Czech Republic

I - Political context

Political change      
I.1
What is the political context of the Eurozone crisis period in the Czech Republic? Have there been changes in government, elections, referenda or other major political events during the period of 2008-present?

In February 2008, Presidential elections took place. At the time, the President used to be elected by Parliament. The candidates were incumbent President Klaus, and economist Jan Švejnar. In the first attempt (three rounds), neither of the candidates was elected (with Klaus missing one vote in the last round). The week after, a second attempt took place and Klaus was narrowly elected for the second five-year term. The elections divided Civic Democrats, as well as the governing coalition with Greens supporting Švejnar and Christian Democrats unable to agree on the support for either of the candidates. Failure to re-elect Klaus would have probably led to the fall of Prime Minister Topolánek and his coalition Government.

In 2008 the Lisbon Treaty ratification saga started. A group of members of the Chamber of Deputies (paradoxically members of the Civic Democrats, the party who hold the position of the Prime Minister and half of the seats in the Government, which negotiated and signed the Lisbon Treaty) filed a petition to the Constitutional Court for a preliminary review of the compliance of the Lisbon Treaty with the Constitution. The President joined the proceeding. The Court ruled that the petitioned parts of the Lisbon Treaty are in compliance with the Czech constitutional order (Lisbon Treaty I). Subsequently, the Chamber of Deputies and the Senate gave their consent to the Treaty on February 18, 2009 and May 6, 2009 respectively.

Until May 8, 2009 the Czech Government lead by PM Mirek Topolánek (Civic Democrats, a traditional conservative party and the main party on the right since 1992) was composed of Civic Democrats (81 seats in the Chamber of Deputies of the Parliament), Christian Democrats (13) and Greens (6). The Government did not have a majority (100 seats out of 200 in the Chamber of Deputies of the Parliament) and the coalition partners exercised disproportional influence in the Government. This second Topolánek Government was thus inherently unstable since its inception (the original vote of confidence was secured by the votes of two opposition MPs). Despite this fact, the Government passed its major reform of public finance (effective from January 1, 2008) amending 46 laws. Three new environmental taxes were created; the tax system was simplified; direct taxes were decreased, while indirect taxes increased; the average tax burden became around 21.3%. The reform also introduced patients’ fees, changed a price-setting scheme for medicaments, and reformed various social benefits. In 2008-09, two Deputies left the Greens and three Deputies from Civic Democrats formed a fraction, including one Christian Democrat,[1] with economic reforms and church restitutions being the major divisive issues. These changes further weakened the coalition Government.

In September 2009, a group of Senators (mostly from the Civic Democratic Party again) filed another petition to the Constitutional Court for a preliminary review of the compliance of the Lisbon Treaty with the Constitution. The Court ruled that also in the newly petitioned parts of the Lisbon Treaty, the Treaty was in compliance with the Czech legal order (Lisbon Treaty II). Despite the consent of three-fifth majorities in both chambers of the Parliament and two Constitutional Court judgments (the Court in obiter dictum indicated that the President was obliged to sign the Treaty promptly), the President refused to sign the Treaty unless the Czech Republic was given the same guarantees regarding the application of the Charter in CR as were given to the UK and Poland. CR was last to ratify. The Government therefore negotiated a political declaration adopted by the European Council in October 2009 that the Protocol 30 on the UK and Poland exemptions would be modified to include the Czech Republic as well.[2] President Klaus signed the Treaty, mentioning the pressure from the Constitutional Court and his on-going reservations, on November 3, 2009 and the ratification instrument was deposited ten days later with the Italian Government. On September 5, 2011 the Czech Government, in a letter from its Permanent Representative, submitted to the Council a proposal, in accordance with Article 48(2) TEU, for the amendment of the Treaties to add a Protocol concerning the application of the Charter to the Czech Republic. On May 22, 2013, the European Parliament adopted a resolution calling upon the European Council not to examine the change of Protocol 30 in regard to the Czech Republic’s “opt out” mentioning, among others, meanwhile emerging case law of the CJEU on the so-called opt outs for the UK and Poland.[3] Eventually, the ‘Czech exemption’ has not been included into the ratification of Croatian Accession Treaty as originally envisaged and with a new President elected in 2013 and a new Government appointed in 2014 (both of centre-left affiliations), the ‘Czech exemption’ has been buried.

