Pátek 29. března 2024, svátek má Taťána
130 let

Lidovky.cz

‘Prepare for eurozone collapse’ economic council warns Czech gov’t

Evropa

  6:31

Czech economic advisory council advises the government to prepare for the worst – disintegration of the eurozone

The government’s economic advisory council NERV gave no reason for cheer at it’s session on Tuesday, attended by FM Miroslav Kalousek (far left) and PM Petr Nečas (center). NERV member and economist, Vladimír Dlouhý, (center right), placed part of the blame on Europeans’ ‘unreasonable demands,’ though did not mention ‘creative accountancy’ performed for Greece by one of his paymasters, Goldman Sachs, to circumvent EU fiscal rules foto: © ČTKČeská pozice

The Czech government’s economic advisory council (NERV) has advised Prime Minister Petr Nečas to support efforts to stabilize the eurozone while warning the EU monetary union’s disintegration is a real possibility; it also advised the creation of emergency budgetary measures. Nečas said that to emerge from the debt crisis, the eurozone needs fiscal discipline and measures to boost competitiveness.

“[NERV] in no way wants to say that there’s a catastrophe knocking at the door, but we consider that we should advise the government to prepare for one,” said Vladimír Dlouhý, a member of the council and a former minister of industry and trade, who is also an advisor to Goldman Sachs, at Tuesday’s meeting.

“We unequivocally conclude that of all the possible scenarios for the development of European Monetary Fund, the worst for the Czech Republic would be the collapse of the eurozone and a consequent deep recession. We’re not putting forward alarmist opinions that it would be the end of the world, but the economic consequences would be very severe,” he warned.

Dlouhý also advised the government that a large write-off of Greek’s debt, which is currently being discussed in Brussels and is likely to be part of the EU’ measures to resolve the debt crisis, would lead to considerable destabilization of the EU banking sector.

Roots in the 1970s 

The NERV experts and Finance Minister Miroslav Kalousek (TOP 09) agreed that the root causes of the current debt crisis lie well before the financial crisis of 2008: “This is not a classic currency crisis, or a ‘euro crisis,’ as it’s sometimes called. First and foremost, this is a budgetary and consequential debt crisis generated by the disproportionate demands of the inhabitants of European countries, and also the general demands of public budgets. It stems from the 1970s,” Dlouhý said. ‘Macroeconomic indices will be significantly worse than in the previous prognosis – and I don’t think that it will be the last bad news; I’m afraid that this is a trend’

Kalousek said the problems have also arisen from the very structure, or lack of one, within the eurozone. “The fundamental problem that emerged at the very birth of the eurzone is the problem of a single regulator [the European Central Bank – ECB]. Every space with a common currency must have two regulators: one regulator for private money, which is a central bank, and one regulator for public money, which is either a ministry of finance or a government,” he said.

In Kalousek’s view, the eurozone must act now to define its future shape because it’s inevitable that it will have to change if it is to survive. This could mean a smaller eurozone with stricter rules and harsher sanctions for failure to adhere thereto, or the creation of a fiscal union and a second regulator which he says is so necessary. “But nobody knows how,” he added.

Nečas said that there was no choice other than fiscal integration if the eurozone is to survive: “If the eurozone is to continue functioning, these elements simply must be deepened. This is the reality that must be taken into account.” Further, Nečas said creation of the European single market must be completed in orderto raise the EU’s competitiveness.

Bad and worse forecasts

At the same meeting, Kalousek warned that the economic outlook for 2012 to be published by his ministry on Monday (Oct. 31) will show far lower growth expectation and lower indices practically all around compared with the previous forecast back in July upon which the draft budget for 2012 is based. He also warned that further downward revisions will probably required later.

Due to the unpredictability of economic developments in the coming months, Kalousek recommends passing the draft budget for 2012 in its current form

“I don’t think I’ll surprise you when I say that the macroeconomic indices will be significantly worse than in the previous prognosis — and I don’t think that it will be the last bad news; I’m afraid that this is a trend,” Kalousek warned.

Due to the unpredictability of economic developments in the coming months, Kalousek recommends passing the draft budget for 2012 in its current form, which counts on economic growth of around 2.5 percent, and amending the law early next year. “I presume the government will have to put an amended state budget law to parliament in February or March next year,” he said.

Kalousek said the downgraded economic forecast for 2012 was roughly in line with the adjustments to Germany’s outlook, which indicate a marked slowdown with growth not reaching above 1 percent. Nevertheless, the Czech finance minister remains determined the budget deficit must not breach Kč 135 million and says he has provisional plans for further spending cuts in 2012, though he did not reveal details.

Autor: