by Ecaterina Locoman (14.5.2010, Radio Free Europe)
Radio Free Europe: How did the global economic crisis affect the Czech economy?
Zdeněk Tůma: The CR is one of the most open economies in the world. We should distinguish two aspects: one is the financial turmoil and the second – the impact on the real economy. The financial turmoil, which spilled over from the advanced economies in Autumn 2008, had a limited impact on the the Czech financial sector. We did have our own crisis in the 90s, we had to clean up the banking sector and we have learned some lessons from that period. The Czech economy was doing very well in previous years, so the Czech banks were sufficiently profitable, they could build up appropriate capital buffers, they did not have a signifficant exposure to toxic sets.
Regarding the impact on the Czech economy – there was an indirect effect associated with the drop in the foreign demand. We have very strong exports: aproximately 80% of our exports go to the EU, and due to the recession – there was a lower demand for our exports.
Today we believe that we have reached the bottom of the recession: in this year we expect a moderate growth and a more robust growth in 2011.
Radio Free Europe: Why did the Czech Republic do better in the crisis than other European countries?
Zdeněk Tůma: The reason is the financial stability of the economy in general. Also, we did not have to change our policy regime: we have the flexible exchange rate regime, which helped as well, because there was a sharp depreciation of the Czech Koruna and it was an important buffer for the Czech exporters. Also, unlike other Central Banks in the advanced countries, we did not have to provide liquidity to the financial system. We maintained the inflation targeting framework, we were cuting interest rates.
Radio Free Europe: How did the Central European economies do during and after the crisis?
Zdeněk Tůma: The problems in Hungary were not related to the crisis, Hungary was in trouble even before the crisis. There was a difficult fiscal situation and the crisis worsened it even more. That is why IMF had to step in.
Also Latvia: it was not about the crisis, it was about over-heating the economy and fiscal irresponsibility.
Poland has been doing relatively well. In terms of the economic growth, Poland has been doing even better than the Czech Republic, because it is probably the only country which was growing even during the crisis.
Radio Free Europe: Do you think the experience of the crisis and recovery will make the European Union more or less willing to go on with the eastward extension? In this context, what are the chances of countries like Moldova or Ukraine?
Zdeněk Tůma: From my point of view, there has not been any change in the long term. It means that the EU is open to the European countries but there are some conditions. So the membership in the EU is conditional and when these conditions are fulfilled, there should be no reason why not to join.
Radio Free Europe: Why is Greece having harder times in coping with the financial crisis than other countries?
Zdeněk Tůma: Euro is providing a certain shelter, nevertheless, it cannot guarantee a certain stability vis-a-vis the fiscal responsability. If countries are not sufficiently disciplined, they will be punished by the financial markets regardless whether they are inside or outside the euro zone. This was the problem of Greece which entered the Euro zone and then did not pursue necessary reforms. Simply it was the fiscal problem: the expenditures were higher than their revenues, it was a very generous social system and a very strong public sector.
Radio Free Europe: Does the Greek experience make the Czechs more or less willing to get into the euro zone?
Zdeněk Tůma: We do not have problems as compared to Greece, but also, our social system is too generous, as compared to what the Government can collect in taxes. Regarding our approach to euro: It depends critically on the willingness of our politicians to consolidate the public finances.
Radio Free Europe: Czech Republic is often called the “Switzerland of the Eastern Europe.” What is the role of the CNB to make the Czech Republic an attractive country for investors?
Zdeněk Tůma: It is very nice to hear that we are like Switzerland, but I think that we are still relatively far away from the Switzerland, but perhaps we look as a very stable country. So the crucial point is that we have managed to build up certain credibility, both on the side of the monetary policy, and a relative discipline on the fiscal side. Generally speaking, it is about the consistence of the economic policies.