The Czech Interests and Betting on Britain in a Stormy Europe

About two years ago I gave a talk in the US, and afterwards an American businessman asked me to explain something peculiar. He had read in that day’s edition of The Financial Times that the Czech Republic—as the only country apart from Great Britain—had vetoed increased EU regulation of hedge funds. You don’t have any hedge funds so why the veto? Why do you waste a principled position on issues that aren’t in your interest at all? Of course and unsurprisingly, I wasn’t able to provide him with an explanation—there has never been any public or non-public discussion of this issue in the Czech Republic.

Then again a couple of weeks ago, the Czech Republic, jointly with the United Kingdom, filed a complaint with the European Court against the ban on short selling, a speculative instrument used in currency trading that many politicians have blamed for excessive fluctuations in the value of government bonds. What was behind this? Surely Prague is not London? Surely the “short selling industry” is not a key engine of the Czech economy? What is it we are trying to achieve?

A similar lack of transparency surrounds the Czech position with regard to the so-called fiscal compact, the recent financial accountability agreement, which neither of our neighbours Poland and Slovakia seems to have a problem with. While the first two issues failed to stir any public interest or discussion, the fiscal compact did, admittedly, provoke some, albeit only ex post facto, after the Czech position had been announced. We have learned that the fiscal compact was badly thought out. We were enlightened, primarily by people close to ODS (Civic Democratic Party), the largest party of the Right, as well as by people close to the President, that the experts employed by our government are apparently better educated than people elsewhere in Europe, who were duped into signing a bad agreement like a legally incapacited herd of sheep. How come the Czech lands, of all countries, beget people endowed with this unique gift of providence? Well, this is hardly the case, judging by the quality of Czech higher education and the Czech political elites.

In fact, most European leaders managed to figure out, more or less correctly, that a comprehensive and gradual reform of European institutions is inevitable and that the fiscal compact is only a temporary measure, soon to be replaced by something else (this has already started happening: only a few months later preparations for a political, fiscal and banking union are under way). The name of the game should have been staying in the mainstream of integration and participating in the discussion on the future direction of Europe.

The fact that the British Prime Minister David Cameron and his Czech counterpart Petr Nečas travelled together by train to Brussels in order “not to sign” the fiscal compact has been presented by the Czech media as some kind of a Hussite raid, which most of England followed with bated breath, grateful for not being lonely and for having gained a key ally in Europe. In fact, British journalists couldn’t care less and rather than boasting about it, Cameron’s official spin doctors have rather tried to cover up the whole affair, with the train journey and Nečas’s visit almost impossible to locate on the 10 Downing Street website. Although this doesn’t mean that the Brits have anything against us or that they are ashamed of us—they are, after all a former superpower that needs a more presentable ally, someone larger and more important, such as the Spanish, the Italians or at least the Poles.

To sum up, the Brits may utilize us as useful idiots from time to time but generally speaking, they are not particularly interested in our sucking up and somewhat clingy “Britlicking”. And it might be worth mentioning that it’s quite difficult to find a set of common British and Czech interests.

One plausible explanation is that the Czechs’ attachment to Britain is primarily ideologically driven. Way back, when most of our leading rightwing politicians were still young and still inclined to read, Margaret Thatcher and her privatization and deregulation were all the rage. Mrs Thatcher was a major inspiration for the Czechoslovak and Czech economic transition. The Iron Lady certainly was a formidable personality, who displayed great courage in the face of the challenges of her time. That does not mean, however, that her prescriptions are still valid and will be valid forever. Each new era faces its own challenges and puzzles. Britain’s chief ailments in the 1970s included excessive union power and a rather diffuse and blurry socialism, while these days the main challenges faced by the Englishspeaking world include income inequality, a more restrained banking sector and, regardless of what we may think of it, reindustrialization, which is again proving quite popular.

In terms of the national interest, the main challenge for the Czech Republic is energy security, i.e. the country’s excessive dependency on Russian energy sources. Britain, on the other hand, has considerable natural resources of its own in the North Sea. And even without such resources an island country can easily diversify its natural resources by using its ports and relying on, for example, liquified or compressed natural gas. The United Kingdom is likely to remain, to a large extent, a centre of global business and finance for some time to come even in the case of the collapse of the Eurozone or the European Union. The Czech Republic is not a maritime nation, but rather a country that is totally dependent on German industry and its export machinery. The Czech government has recently announced a programme for diversifying Czech exports with the aim of limiting the dependency of the Czech industry on the European Union. However, no government (let alone the Czech government) will ever have the resources to achieve this goal, and it is questionable whether it could succeed even if such resources were available. If it were able to succeed, we needn’t have bothered to abolish the centrally planned economy. Only the private sector is capable of diversifying exports. However, this job is, to a large extent, taken care for us by Germany’s export machinery that supplies Brazil, China and Russia and for whom we are a key sub-supplier. As long as the single major security problem for the Czech Republic is its excessive dependency on Russian energy resources, it is not entirely clear how Great Britain can be of help in this respect.

Instead of indulging its British dreams the Czech Republic ought to seek inspiration in the Polish or Slovak example. Both these countries realize it is in their interest to support European integration efforts. But ultimately it doesn’t matter: the Czech Republic is free to pursue a policy different from that of these countries, provided it is a transparent, intelligible and clear policy, publicly discussed and explained.

Lately, Europe has been teeming with unions. There’s been talk of a fiscal union, an economic union, a banking union and political union. Comparative constitution scholars must be rather confused. They are familiar with the terms unitary state and national state, with such terms as confederation, federation, customs and currency union etc. However, the terms banking or political union are rather new and opaque. If political union means more concentration of politics in the Brussels centre and more political legitimacy for a growing fiscal centralism, it might be in the interest of the Central European countries to start discussing European federalism. For federalism is based on internal competition rather than homogenization and unification, as well as on asymmetry and the protection of the smaller and the weaker party. Countries of the former Czechoslovakia have experience of the federal model which they can share with others. And the Polish Minister of Foreign Affairs, Radek Sikorski, is an avowed federalist. So there is nothing stopping the Czech Republic and Poland from launching, for example, a discussion of the establishment of a second chamber of the European Parliament.

Neither Poland nor Slovakia see fiscal union as a serious problem, provided it means greater central or mutual budget control. Since the Czech government calls itself a government of budgetary responsibility it is not really clear why it should be the one objecting to more budgetary responsibility at the European level.

It is the banking union that poses a problem. Unless all the countries of Central Europe fully adopt the Euro, they cannot join the banking union (even though nobody knows at this stage what such a union would look like). It is obvious that for the time being the security of bank deposits and the main burden of regulation must fall on the central banks of Poland, the Czech Republic, and Hungary.

Jan Macháček

Jan Macháček is a columnist and analyst for Respekt.cz, weekly Respekt and Hospodářské noviny. He is the chairman of the board of Vaclav Havel Library.

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