Next Greek bailout could cost Czechs Kč 3.5 bln

Economy|Foreign Affairs
Tom Jones | 20.06.2011

Emerging from the meeting of EU finance ministers in Luxembourg on Monday, Czech Finance Minister Miroslav Kalousek (TOP 09) told reporters that as a part of the European Financial Stability Mechanism (EFSM), of which all the EU member states are members, the Czech Republic may be obliged to contribute Kč 3.5 billion towards guarantees for a second Greek bailout package.

Kalousek, nevertheless, stressed that the Czech government is very hesitant about agreeing to contribute to further financial help for Greece, which faces bankruptcy of its public finances as it struggles to meet loan and bond payments.

“If the bail-out fund for the whole European Union, in which €11.5 billion remains following the help for Portugal and Ireland, is involved, then I would advise restraint and not to agree [to fresh contributions to the EFSM],” Kalousek told reporters after the Luxembourg meeting.

The Czech Republic has already provided guarantees of Kč 7.7 billion to Portugal and Kč 6.7 billion for Ireland, though the probability of those countries failing to meet its debt obligations currently appears considerably smaller than is the case with Greece.

Nevertheless, if the Czech Republic were to vote against using the EFSM for further financial support, if the majority of member states agree, all 26 member states — including those like the Czech Republic that have not adopted the euro — would still be obliged to conform and most probably top up the ESFM’s balance.

Following talks into the early hours of Monday morning, the EU finance ministers agreed that Greece will require another bailout package. The money should come primarily from the European Financial Stability Facility (EFSF) and also private investors and possibly the EFSM. Nevertheless, Kalousek said that at Monday’s talks involvement of the EFSM was not officially discussed and that it would be up to the EU leaders to decide at the next EU summit.

Also on Monday, Kalousek echoed the assertion by Prime Minister Petr Nečas (Civic Democrats, ODS) on Sunday that if the situation arising from the Greek debt crisis worsens, the Czech government may be forced to raise indirect taxes, including VAT.

“If it leads to turbulence, we will have to reliably stabilize public finances, and of course taxing consumption is far less harmful to competitiveness than raising direct taxes,” he said. 

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