Czechs avoid EU woes for now

Ireland is the latest member of the European Union to have been humbled by the financial crisis and left with no other choice but to turn to Brussels for a bailout, renewing fears that the euro has been a failed experiment.

Government ministers in the eurozone have come out in support of the bailout, with those who spoke publicly citing the imperative of stabilizing their currency.

The Czech Republic is not expected to be hit as badly as eurozone countries. While the country's export-economy is dependent on the eurozone's health, Czech National Bank Governor Miroslav Singer said it does not affect countries with which the Czech Republic has strong economic ties. Ireland's bailout instead will likely serve to bolster arguments in the Czech Republic from those who oppose euro adoption.

During a visit by German President Christian Wulff, Czech President Václav Klaus, an outspoken euroskeptic, expressed regret at a Nov. 22 joint press conference for Ireland's problems but added that not one group in the Czech Republic believes the country should adopt the currency.

"Especially since the euro crisis this year, there is no well-defined group in the Czech Republic - neither the government, nor Parliament, nor the central bank - that would recommend our joining the eurozone in the foreseeable future," Klaus said.

Wulff said the Czech Republic should adopt the euro despite recent problems.

The total amount Ireland will accept has yet to be finalized, but according to the BBC, Irish Finance Minister Brian Lenihan said Nov. 21 that it would be in the "tens of billions" of euros - less than the 110 billion euro bailout given to Greece in May of this year.

Ireland's state finances were crippled after the government had to bail out the country's largest banks, which sent the budget deficit soaring to 32 percent of GDP this year. In order to qualify for the bailout package, Ireland must present an austerity budget within the next two weeks that will put its state finances on track to reduce the deficit over the next four years.

One of the biggest issues that will be discussed is Ireland's corporate tax, which at 12.5 percent is half of China's and three times lower than Belgium's, said Vladimír Pikora of Next Finance, but he added that public revenues weren't Ireland's fundamental problem.

"Ireland's public finances are not the problem here. It is Ireland's banking system that is ailing," he said. "Europe is not bothered about the Irish state budget, contrary to its claims. Europe is just annoyed that Ireland's low taxes are a competition and are luring companies to set up business [there]. Maybe the more the taxes go up, the more Ireland will get [for the bailout]," he said, adding that the current number being mentioned is 90 billion euros ($123.3 billion/2.2 trillion Kč).

Pikora added that investors are further troubled because it appears Portugal will be next in line for a bailout, followed by Spain. While the EU's current bailout fund has 440 billion euros, it may not be enough to cover both Portugal and Spain, and certainly wouldn't be enough to cover Italy, should it need a bailout as well.

"Based purely on where the yield spread between the Irish and German government bonds is today, and where it was a month ago, we could deduce that the Portuguese bonds will find themselves in the same place as the Irish are today before the year is out," Pikora said. "In other words, the negative trend of the government bond market signals that Portugal might ask for help at [the turn of the year], and Spain might follow suit during the second quarter of next year."

Claire Compton can be reached at
ccompton@praguepost.com