US embassy cable - 09PRAGUE65

PM TOPOLANEK TALKS ECONOMY DURING JANUARY 28 MEETING WITH U.S., EUROPEAN CHAMBERS OF COMMERCE

Identifier: 09PRAGUE65
Wikileaks: View 09PRAGUE65 at Wikileaks.org
Origin: Embassy Prague
Created: 2009-02-03 11:41:00
Classification: UNCLASSIFIED//FOR OFFICIAL USE ONLY
Tags: ECON EFIN ETRD PGOV EZ
Redacted: This cable was not redacted by Wikileaks.
VZCZCXRO1638
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHPG #0065/01 0341141
ZNR UUUUU ZZH
P 031141Z FEB 09
FM AMEMBASSY PRAGUE
TO RUEHC/SECSTATE WASHDC PRIORITY 1080
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASH DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
UNCLAS SECTION 01 OF 02 PRAGUE 000065 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, ETRD, PGOV, EZ 
SUBJECT: PM TOPOLANEK TALKS ECONOMY DURING JANUARY 28 
MEETING WITH U.S., EUROPEAN CHAMBERS OF COMMERCE 
 
REF: A. PRAGUE 59 
     B. FEBRUARY 2 
     C. 2009 PRAGUE DAILY 
 
(U) This cable is sensitive but unclassified.  Please protect 
accordingly. 
 
1.  (SBU) Summary:  In a January 28 meeting with the heads of 
 American and five European chambers of commerce, an engaged 
Prime Minister Topolanek spoke energetically about the 
economic slowdown and possible Czech government responses. 
The PM repeated his government's promise to set a target date 
for Euro adoption in November, but did not say what that date 
would be.  The PM was worried about the Czech Republic's 
current economic slowdown, but was also concerned about doing 
anything that might significantly increase the budget deficit 
and seemed to rule out any large fiscal stimulus plan. 
Instead, he focused on privatizing Prague's airport and 
getting EU matching funds to expand public transport.  End 
Summary. 
 
PM Appears Engaged on the Economy 
--------------------------------- 
 
2. (SBU) According to American Chamber of Commerce Executive 
Director Weston Stacey, the PM appeared fully engaged on 
economic matters and appeared to recognize the Czech 
Republic's current economic difficulties.  (Note: While the 
Czech financial system remains relatively healthy, the small, 
open export-oriented Czech economy is suffering from a 
significant drop in external demand for its products.  As 
much as 80 percent of Czech production is exported abroad. 
Over 80 percent of exports go to fellow EU members (30 
percent of total exports go to Germany alone).  Many analysts 
are now predicting that the Czech economy will stagnate in 
2009 or possibly even contract: see ref A.  End note.)  The 
PM opened by saying that his goal is to make certain that the 
Czech Republic does not end up in the same economic situation 
"as Latvia."  Stacey and the other chamber heads emphasized 
that the Czech Republic would not feel the secondary effects 
of economic slowdown -- loan defaults, business bankruptcies 
-- until later this year, a point Stacey believes the PM had 
not yet fully grasped. 
 
No Firm Date for Euro Adoption 
------------------------------ 
 
3. (SBU) The chamber heads told PM Topolanek that the 
government faces two choices:  either adoption of the Euro or 
implement a large stimulus program.  Stacey said the PM 
appeared focused on not increasing the government's budget 
deficit, a stance Weston characterized as leaning toward Euro 
adoption.  PM Topolanek said, as his government has before, 
that he would announce a target date for Euro adoption only 
in November.  He did not say what the target date would be, 
although, according to Stacey, the PM joked that 2019 would 
be the hundredth anniversary of the Czech crown. 
 
PM Focuses on Deficits, Airport, Public Transport 
--------------------------------------------- ---- 
 
4. (SBU) The PM agreed on the need to get capital into the 
hands of small and medium enterprises and said his government 
is examining ways to accomplish that, but offered no ideas 
for a large fiscal stimulus plan.  He said eighty percent of 
what could be done is in the hands of the Czech National 
Bank. 
 
5. (SBU) Instead, the PM was single-minded about plans to 
privatize Prague's airport, coming back to the topic several 
times.  Topolanek accepted that privatization in the current 
market would net the government less than it might at a later 
time, but feels that the government's current need for cash 
outweighs the gains from a later higher price.  He noted that 
sovereign wealth funds are making the best offers, but warned 
that "you can never tell what the source of the money is." 
The PM also mentioned plans to greatly expand Prague's metro 
system to outlying areas, including with EU structural funds. 
 The PM said that regional governors should also work on 
getting EU structural funds for the expansion of public 
transportation systems. 
 
6. (SBU) The chamber heads offered to help Topolanek's new 
National Economic Council.  (Note: the Council was 
established in early January to advise the government on how 
best to respond to the economic slowdown: see ref A).  Stacey 
thinks that the Council has so far poorly served the PM. 
Stacey noted that the Council had passed the PM an 
 
PRAGUE 00000065  002 OF 002 
 
 
undifferentiated smorgasbord of over 250 proposals to fix the 
economy, instead of functioning like a true advisory board 
and submitting a short list of what they think are the best 
proposals.  Stacey blamed this on Council members' 
nervousness about taking responsibility for potential 
mistakes.  The PM also accepted that with bankruptcies 
rising, judges would need to better understand the Czech 
Republic's new bankruptcy law. 
 
7. (SBU) Stacey said that PM Topolanek, normally tepid on the 
EU, seemed to accept that the EU could have a positive 
influence through creating rules everyone abides by.  The PM 
told the assembled chamber heads that he would like to have 
changed the Czech Republic's EU presidency slogan from 
"Europe Without Borders" to "Europe Without Borders - But 
With Rules." 
 
8. (SBU) Comment:  Stacey and the others were impressed by 
Topolanek's energy and level of engagement on the economy. 
Although there were two advisors present, the PM did all of 
the talking on the Czech side.  The PM spent over an hour 
with the group in this first-ever meeting.  Finance Minister 
Kalousek,s almost single-minded focus on fiscal discipline 
appears to have rubbed off on Topolanek.  Finance Minister 
Kalousek has stressed publicly several times that as long as 
he is minister he will do everything in his power to prevent 
a significant increase in the Czech national debt and has 
criticized other EU states for failing to keep their budget 
deficits within the 3 percent level prescribed by the 
Stability and Growth Pact (and Maastricht Criteria for Euro 
adoption).  The Finance Ministry is now forecasting the Czech 
budget deficit to grow to 3 percent of GDP in 2009 under EU 
accounting rules (ref b), based on the rosy assumption of 1.4 
percent growth.  If growth stagnates or even contracts, as 
many analysts are now predicting, the budget deficit will be 
even greater.  Kalousek also appears to believe that in a 
country where 80 percent of its production is exported and 75 
percent of consumer goods are imported, a domestic stimulus 
program will do little to help the Czech economy.  Instead, 
the government is likely to enact some more modest measures 
such as increasing depreciation and allowing businesses to 
receive back the VAT on the purchase of new vehicles.  End 
Comment. 
Thompson-Jones 

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