Going back to Czech domestic politics in 2009, the division within Civic Democrats appeared to be crucial. President Klaus, who disliked Topolánek who succeeded him as the chairman of the party, which Klaus founded in early 1990s, retained significant influence over some members of the party. From January to June 2009, CR held the EU Presidency. During the Presidency, on March 24, 2009, the Social Democrats and the Communist Party with help of two Civic Democrats and two Greens voted non-confidence to the Government (it was already fifth attempt to vote non-confidence). Given that there was no majority in the Parliament, President Klaus upon an agreement between the governing coalition and the main opposition party, Social Democrats, mandated Jan Fischer, then the director of the Czech Statistic Office, to form a technocratic government until early Parliamentary elections. The Fisher Government took office on May 8, 2009.

The Constitution at the time did not provide for the possibility of voluntary dissolution of the Parliament by its own action (or by the President). Only more complicated variants existed. The Chamber of Deputies of the Parliament therefore followed a precedent from 1998 and passed a constitutional law on its own dissolution agreed to by the Senate and the President, with a view that early elections could take place in the Autumn. A group of MPs turned upon the Constitutional Court, which surprisingly annulled the constitutional law stating that it was not law at all as it lacked fundamental qualities of law, foremost general applicability.[4]

The elections to the Chamber of Deputies therefore took place in the regular term only. In the general elections on May 28-29, 2010, several new political parties gained seats in the Chamber of Deputies, particularly a conservative TOP 09, lead by Karel Schwarzenberg (former Foreign Minister representing the Greens) and Miroslav Kalousek (former leader of Christian Democrats) and a centrist and populist Public Affairs (Věci Veřejné), a truly new party with politically inexperienced MPs. These new parties gained momentum due to the financial crisis calling for fiscal responsibility and anti-corruption programme. New Civic Democrats’ leader Petr Nečas formed a government (effective from July 13, 2010) composed of Civic Democrats (53 seats in the Chamber of Deputies of the Parliament), TOP 09 (41), and Public Affairs (24). The Government called itself a “coalition for fiscal responsibility, rule of law and fight against corruption”, which also summarizes its programme. Despite a comfortable majority of 118 seats out of 200 seats in the Chamber of Deputies, the Government became soon unstable. The main clashing points were church restitutions and pension reform.

On October 23, 2010 Senate elections took place,[5] in which the Social Democrats gained majority (41 seats out of 81) for the first time in the history of the Senate traditionally dominated by Civic Democrats. The municipal elections, that took place at the same time, were narrowly won by Social Democrats.

In December 2010, Social Democrats unsuccessfully voted non-confidence to the Nečas Government. The first Government major crisis came in April 2011 as a result of corruption scandal within the junior coalition partner, Public Affairs.[6] After the leader of the party and another member were found guilty by the first instance court in April 2012, eight MPs left the party and formed a new party LIDEM (Liberal Democrats). Public Affairs left the coalition and a new coalition between Civic Democrats, TOP 09, and LIDEM was formed and received the vote of confidence (105 MPs out of 200). The new junior party was very unstable and made the coalition governance difficult (another crisis emerged in December 2012, when LIDEM left the Government after its leader Karolína Peake was recalled by the PM from her post of Defence Minister after only 8 days in the office due to a pressure from President Klaus and his supporters within Civic Democrats).

On January 1, 2012, The Constitutional Court issued its judgment in the Slovak Pensions case, proclaiming the judgment of the CJEU in the preliminary question in Landtova case to be ultra vires and therefore without effect in CR.[7] On October 20, 2012, Senate elections took place with Social Democrats enhancing their majority and the left parties gaining constitutional (three-fifth) majority. At the same time, Regional elections took place. Social Democrats won and formed regional governments in 11 out of 14 regions.[8] These failures of the governing coalition significantly weakened the Nečas Government.

