Outgoing coalition, opposition agree on stimulus package

One of Prime Minister Jan Fischer’s first tasks in his new job will be implementing a billion-crown stimulus package to kick-start the Czech economy. A final outline of the package was agreed upon this week by the outgoing government coalition and the opposition Social Democrats. Mirek Topolánek’s outgoing cabinet managed to keep their proposals for social insurance payment cuts, while the opposition Social Democrats pushed for a new subsidy to encourage Czechs to get rid of their old cars. The whole package is expected to cost 40 billion crowns (nearly 2 billion USD). I spoke to Jan Bureš, chief analyst at Poštovní spořitelna, who was lukewarm about the deal:

Photo: CTK

“It could have been a much more expensive package. It is not cheap, but it could have been much worse from my point of view.”

Can the anti-crisis package still prove effective after these compromises have been made?

“Well, I do not believe very much in the effectiveness of an anti-crisis package in the Czech Republic at all. Because we are a small, open economy, and we rely too much on what is happening outside of our borders. So me myself, I would prefer to have quite a conservative and cheap package, there are things that can help, but I don’t overestimate the effectiveness of this package at all. I think that what is crucial for us is how the packages in the United States and Germany work.”

One of the measures that Germany has taken is a scrap law encouraging people to get rid of their old cars. Something like that has now been included in this Czech package, and it has come under fire from some in the Czech car industry and even some Social Democrats – who were behind its implementation. Do you agree that it is not all that helpful for Czech firms?

Jiří Paroubek and Mirek Topolánek, photo: CTK

“Absolutely, I agree. It may be a bit helpful for a part of the economy, but it is not a crucial help, when you consider that 95 percent of cars produced here go abroad. There is not much sense in stimulating domestic demand, it is expensive and at this time, as a small player, we should be being conservative.

“Even the government will probably have less revenue this year than last year because of the growth in unemployment. And so they should behave in a more conservative way and not waste money on projects which are not cost-effective. And I consider this scrap premium as not being an efficient policy in a small, open economy at all.”

So why do you think it was put into this new anti-crisis package?

“I mean, partly, it is populism, because this is something politicians can offer to people which is visible enough, and then politicians can pretend that they are really doing something. And I think that is what this is. It is important for them to show people that they are taking care of them and to give people something they can understand. And a scrap premium is really quite easy to understand, it is really quite an easy mechanism.”