Trade Unions have been stepping up their protests against reforms planned by the government aimed at reducing a seriously widening fiscal deficit. One of the largest trade union organisations in the Czech Republic, the Association of Independent Unions, is the most vocal in its criticism of cutbacks. While teachers and some other state sector employees are going on strike for just one day, or even less, on September 1 to support their wage demands, influential trade union bosses on the railways, in agriculture, the energy sector and other key industries are threatening to call a general strike. The unions are also planning to bring as many as 20,000 people to Prague on September 13 when Parliament will begin discussing details of the much-needed fiscal reforms. The government plan includes tax hikes and austerity measures, as well as pension and health system reforms.
Amid the threats of mass protests by trade unions, the Czech National Bank governor Zdenek Tuma has encouraged the cabinet to go ahead with planned reforms of public finances. Mr Tuma said at an economic congress that the proposed reforms must not be watered down as a result of various pressure. He said the Czech economy was in a relatively good shape so that there was no need for the government to limit itself in its ambitions. He also said that the proposed steps are just the first stage of wider reforms.
The Ministry of Finance said the Czech Republic will show the biggest fiscal deficit in its history this year, reaching 7.6 percent of GDP. The ministry said in this year's Pre-Accesssion Economic Programme prepared for the European Union and published on its website that the general government deficit would balloon to the record level from a gap of 6.7 percent of GDP in 2002. The data is calculated according to the EU's ESA accounting standards, which serve as the basis for evaluating how the country meets the criteria needed to adopt the single currency. The document states clearly that the need for fiscal consolidation is gaining in urgency and is becoming a major economic and political issue. "As a result of escalating structural problems, fiscal policy has reached a stage when fiscal deficits continue to grow even in the upward part of the business cycle," it says.
The bloated fiscal deficit is the biggest obstacle for Czech membership of the eurozone, swelling well above the threshold of three percent of GDP required by the Maastricht Treaty criteria governing entry to the currency union. The worrisome fiscal outlook has alarmed investors and knocked the crown to its weakest levels in 18 months last week.
The dominant Czech telephone operator, Czech Telecom, has announced that it will lay off 1,800 workers by the end of the year. The planned job cuts would reduce Czech Telecom's workforce to around 11,000 - down from more than 15,000 since the state-controlled company began downsizing in 1996. Telecom spokesman Vladan Crha said the layoffs were part of a "long-term effort to maximize cost savings while maintaining the company's competitiveness and efficiency".
The company controls the country's fixed phone lines and half of its largest mobile phone operator, Eurotel. It plans to buy the other half of Eurotel from the U.S. consortium Atlantic West for over 1 billion dollars by the end of the year. The Czech government, which owns a 51 per cent stake in Telecom, has been trying for years to privatize the company. The latest attempt failed last year when a proposed deal with Denmark's Tele Danmark collapsed. The government now hopes to sell the firm by 2005.
The Czech foreign trade balance fell into a higher than expected deficit in July, despite a double-digit percentage rise in exports. The widening of the deficit was mainly due to higher imports of cars, machinery and pharmaceuticals. The Czech Statistical Office said the gap in the totalled just under 12 billion crowns (or 400 million USD), as compared to a 3-billion deficit in June.
The daily PRAVO reported earlier this week that every tenth Czech household defaults on its loans. Czechs have borrowed almost 200 billion crowns from banks and other financial institutions to buy goods they cannot afford to pay for straight away. However, the paper wrote, the number of defaulters could rise dramatically should the economy slip into recession. In such a case, banks would be faced with losses amounting to tens of billions of crowns for which they would have to create additional provisions. This could eventually lead to an increase in interest rates. According to PRAVO, people often overestimate their ability to repay loans, if they care at all.
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