In November 2012, the Parliament voted on major tax reform of the Government (mainly VAT increase). Given an internal opposition within Civic Democrats, but also other coalition parties, the Government connected the vote on the reform with a confidence vote. If the reform failed, it would mean a fall of Government. In order to solve the crisis, three MPs from Civic Democrats, who refused to vote for the reform, resigned from the Parliament in exchange for positions in state-owned private companies. In June 2013 the three former MPs were arrested and charged with corruption constituted in these acts. This fact contributed to the fall of the Nečas Government.

In January 2013, the outgoing President Klaus granted a controversial amnesty that, among others, stopped prosecution of number of people suspected from large financial frauds during the 1990s. According to the Constitution, an amnesty act needs a countersignature of PM, and by countersigning, the Government takes political responsibility (as the President is not politically accountable). The Government was divided over the issue (PM allegedly did not consult his action with the Government)[9] and many competing constitutional interpretation on what is the Government role in sanctioning President’s acts emerged. The opposition called the Parliament to vote non-confidence, however, this attempt failed once again. Further blow to the centre-right Government came with the presidential elections on January 25-26, 2013. First time ever direct general elections of president were won by Miloš Zeman,[10] who defeated Karel Schwarzenberg, conservative TOP 09 leader.

Miloš Zeman promptly (on April 3, 2013) finalized the ratification of the Council Decision on Art. 136 TFEU Amendment in a ceremony for which he “requested” attendance of Commission President Barosso to indicate the change of course towards the EU integration.[11] TOP 09, junior government party, attempted to use the momentum and urged for accession to the Fiscal Compact, threatening to leave the Government. However, as the momentum dissipated, they backed down.

On June 13, 2013 a major scandal lead to resignation of PM Nečas, which necessarily meant a fall of the whole Government.[12] By that time, the original majority of 118 seats out of 200, with which the Government started, did not exist anymore (11 MPs created three new political parties and another 6 were without political affiliation). Neither there was any other majority. The governing coalition nominated Civic Democrat Deputy Chairwoman and Chairwoman of the House of Deputies Miroslava Němcová for PM declaring a support of 101 (out of 200) MPs. Despite the declared majority for Němcová, President Miloš Zeman, who doubted such majority existed, designated Jiří Rusnok (former Finance Minister in Zeman Government in 2001-02, an economist, CEO of ING Pension Fund, and a member of the National Economic Council of the Government since 2010 – an expert advisory body of the Government) to form a new government. This was an unprecedented step from the President, given that CR is parliamentary democracy. The President, former leader of Social Democrats, elected in direct general elections unlike his predecessors, considered his mandate considerably strengthened by the fact of popular vote, while the Nečas Government was widely unpopular due to its fiscal austerity programme (tax increase, social benefits cuts, pension reform, etc.) and corruption scandals.[13] On August 7, 2013, the Government failed to pass vote of confidence and resigned. At the same time previously declared majority for Němcová ceased to exist. In reaction to the fact that no majority (either on right or left or for the technocratic government) existed, the Chamber of Deputies asked the President to dissolve the Chamber (the Constitution was changed to allow explicitly for such option) and the President, who is obliged by the Constitution to do so in such case, dissolved the Chamber on August 28, 2013 and set early elections for October 25-26, 2013.

Social democrats lead by Bohuslav Sobotka won the general elections (50 seats in Chamber of Deputies), although with much less share of votes than expected, followed closely by a new protest movement party ANO of billionaire Andrej Babiš (47 seats). Communists were third (33 seats), followed by TP 09 (26 seats), Civic Democats (16 seats), another new protest movement party Úsvit (14 seats) and Christina Democrats (14 seats). The former coalition parties were utterly defeated. A new center-left government of PM Sobotka composed of Social Democrats, ANO, and Christian Democrats was appointed in January 2014. It declares a turn in Czech European politics, pledging to accede to the Fiscal Compact and banking union and work towards adoption of euro.

