed and a high level of unemployed young people.

The Commission has also criticised high income taxes and high non-wage costs for employers, which hinder the creation of new jobs and exclude unqualified workers from the labour market. The European Commission's report also calls on the Czech government to improve the business and legal environment and make credit more accessible to small businesses.

Chamber of Deputies passes employment bill

Unemployment in the Czech Republic, source: CTK

The Chamber of Deputies has passed a new bill on employment, which will make it possible to deal more effectively with unemployed people who do not cooperate sufficiently with labour offices, who may loose unemployment benefits if they refuse offered community work. At the same time, it will allow the jobless to earn a certain amount of money without losing unemployment benefits.

The bill, which is yet to be discussed by the Senate and signed by the president, allows elderly people to receive unemployment benefits for up to one year.

In March, the unemployment rate dropped to 10.7 percent, from a record 10.9 percent in February. According to a recent survey, people consider unemployment to be the most urgent problem facing society.

FinMin wants exception from ban on state aid in OKD deal

The Finance Ministry is reportedly seeking an exception from the ban on state aid in the privatisation of the black-coal mining company OKD, according to the weekly Tyden. The government decided to sell its minority stake in OKD for 2.25 billion crowns to the company Karbon Invest, a majority owner of OKD. However, as Tyden points out, the market price of the stake at the Prague Stock Exchange is over 1 billion higher. If there is a suspicion of state-aid being involved in the deal, the anti-monopoly office should block the transaction or allow an exception.

Deutsche Telecom interested in Czech Telecom

German telecommunications company Deutsche Telecom is reportedly interested in acquiring the Czech national operator Czech Telecom. The weekly magazine Euro quoted sources as saying that Deutsche Telecom offered 130 billion crowns for the state's 51-percent stake in Czech Telecom. Analysts put the price at 50 to 65 billion crowns.

The privatisation of Telecom is to begin in the second half of this year and will probably end in 2005. Both telecommunications companies and financial investors are likely to be eligible as buyers. According to unofficial reports, several companies have already expressed an interest, such as TDC and Goldman Sachs, and Swisscom together with CVC Partners.

Banks and government agree on need to boost creditors' rights

The heads of the largest Czech banks and the prime minister Vladimir Spidla have agreed on the need to strengthen creditors' rights by amending the bankruptcy law. The banks see such an amendment as extremely urgent.

The law on bankruptcy is crucial for the terms of loans to small and mid-sized companies. Bankers say the availability and cost of loans are being adversely affected by the fact that the current system is highly inefficient. The prime minister has also previously said that the existing law on bankruptcy was very bad.

The planned amendment should also introduce a register of insolvent firms and set deadlines for courts to make decisions. The existing Czech bankruptcy legislation has been criticised by international institutions, such as the International Monetary Fund and the European-Czech Forum. They say that the law undermines the country's potential for attracting foreign investment.