EU must unite against eastern economic threat, warns Czech minister

By Anna McLauchlin

Date: 21/04/05

The Czech Republic's Minister for Economic Affairs Martin Jahn yesterday (20 April) urged the EU's old and new member states to unite together against economic competition from Russia and China.

The differences over the proposed services directive, low tax rates and the relocation of industries had been exaggerated, he said.

In an interview with European Voice, Jahn warned against the EU committing itself to further cuts in CO2 emissions lest it put itself at a competitive disadvantage in the global economy. The EU, he said, should convince the rest of the world to join in "otherwise we will lose jobs again".

"Companies will put their production plants in places like China where emission limits are not so strict."

But he dismissed complaints that the old member states were losing jobs to the new. "It's a big issue in France, but if you look at the big automotive companies for example, they are not relocating, they are expanding. The percentage of job losses in France due to delocalisation is really small."

Jahn said that the Czech Republic could not compete with Bulgaria and Romania "if a company is just looking for low wages". "But where we can compete is in quality."

The Czech Republic did not have to compete for the lowest tax rates, he said, though its corporate tax rate will be reduced next year from the current 26% to 24%, still significantly above neighbouring Slovakia's 19%. There are further tax breaks for research and development investment.

Jahn said he was not happy with the conflict within the EU over the proposed directive to liberalise services. "We joined the EU to take advantage of the single market and if that doesn't happen it's a pity," he said.

The 34-year-old Jahn is one of four deputy prime ministers in a lame-duck administration, whose Prime Minister Stanislav Gross has announced he will step down. Jahn described the political situation as "unfortunate". "It is not shining the best light on the economic situation," he admitted, but added: "Foreign investors can differentiate between politics and the economy. If the crisis continued, investors might get hesitant about the Czech Republic."

He admitted that it was difficult to reach political agreement on the reforms needed to prepare for joining the euro, for which a target date of 2010 has been set.

"I don't think we can agree on healthcare and pension reform before the elections [in June 2006]," he said.

"Part of the reason we are hesitant about reform is that our system is okay at the moment. It can continue well for a couple of years but in five years it will be in trouble."

Jahn criticised the changes agreed to the EU's Stability and Growth Pact. "I know it had to be a compromise and I hope it will not be abused. If it is, it will damage the stability of the eurozone," he said.

Interview with the Czech Republic's Minister for Economic Affairs Martin Jahn, 20 April 2005 in which he urged the EU's old and new Member States to unite together against economic competition from Russia and China. The differences over the proposed services directive, low tax rates and the relocation of industries had been exaggerated, he said. Article also discusses the Czech Republic's economic policy.