In November 2013, the Czech central bank started massively selling Czech koruna to decrease its value fearing a risk of deflation in 2014. The central bank pledged to keep a koruna to euro ratio at 27:1 (in comparison to 25:1 before the intervention; koruna dropped by 4.4.% in one day).[14] This move was criticized by politicians, while economists were divided.[15]

Let me briefly describe major political and economic reforms in the Czech Republic during the Euro-crisis. In general, despite the corruption scandals and unstable majority of the Nečas Government, it more or less successfully passed most of its economic reform programme. Also, the Finance Ministry was rather stable – lead between 2007 and 2013 (with an exemption of the technocratic government in May 2009 – July 2010) by Miroslav Kalousek from the conservative TOP 09. Although the debt rose from 37.8% of GDP in 2010 to 48.5% of GDP in 2013, the reasons rest in growing mandatory expenses, mainly pensions burden on the one hand, and stagnating GDP growth on the other hand. The Government passed church restitutions (financial separation of the church from the state negotiated since 1989), enhanced the independence of police and prosecution, and passed a major Civil Code reform. It failed to start up economic growth (its austerity measures, including social benefits cut, and limitation of investments affected the recovery from a foreign trade decline (80% of trade exchange is with the EU, mostly with Germany), did not incite the citizens to join its pension reform; and although it stopped the gradual increase of annual deficits, the debt has grown considerably. Most of the economic reforms between 2009-2013 were recommended by the EU as part of EDP started with CR in 2009 with an aim to be concluded by 2013.

Regarding the Eurocrisis measures, there has been more support for the ESM (only Public Affairs, Communists, and a part of Civic Democrats were against) than for the Fiscal Compact (supported by Social Democrats and TOP 09 only), the banking union (denied by all), and the Euro Plus Pact among the political parties. Majority of political parties argued a vital dependence of CR on a healthy Eurozone, given that almost 80% of CR export goes to the EU, mostly Germany. Moreover, the arguments go, all major Czech banks are daughters of banks with the seat in Belgium, France, Austria, or Italy and so the entire banking system is closely connected to the Eurozone. From the debates, it can be seen that support or refusal of the Eurocrisis-incited plans mostly depends on whether immediate obligations follow for CR from a plan. Any plans requiring transfer of competences or financial assistance have been difficult to defend. This must be assigned to a long-term opposition to the EU integration from then President Klaus who were able to influence part of the leading right party, the Civic Democrats. The Civic Democrat PMs Topolánek and Nečas had to reconcile their position with this fraction within the party. Even the pro-European TOP 09 has been hesitant to support measures that would limit fiscal sovereignty of CR, while Social Democrats feared that any pledge to strict fiscal policies would limit their ability to deliver their promises once they win elections and form government. Various polls results indicated historically low support to further integration making any transfer of competences to the EU politically very difficult.

A general position of CR towards the Eurocrisis measures was summarized in the Government’s document of 2013[16] “Stabilisation and future of the EMU: A Czech Republic contribution to the European debate.” In the section “Addressing fiscal policy failure and non-compliance with EU rules on coordination of fiscal and economic policies,” CR emphasizes: “The basic principle of coordination should be a differentiated approach towards non-euro area and euro area countries. For the former, the existing framework of coordination of fiscal and economic policies is sufficient. For the latter, the coordination should take into account the degree of risk that particular Member State poses to the smooth functioning of the monetary union. It is possible to discuss additional options how to motivate euro area Member States threatening the well functioning of the monetary union to implement the necessary reform measures to the benefit of the whole. Member States whose economic situation is stable and their public finances sustainable should remain free to decide on their own fiscal policies and economic reform measures as long as they observe the relevant EU law. After all, they are the ones best suited and legitimized to choose the most appropriate approach.”[17]

[1] On the other hand, four former Social Democratic Deputies left the party and occasionally supported the Government.

[2] See the European Council Conclusions, Brussels Oct. 29-30, 2009, available at: http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/110889.pdf.

[3] Judgment of the Court of Justice of 21 December 2011 in Joined Cases C-411/10 and C-493/10, especially paragraph 120. See European Parliament resolution of 22 May 2013 on the draft protocol on the application of the Charter of Fundamental Rights of the European Union to the Czech Republic (Article 48(3) of the Treaty on European Union) (00091/2011 – C7-0385/2011 – 2011/0817(NLE)). Available at: http://www.europarl.europa.eu/sides/getDoc.do?type=TA&language=EN&reference=P7-TA-2013-209.

