Czechs escape direct costs of Greek contagion package but face stepped up scrutiny of public finances
European Union finance ministers have agreed a massive package of funding to stop the spread of Greek financial crisis and save the euro zone from collapse. The Czech Republic escaped lightly from the latest financial commitments. But the wave of concern about European governments ability to pay their way and not live on borrowed time and money will focus even more attention on the fiscal steps of the next Czech government in power.
Going into what turned out to be a marathon 11-hour long meeting of European Union financial ministers called to stop the contagion of the Greek financial crisis there had been speculation that all European countries, including the Czech Republic, would have been asked to contribute.
It is hoped this large, but late, package will stop the Greek crisis spreading to Portugal, Spain, and perhaps also Italy and Ireland.
As the meeting ended, Czech Finance Minister Eduard Janota could make the following statement:
“This is a matter for the eurozone countries. In this sense there are no new obligations involving the Czech Republic.”
In the strict sense, that was certainly true. But during times of economic crisis and uncertainly, everyone including governments, usually have to pay to give that extra bit of assurance to those lending money. Mr. Janota remarked that in the previous week the yields, or interest, on Czech bonds had risen by around 0.4 of a percentage point. If that sort of situation sticks then it will translate into an extra 4.0 billion to 5.0 billion crown bill this year for the state to cover the costs of its ongoing deficit.
For Mr. Janota the long and sometime fractious Brussels meeting had a elementary message for the politicians back home, mostly on the campaign trail ahead of lower house elections at the end of May.
“The basic message for the Czech Republic should be that we should not allow public finances to get into the situation where they have to be discussed by monetary funds or other countries. That is because the measures these countries are forced to accept have to be taken under pressure and to a certain extent are dictated. In this sense it should be very instructive for our politicians and I hope they will take this as an example.”
One conclusion from the finance ministers’ meeting was an urgent demand for more steps from Portugal and Spain to come up with new measures to get their public finances in better shape. For the chief economist of Prague-based Patria Finance, David Marek, that is also the message that the Czech Republic should take on board.
Analysts agree the current crisis will magnify markets’ attention on the outcome of the Czech elections and whether a new government comes in with a willingness to turn back the tide of rising public debt.
