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Economists welcome efforts at CR joining fiscal pact

Prague, Jan 30 (ČTK) — Analysts addressed by ČTK welcome Czech Foreign Minister Lubomír Zaorálek’s efforts at joining the EU fiscal pact, they say that the step would strengthen the country's budget responsibility and prevent governments from raising the country's debts excessively.

 

The pact binds EU countries to incorporate rules watching the budget discipline into national legislation.

Zaorálek announced his intention to be pushing through the Czech Republic's joining the European fiscal pact on taking over his office today.

The previous center-right government of Petr Nečas (Civic Democrat; ODS) was unable to agree on this issue and the Cabinet of Jiří Rusnok has left the decision to the government of Prime Minister Miroslav Sobotka.

Zaorálek is also of the opinion that the CzechRepublic should adopt the euro as soon as possible.

"The CzechRepublic's accession to the fiscal compact represents strengthening of the government's budget discipline. Medium-time spending frameworks that should bind the government's fiscal policy to a certain discipline do exist but the measure is relatively weak," said Patria Finance chief economist David Marek.

"Also, we still lack a debt brake in the form of a constitutional law on budget responsibility. In such a case, the fiscal compact can be the strongest measure preventing the government from being irresponsible in the management of state finances," he added.

However, joining the pact will require further cuts in the budget deficit. In case of countries with a ratio of the government debt to GDP below 60 percent, among which the Czech Republic belongs, the fiscal pact allows a structural deficit of up to 1 percent of GDP, Marek recalled.

However, the CzechRepublic's structural deficit is to reach some 2.5 percent of GDP this year. Structural deficit is a public finance deficit adjusted for the influence of the economic cycle.

"I would welcome the CzechRepublic's accession to the fiscal pact. In the future, it will be a guarantee against irresponsible governments which would want to raise the country's debt excessively," said UniCredit Bank's analyst Pavel Sobíšek.

As regards public finances, the pact does not mean any change in the coming two years, he added.

The fiscal pact was provoking disputes on the Czech political scene in the past years. The ODS demanded that potential accession to the pact be preceded by pushing through financial constitution against raising the debt of public finances and constitutional law on referendum on euro adoption.

Social Democrat (ČSSD) leader Bohuslav Sobotka argued at that time that the financial constitution's only purpose were efforts at diverting the attention from the 1,000 billion Kč public finance gap that, as he claimed, rose under the governments of Mirek Topolánek (ODS), Jan Fischer and Petr Nečas.

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