[4] Parliamentary Elections (Case Melčák) Pl. ÚS 27/09 [2009] No. 318/2009 Coll., English translation available at: http://www.concourt.cz/view/726. In general, the Constitutional Court cannot review constitutional amendments. A constitutional amendment, once enacted, changes the constitution and thus changes the referential framework for the Constitutional Court. However, according to the Court, a constitutional amendment that breached procedural and material requirements of constitutional revision (Art. 9/1,2 of the Czech Constitution), the eternity clause included, could not be considered constitutional law at all.

[5] Senators are elected for a term of six years. Every two years one-third of the Senate is renewed. Senate does not vote on a budget and on a vote of confidence (that means the Government is accountable to the Chamber of Deputies only). The Senate may veto ordinary laws (a majority of 101 members of Chamber of Deputies may override the veto; the President disposes of the same power). Constitutional laws require three-fifth majority of both Chambers.

[6] In connection with another alleged corruption (in the State Fund for Environment, due to which a Environment Minister resigned), Social Democrats called for another vote of non-confidence, which the Government survived again.

[7] Pl. ÚS 5/12 Slovenské důchody (Slovak Pensions) XVII [2012]. See Tichý, L., Dumbrovský, T. Ústavní soud ČR mezi dvěma právními řády: od interpozice k nové evropské doktríně (The Constitutional Court of the Czech Republic between two legal orders: From interposition towards new European doctrine), Právní rozhledy 2013, 21(6): 191-198.

[8] Communists formed a coalition government in 1 region, and Civic Democrats governed in 1 region (Prague – elections too place in 2010). In 2013 the Civic Democrat mayor of Prague was replaced by a mayor from TOP 09 with support of Social Democrats, thus Civic Democrats lost their last region.

[9] It complicated the position of Schwarzenberg in the presidential race, who served as a Deputy PM in the Government.

[10] Zeman was a Social Democratic PM 1998-2002. After new leaders of Social Democrats, despite left having majority, did not support Zeman in the indirect presidential elections of 2002 (Klaus was elected instead), Zeman left the party and set up his own leftist party. Zeman has had a similar influence on the Social Democratic party as Klaus has exercised over Civic Democrats even after he left the party. He has tried to exploit this support with Social Democrats and Communists voting for confidence to Rusnok Government appointed by Zeman).

[11] Zeman and Barosso also hoisted the EU flag at the Prague Castle, the seat of the President.

[12] Several high profile politicians and civil servants were arrested and charged with abuse of office and corruption, including the head of the PM cabinet and close advisor (and mistress above all) Jana Nagyová.

[13] Which was rather a result of reforms to make prosecution and police more independent on politicians than any unusual amount of corruption among state officials.

[14] Czechs Play Koruna Hardball With Unlimited Interventions , Bllomberg, Nov. 8, 2013, http://www.bloomberg.com/news/2013-11-07/czechs-play-koruna-hardball-as-intervention-triggers-record-drop.html.

[15] Očima expertů: Měnová intervence ČNB. Komu pomůže a komu ublíží? , Peníze.cz, Nov. 15, 2013, http://www.penize.cz/makroekonomika/275985-ocima-expertu-menova-intervence-cnb-komu-pomuze-a-komu-ublizi. Zeman: ČNB intervencí zpomalila vstup do eurozóny, Týden.cz, Feb. 18, 2014, http://www.tyden.cz/rubriky/byznys/cesko/zeman-cnb-intervenci-zpomalila-vstup-do-eurozony_298587.html#.UwmBYyjycqg.

[16] New center-left government appointed in Jan. 2014 has not comprehensively formulate its policy yet. As mentioned above, a certain turn can be observed with the government’s pledge to accede to the Fiscal Compact, join the banking union, and work towards adoption of euro.

[17] Government of the Czech Republic, Stabilisation and future of the EMU: A Czech Republic contribution to the European debate, April 24, 2013, available at: http://www.vlada.cz/assets/evropske-zalezitosti/dokumenty/CZ_non_paper_on_EMU.pdf.