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Notes for the ING Forum

English Pages, 1. 12. 2008

Ladies and Gentlemen,

Thank you for inviting me to speak here this morning, thank you for your decision to organize this important gathering in the Czech Republic, in Prague. 

You came here in a very interesting moment. You came here in the moment when we celebrated (or perhaps it would be more precise to say remembered) the 19th anniversary of the fall of communism in our country.

This historic event is, more or less behind us. It is taken for granted. An important segment of the Czech society already does not have any direct experience with communism and many today’s adults were too young to understand it. To my great regret I have to admit that some of my compatriots have never tried to do it. It becomes difficult to explain to them that it would have been – for example – unimaginable to have the ING Forum here at that time. Positive things we see around us now are considered normal, natural, self-evident. Negative things are due to inefficient, selfish, if not greedy, undoubtedly non-sufficiently caring politicians. Something I am sure you know in your countries too well.

You came in the moment of our preparations for the EU presidency which we take seriously and will be able – without any doubt – to manage it, to administer it and to organize it in a standard way. I would also like to be very explicit – because there are some misunderstandings – that for us the EU membership has no alternative. Some recent, rather insensitive reactions, when we dared to express some of our views about the Lisbon Treaty, reactions coming from the old EU countries reminded us of our non-democratic past. No one is the owner of the EU, not to speak of Europe. 

As I said, our active participation in the European integration process has no alternative but the forms and methods of the EU arrangements have many alternatives. To take one as sacrosanct, as the only permitted and politically correct one, is unacceptable. The right of people to say yes or no to the European Constitution or to the Lisbon Treaty or to any other similar document should be guaranteed. This guarantee represents the – for us – untouchable substance (or meaning) of Europe, everything else can be put into question. The attacks on those who dare to say no to the attempts to accelerate the deepening of the EU, which is the essence and aim of the Lisbon Treaty, are attacks against the true nature of Europe.

I know that I am among economists and business people here this morning. To integrate means to liberalize, to open up, to remove all kinds of barriers (the slogan of our EU Presidency is “Europe without barriers”), to get rid of protectionism. The basically positive, but sometimes very cumbersome and sinusoid-like European integration process of the last 50 years has succeeded in creating a highly integrated space which asks for some common rules and for some degree of regulation. The question remains and will be with us forever how much of it is necessary and helpful. 

The economists usually think about it by means of both microeconomic and macroeconomic arguments. Microeconomically, we should think about it in terms of the public goods and ask how many of them exist at the continental level. There are nowadays, undoubtedly, many EU competencies which deal with non-all-European public goods and some of them even deal with non-public goods. I see it as a problem. Macroeconomically, we should determine whether the degree of homogeneity of this nominally integrated space is so high that it requires institutions like common currency and, eventually, common fiscal policy or some other policies of that kind. I don’t find the existing level of “European” homogeneity so high to ask for such solutions.

Now a few words about the economic development. The Czech economy had – especially in the 1990s – undergone a deep, profound and far-reaching process of liberalization and deregulation. It was done before the entry of our country into the EU. It led to a relatively rapid economic growth and to the evident catching up with the average EU level of economic performance. The data are available. Many indicators can be used but I consider real wages important. As regards real wages their growth in the Czech Republic has been faster here than in all other European post-communist countries (Klaus, Tomšík, p. 43).

As we all know, the economic growth is never smooth, permanently upward-sloping, or linear. We experienced our first post-communist crisis in the second half of the 1990s, in the years 1997 and 1998. As always there were many reasons for that:

- it happened still in the moment of an inevitable vulnerability and fragility of an economy in its transformation stage;

- it coincided with the South-East Asian crisis which undermined the overall credibility of emerging markets;

- it happened in a country which – as the only post-communist country – succeeded in avoiding hyperinflation or even a high inflation, which means in a country which protected and preserved the savings of the households (and, therefore, had been receiving their cooperation during the crucial stages of radical transformation process) but in a country which did not sweep away by means of inflation the old inherited debts of both state-owned and privatized companies. It, of course, contributed to the fragility of the banking sector;

- it happened in a country where the central bank had strong political ambitions and in a specific moment introduced monetary policy measures which were difficult, if not impossible for firms (and banks) to cope with.

It resulted in an economic slowdown which lasted 2-3 years and in sluggish economic growth in the years which followed. As a consequence of it, the banks were accused of inappropriate behavior and of reckless borrowing to unreliable clients. As a result of it, they were forced to behave a very cautious, even an overcautious way which we criticized at that time but which is – surprisingly – something that helps now. I do believe it has a relevance to our current discussions.

Now, in the moment of the current world-wide economic and financial crisis the Czech banking and financial sector is relatively quiet. It is not overexposed, which undoubtedly helps. In addition to it the Czech crown isolates us in some respect and to some degree from the shocks of the world economy and we therefore hope that we can avoid falling into the financial crisis. We cannot isolate us, however, from the visible slowdown, if not outright fall of the world economy and especially from our main business partners. Our last three years average GDP growth between 6% and 7% has come to an end. How fast, where it stops, we do not know. Surprisingly, the last quarter data, just published, showed the acceleration of GDP growth (as compared to the previous quarter) and our trade balance is still in a good surplus. It will change, but  how much no one knows.

Let me also say a few comments to the current economic and financial crisis at the world level and especially to its consequences. It will take several years to return to something what I would call normal economic growth, if the economic growth will not be stopped forever by the world-wide acceptance of the irrational environmentalist’s dogma of man-made global warming. This is something I consider quite probable.

Without it, which I doubt, I do believe that we will return to the era of positive economic growth – at world level – with or without Mr. Sarkozy, G20 summits, costly rescue packages masterminded by Mr. Paulson and Mr. Bernanke and with or without other similar initiatives. As an economist turned politician I am afraid, however, that the crisis will be used (and misused) for the undermining of standard capitalist institutions, of free markets, of Ronald Reagan–Margaret Thatcher deregulation and supply-side revolution, of the achievements of our post-communist era which was based on liberalization, deregulation and privatization, etc. That is the real danger we face.

Our the task is to protect free markets against attack of Mr. Sarkozy and other politicians of that kind. I do believe – when I look at the current Czech government and the current Czech central bank – that the Czech Republic will be in this respect on the more rational side. And because I know that most of you are investors I make this statement as a hint where to invest your money both now, and in the future. 

Thank you for your attention.

Václav Klaus, ING EMEA Investment Forum, Prague, Marriott Hotel, December 1, 2008