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Czech Republic and Its Economy in the Current European Context

English Pages, 11. 3. 2019

Many thanks for the invitation. I am glad you decided to organize your meeting here in Prague. Your company, E.ON, is an important and visible entity in the Czech Republic. Let me start with two personal remarks. I should confess that my son works for one of your competitors, for the ČEZ company, but, I can assure you, he hasn´t given me any advice about what to say (or what not to say) here. And just for your information, my family uses the services of your company in our weekend house in Southern Bohemia.     

I don´t pretend to be an expert on energy. I am, however, an economist and a politician who – in both these capacities – was forced by circumstances to deal with energy issues quite extensively and sometimes radically.

My engagement with this topic started in the moment of the fall of communism and of our radical economic (and political) transformation from communism to a free society and market economy, when I happened to be the chief architect of the economic program of the first post-communist government.

We wanted to get rid of the enormous politicization of the economic thinking and economic decision-making which we had experienced in the communist era. People like me had plenty of time and opportunity to witness its tragic consequences. Our conclusion was very simple: economy without private property and without economically meaningful prices couldn´t functions efficiently. Our transformation process was, therefore, based on:

- overall price liberalization;

- large-scale deregulation;

- massive desubsidization;

- and privatization.

We wanted to establish a market economy, as I repeated many times at that time, market economy without other adjectives. I remember a lot of debates in Germany in the 1990s connected with my criticism of the phrase “soziale Marktwirtschaft”, which was (and still is) for me an example of market economy with an adjective. 

One of the main ideas behind our transformation project was to get rid of the tragic consequences of arbitrary playing with prices, including the playing with prices of energy. We radically liberalized prices and they – after decades of the existence of irrationally administered (or centrally planned) price system – started to reflect the scarcity of economic resources and led to the creation of market equilibrium. The communist shortage economy (Mangelwirtschaft) disappeared practically overnight. This radically improved the functioning of our economic system.

We considered it our victory. The feeling of victory, however, didn´t last long. We understood very early that the European energy policy, which we have been importing, is not economically rational. As a consequence, prices are being manipulated again, the situation is in this respect not much different now from the late communism.

I suppose you see it in a similar way. The regulation in the energy sector is bigger and more destructive than in any other part of the economy. The economic theory teaches us that regulation is quite often done in the interest of producers, but never in the interest of consumers. I am, of course, aware of the fact that I am not speaking to the consumers here today.

I was intensively involved in the formation of the energy policy in Czechoslovakia and then in the Czech Republic in the 1990s as the Minister of Finance and as the Prime Minister. Our most important achievement at that moment was the victory in the fight with our, Austrian and EU Greens about the completion of the nuclear power plant Temelín. (I made a crucial deal with the U.S. Eximbank as regards the financing because the European banks were too scared to do it.) Our nuclear energy facilities – both Dukovany and Temelín – work efficiently and safely. We have no plans to make anything comparable to the German Atomausstieg. We believe in nuclear energy and the natural catastrophe in Fukushima hasn´t changed our stance. We are not frightened as are some European, especially German politicians.

Another important achievement of that era, which should be mentioned quite resolutely, was the radical desulphurization of our economy and of our power stations which were based mostly on the brown coal in the past. Due to it, we have never had any problems with fulfilling the Kjoto Protocol targets.

To our great regret, the energy policy in the EU is not based on strictly economic criteria now. The green ideology reigns. The fight with carbon dioxide has become dominant – regardless the economic rationality. In my almost parallel speech (which will be delivered tomorrow in the Center for Financial Studies in Frankfurt) I am going to say the following:

“One of the most important (and most detrimental) prejudices which have been aggressively pushed forward in the EU is the almost religious belief that the environmental imperatives should be put before any economic considerations. Although these ideas never succeeded in winning elections, they are presented as eternal truths.  This way of thinking has a long tradition, especially here in Germany, but the decisive breaking point was the formation of the Club of Rome fifty years ago and its aggressive denial of long established fundamental pillars of the economic theory and of the economic way of thinking.

