The government's plan to pay out hefty new social benefits before the elections has come under fire as economically irresponsible and a threat to euro adoption by many leaders and economists, with Czech National Bank Governor Zdeněk Tůma the most recent official to join the chorus.

The Chamber of Deputies approved a plan Dec. 16 to give Czechs an additional 42 billion Kč ($1.8 million) in the next five months. It has yet to be approved in the Senate, but experts are already speaking out against the new expenditures. The spending would increase the budget deficit at a time when the European Union and other organizations are recommending fiscal restraint in order to meet EU criteria for euro adoption.

The expenditures would put euro adoption at risk — one of the most significant consequences, Tůma said.

"Taking advantage of the country's currently strong economy is short-sighted," he said. "It not only jeopardizes the stability of public finance, but it could eventually also threaten the adoption of the euro."

The Cabinet adopted a road map in November that would lead the country to euro adoption by Jan. 1, 2010. The country will only be eligible for adoption, however, if the government follows the EU's convergence plan, which requires annual deficit reduction. By 2007, the deficit has to fall below 3 percent of gross domestic product. Projections for this year put the deficit over the limit.

The Social Democrat-led Cabinet's promise to give voters the new benefits, the majority of which will be family and sickness subsidies, has many economists concerned that the government has abandoned fiscal discipline for populist policy in an effort to win support before the elections.

Increasing spending now also makes it look as if the government is ignoring its commitment to euro adoption, according to analysts.

"Honestly, it looks as if there was no sane person in the Chamber of Deputies," said David Marek, chief economist at Patria Finance.

Who's to blame?

The government announced its intent to grant the new subsidies after realizing that last year's state budget deficit was 27.7 percent lower than projected. It was 56.4 billion Kč, compared with a predicted 84.1 billion Kč.

Parliament passed, and the president has approved, a 2006 state budget deficit of 74.4 billion Kč. But the new expenditures would push the gap to 100 billion Kč, violating a condition of the convergence plan stipulating that the deficit must fall every year.

After calculating the cost of the additional subsidies, Prime Minister Jiří Paroubek tried to shift the responsibility to deputies of the opposition Civic Democratic Party (ODS). The Christian Democrats (KDU-ČSL), a coalition partner, also received some of the blame.

"It was mainly the ODS and KDU-ČSL deputies who voted for the extra subsidies," Paroubek said.

Both the ODS and the Social Democrats (ČSSD) later agreed to revise the plan in the Senate this month.

Sustainability questioned

Paroubek has insisted that his Cabinet is pushing the country toward euro adoption in line with the plan outlined in the road map. He has also said that the government is exceeding the convergence plan's requirements for deficit reduction.

While the deficit did fall last year, it had more to do with the state of the economy than the government's efforts to reduce spending, Vladimír Pikora of Volksbank pointed out.

The government spent 922.9 billion Kč in 2005, 14.5 billion Kč more than the year before. The budget deficit fell only because strong economic growth generated more tax revenue.

Paroubek has also said the country ranks atop new EU member states in terms of fulfilling the Maastricht Criteria, a set of conditions for euro adoption.

The Maastricht Criteria set a cap on national debt at 60 percent of GDP and require the budget deficit to stay below 3 percent of GDP. Inflation cannot be more than 1.5 percent higher than the average three lowest rates in the EU. Similarly, interest rates can be no more than 2 percent above the average three lowest rates.

The Czech Republic has met three of these criteria. The one it hasn't met is state budget deficit reduction. This year, the Finance Ministry projects the deficit will be 3.8 percent of GDP, eight-tenths of a percentage point above the limit set by Maastricht.

Finance Minister Bohuslav Sobotka has repeatedly said the deficit will fall, but most economists don't share his optimism. Many insist that only public finance reform that places an emphasis on spending reduction rather than new subsidies will decrease the budget deficit.