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Most economies around the world continue to grapple with the strong vestiges of the recession. The Czech Republic is no exception. But having completed only100 days in office in October, Prime Minister Petr Necas has already introduced a host of reforms to counter recessionary woes. These initiatives are purported to be some of the most austere in the European Union.
Necas, youngish at just 45 years of age, took office in June 2010 at a time when the Czech Republic was scrambling to put its finances in order. To be sure, the Czech economy was never hit hard like its peers. Exports lagged, but its banks remained on steady ground as the country was mostly shielded from foreign debt. But the Czech budget deficit was fast rising. It touched 35.4% of the GDP by the end of 2009 and was threatening to become a huge problem.
Though young, Necas did not lack experience. A PhD holder in physics, Necas became a member of the Civic Democratic Party in 1991 after serving as a production engineer and developer for electric firm Tesla. For the next five years, Necas handled NATO and defense related issues and then went on to become the Czech Republic’s first Deputy Minister of Defense. Necas continued to focus on intelligence services, security and military services until 2006 when he was appointed Deputy Prime Minister and Minister of Labor and Social Affairs.
Until then, Necas had kept a low profile. In a country infamous for its corrupt bureaucracy, Necas gained a name for himself among political circles as an honest individual untouched by corruption scandals. Necas’ predecessor Mirek Topolanek announced his resignation due to a no-confidence vote in the Czech Parliament, and Necas soon won the following elections.
Tall, bespectacled and soft-spoken, Necas pledged to curb a soaring deficit by cutting state operational expenses and welfare benefits. “This country needs a stable government, an efficient government, a government that will work on fundamental problems that threaten the country,” declared Necas in a speech after his appointment. The previous government had earlier promised to slash the number of state employees by 9% in three years, but had not succeeded. Necas went one step further. He promised to whittle the number by 10% in just one year.
Considering his past record, Necas was not boasting. He had managed to chip off various welfare benefits in 2008 and drafted policy that raised the Czech retirement age to 65. Necas has also been a friend to small and medium enterprises. As the Labor Minister, he campaigned for legislation and tax systems that favored entrepreneurs.
“If we hesitate in taking these steps then in several years time much more
dramatic measures would be needed. It is for the benefit of the citizens of
the Czech Republic to take such measures as soon as possible.”
Petr Necas, 2010
In his first 100 days as Prime Minister, Necas took the initial steps towards reducing the budget deficit to 4.6% in 2011 from the current 5.3% of the gross domestic product (GDP). This year, the country’s public debt is expected to touch 40% of the GDP, a jump of 27% from pre-crisis levels. In his typical determined manner, Necas made it clear that his aim was not just to reach a deficit reduction of 3% by 2013, the level set by the EU. His idea was to eliminate the budget deficit altogether.
In November, Czech President Vaclav Klaus approved an austerity package targeted at reducing the country’s deficit. The set of measures, which includes a 10% cutback in public sector wages and state operating costs along with multiple welfare cuts, failed to win the favor of the nation’s unions. Even before the package was approved, furious workers took to the streets of Prague in protest against salary cuts, in the country’s biggest labor demonstration in three years. State employees have now jointly planned a one day strike on December 8th in a further display of their dissent.
Yet, Necas remains unmoved. “These measures are painful but necessary. The government is aware that the steps are unpopular but is not ready to give in,” he maintained. Necas is also aware that a reduction in spending might slacken economic growth by 0.7%, according to the government’s forecast. In the long run, however, the cuts are needed to keep the economy ticking.
No doubt Necas is walking a fine line. Adding fuel to fire, Necas has already announced that another reform package, which includes key pension reforms and changes in tax, welfare, education and health systems, will be unveiled in March 2011. With such stringent measures, Necas envisions a stable economy for his country. Now, he only hopes that his country rides along with him to realize his vision.
Image Credit: From the Archive of the Chancellery of the President of the Republic of Poland under a Creative Commons license
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