Prague forced to face ‘cruel truth’ in EU warnings

Date: 28/01/1999

By Simon Taylor

"IT is very good when somebody finally tells the cruel truth to those who have been telling us we were number one in central Europe."

This was the stoical response from Czech Premier Milos Zeman last November after the European Commission published a highly critical report on the republic's progress in preparing for membership of the EU.

While blaming much of the country's poor performance on the previous government of Vaclav Klaus, Zeman's administration decided to take most of the blows on the chin and square up to the tasks set out for it by the Commission.

"We fully agree with the report that we have weaknesses in bank privatisation, the justice sphere, including social justice, corruption and others," Zeman conceded gracefully.

From being seen as one of the front runners in the race to join the EU, the Czechs fell so far behind by November last year that there was even speculation that they might be relegated to the second wave of applicant countries.

Unlikely though this was, it would have put the Czechs back on the same footing as the Slovaks, still struggling to rid themselves of the pariah status earned by autocratic ruler Vladimir Meciar. Although the Commission complimented the Czech Republic on its progress in making the transition to a functioning market economy, Prague was rapped over the knuckles for failing to cut the cosy links between enterprises and state-owned banks.

This was taken to imply that firms were being kept afloat when any normal commercial bank would have cut the supply of credit months or years earlier. Nor had the Czechs shown "as sustained a commitment to market reforms" as the best performing applicants: Hungary, Poland and Estonia.

Other problems highlighted by the Commission included the "inherent weakness of the judiciary" ranging from a lack of trained legal personnel to lengthy delays in dealing with cases. Prague was also reprimanded for the rough treatment meted out to its Roma minority, who face unemployment rates of up to 90% and sporadic racial attacks.

But the Commission reserved its main criticism for a "worrying slowdown" in the government's progress in adapting national laws to EU rules and standards, a key aspect of its preparations to join the Union.

Its report went so far as to warn that unless the Czechs, along with Slovenia, made up the lost ground, "it would create a problem for the capacity of these countries to meet their obligations as future members in the medium term".

While the Czech government had drawn up bold plans for adopting more EU rules and standards, the Commission said these had not yet been put into practice. Prague had, for example, recognised that reform of public administration was a priority but had "not yet taken the necessary steps to translate the political commitment into concrete action".

There had, however, been some improvement in the areas of banking and financial services supervision and in setting up bodies to control industrial standards and certification. Prague had also made some headway in bringing animal health and food safety standards closer to EU levels.

In their defence, Czech officials point out that the Commission's report covered a 12-month period in which the country's decision-making process was paralysed by instability at the heart of power, with no fewer than three different governments.

This was compounded by the political stalemate caused by the largest centre-right party, Klaus' ODS, splitting into two warring factions. "Imagine if Helmut Kohl's CDU split in two," said one official.

Some commentators argue that the EU should show more understanding for the Czech situation, given its own experience of the way in which national elections and the fragile coalitions which often follow them interfere with the Union's ability to take decisions quickly.

They point out that the EU itself has just suffered frustrating delays in negotiations on key internal reforms while waiting for the new German government to settle in, and that a change of government was required in the UK before its Union partners would contemplate lifting the beef ban.

In any case, Czech officials promise that the pace of reform in the republic will move up a gear over the next few months, pointing to the medium-term economic strategy which is due to be approved by the end of January and which will set clear deadlines for achieving a range of key policy objectives.

Nevertheless, with the Czech economy struggling to grow at all next year, Zeman faces a host of obstacles as he attempts to deliver on a raft of promises of industry restructurings and bank reforms.

It appears unlikely that he will be in a position to swap stoic acceptance of criticism for pride in genuine achievements by the time the Commission publishes its next progress report in November.

Czech Republic - economic forecasts

Note: January 1999 survey

Source: HSBC Research

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