The painful transition may be over, but flexible labour laws, retraining still needed - Jan Sykora

Jan Sykora

Were all those pre-European Union entry fears of price hikes justifiable? And just who needs to transform their economy more, anyway; new members like the Czechs, or perhaps old-hands like France and Germany? Wood & Co. brokerage's Jan Sykora sets the record straight.

Jan Sykora
There have been fears, in all the countries of Eastern Europe and Central Europe, that have just joined the European Union, of price increases, of a loss of competitiveness, of a 'brain drain' — are there any indications, or many indications, with the first economic results and indicators coming through, that some of these fears might actually be well grounded?

"No, I honestly don't think so. First of all, it's too early to say. All the trends and fears that you mentioned take much longer to sort of 'document' themselves and account for them in the economic statistics."

"However, I honestly think that all the fears and threats that people were mentioning or that you just mentioned, it's more sort of arguments of people who are not self-confident or self-assured, and, to a certain extent, people that, in the long term, I think, could be threatened under whatever system."

"But the reality, I think, sort of proves to the contrary. I think Central Europe — in general the new members of the EU — have marked, or succeeded, in fantastic achievements over the last 15 years. We can always claim that we could have done better and there were some opportunities that were missed. But that is part of history now. But there are a lot of achievements that Central Europe can be proud of and I think going forward, we just have to work hard and be self confident."

And do you think, on the other hand, that maybe there are a lot of countries — neighbours like Germany — there are certain fields where they should be quaking in their shoes at the new competition from the East?

"Absolutely. I think when we look — even though we would love to see more flexible labour laws and, I would say, a more business-friendly environment — I think we are still doing far better. And the environment or infrastructure that we have in Central Europe is far better than in neighbouring countries, whether it's Germany, France or Austria."

"So, I think from that perspective — and looking at the cost of labour — we still are significantly cheaper than Western Europe. So, I think what we'll experience is there'll be a massive, further increase of FDI [foreign direct investment], transfers of production [facilities]."

"So I think the countries that should be more worried should be the non-reformed countries — countries that are not willing to go through radical reforms and those neighbours such as Germany or France."

"And, actually, it seems there is more fear in those countries than in Central Europe because when we look at the recent declarations by the U.S. and European politicians that are asking for, I would say, sort of Socialist approaches by having a unified tax systems, accusing some of the existing and new EU members of 'tax dumping' — all this is a very, very sort of leftist, and populist propaganda."

But there are understandable fears, for example in a country like Poland, for example in agriculture, plays a major role, not just in the economy of the country, but also in the psyche of the country, there obviously are more major and urgent pressures, aren't there, that are coming from ?

"Well, obviously Poland, to a certain extent, hasn't done the homework it should have done in reforming its industries. You mentioned agriculture; I would say the steel industry and some of the other industries in Poland, coal mining, et cetera, have not been reformed either. So clearly they are worried and they should be worried."

"But one thing I would like to add is that when we look at the overall agricultural policy within the EU, I think that should go through significant reforms as well."

And what about here in the Czech Republic? Are there any industries or parts of major Czech industries which you could point to and say 'If they don't do something pretty soon, they're destined to collapse'?

"I think fortunately at this moment — I mean, if you asked me this five, ten years ago the answer would have been different but thanks god we went through most of the transformation processes, although as a result of that, there are some regions of the Czech Republic that are currently having problems with high unemployment rates, et cetera."

"So, I think that it's not that we would have to be shutting down or making major restructurings as such in certain sectors, but I think what we should be focusing on right now is how to bring more growth — new jobs, new training, education, et cetera, to the regions or to the country as a whole, but that's more going back to economic policies and fiscal reforms."