Not less important and not less detrimental is the almost religious belief in the global warming (or climate change) doctrine and the economic consequences of that belief. This doctrine represents the victory of non-economic thinking by underestimating the information hidden in politically unmanipulated prices. This doctrine brings us back two centuries to the old Malthusian fallacies. 

The arbitrarily chosen size of the discount rate by climatologists denies the role of time and of opportunity costs. By using a low discount rate, the exponents of these doctrines harm current generations. By claiming to fight for future generations, they pursue their own political agendas. The war against oil, coal and cars impoverishes millions of people in spite of the fact that there is no measurable effect of human production of carbon dioxide on global temperature.” The arguments of that type have been presented in several of my books and articles in the last decade[1].

We are glad you decided to make this important board meeting here in Prague. Let´s make use of this perspective. In the letter you sent me a few weeks ago you suggested that I should also say something about Eastern Europe. I was surprised you consider Prague Eastern Europe. We consider ourselves Central Europeans, Mitteleuropäer. I am sure you know that Prague is much closer to Munich and Frankfurt than to Kiev, Riga or Sofia. That Vienna is to the east of Prague. You should know that people like me have been only once to Ukraine and to Estonia, never to Moldova or Belarus. I was – I guess – 200-300 times in Germany, once in Lithuania. I am convinced the time has come to forget the old Cold War clichés.

The dividing line in Europe now is not between East and West. The dividing line is between democrats in all European countries and the arrogant political, intellectual, academic, journalistic elites which try to mastermind our societies, to get rid of democracy, elections, referenda and to introduce a post-democratic and post-political system. The dividing line in Europe these days is not a geographical one. The line is between those who see the coming threats connected with multiculturalism, political correctness, genderism and mass migration and those who don’t see them or are even conscious and intentional supporters of these tendencies[2].

In your letter you also speak about the EU “accession countries”, which is another problem for me. We joined the EU in the year 2004. The Czech Republic was an EU accession country 15 years ago. Is it still relevant to politically, economically and culturally differentiate the Central European countries from the rest of Europe, especially from the – in many respects problematic - countries like Greece, Italy, Portugal or Spain? Are the Central European countries less European, less pro-market, less pro-democracy?

That’s not how I see it. What we experienced in the communist era was in many respects tragic but we also learned a lot. As a result of it, we don’t take freedom and democracy as something given or granted. We are sensitive, perhaps oversensitive in this respect. That is the reason why we see the current tendencies in the EU in a rather critical way.

We are in favour of a maximum of friendship and of friendly and fruitful cooperation among the European countries. We are in favour of European integration but we are not happy with the European unification project which started with the Maastricht Treaty and reached its peak in the Lisbon Treaty. These treaties and the subsequent developments finalized the historic, for me very problematic, metamorphosis of the European continent from integration into unification. The ambition is to get rid of the nation-state, which is something we can´t accept.

In your letter you also mentioned “emerging populism” in Eastern Europe. Again, that’s not how I see it. I don’t see any emerging populism in Central Europe that would be worth discussing. To speak about populism is just a political statement, not an analytical one. It is easy to call anyone who doesn´t agree with the official EU doctrine a populist. I did and would do various things differently from Polish leader Kaczyński or Hungarian Prime Minister Orbán but to call these popular, democratically elected leaders populists is unacceptable for me. I know personally especially the second one. He is a genuine politician, a Homo Politicus, nothing else. The current habit to extensively use the label “populist” is a way to avoid serious analysis.

In the end let me make one last comment. In your letter, you asked about my views on the current and future role of “Eastern European countries in the European Union”. These countries have no special role. Why should they have one? The Scandinavian and Mediterranean countries also have no special role in the EU. Don´t make us special, please. Our ambition in the moment of the fall of communism, after the so called Velvet Revolution, was very simple: we wanted to be a normal European country again. Nothing else was and is necessary. We don’t want to be special in any way. 

Our tragic communist experience makes us – perhaps – in one respect special. I have already mentioned our sensitivity as regards any violation of freedom and democracy. As a result, we feel obliged to warn our West European friends and colleagues when we feel that something moves in the wrong direction. This could be – hypothetically – our specific role.

Thank you for your attention.   

Václav Klaus, Board meeting, E.ON, March 11, 2019, Intercontinental Hotel, Prague