Czech PM warns national public budget deficit could double on EU fund problems

Czech Prime Minister Petr Nečas has warned that the country’s state deficit could more than double to around 6.0 percent of Gross Domestic Product (GDP) this year in the worst case scenario of the European Commission freezing payments to the country because of misgivings about how the cash has been used.

Nečas, chairman of the center-right Civic Democrats (ODS), made the warning after a meeting on Thursday morning with EU Commission president José Manuel Barroso in Brussels following on the informal summit in the Belgian capital the day earlier of EU government leaders.

‘If the worst case scenario becomes reality and all of the [EU] payments were halted, the public finance deficit of the Czech Republic would jump as high as 6.0 percent of GDP...’

“The risk is great. If the worst case scenario becomes reality and all of the [EU] payments were halted, the public finance deficit of the Czech Republic would jump as high as 6.0 percent of GDP, which would amount to the total destruction of the government’s consolidation strategy,” Nečas said in answer to questions in a joint news conference with Barroso.

The Czech government is this year targeting a public deficit of 3.0 percent or just below with tax rises and other public spending measures already making it deeply unpopular in the country. That target is, however, overshadowed by the European Commission’s serious doubts about how some projects promised EU funding have proceeded in the country.

A self-imposed freeze on claiming cash from Brussels was imposed by the Czech government at the end of March as a preemptive strike to prevent the step being taken by European authorities. The freeze focuses on programs jointly funded as part of the EU’s European Regional Development Fund and Cohesion Fund that broadly aim at reducing regional wealth and development disparities across the continent.

In the meantime, the Czech government is trying to re-set its procedures and auditing mechanisms to try and convince the EU that promised cash for ongoing projects should be released in the future.  Nečas said that the progress on meeting Brussel’s concerns about use and supervision of EU funds is the subject of weekly government meetings to take stock of how much progress is being made. An end of June target for trying to win Commission approval for a new framework of program financing supervision was set when the Commissioners for Regional Policy (Johannes Hahn) and Employment, Social Affairs and Inclusion (László Andor) were last in Prague, in March.

Czech Finance Minister Miroslav Kalousek (TOP 09), who has been engaged in a war of words with the main left-wing opposition, the Social Democrats (ČSSD), and the regional governments where the party is mostly in power and put together most of the Czech claims for EU funds, tried to downplay Nečas’ comments on Thursday, stressing the threat to the government’s target of squeezing the public deficit to zero by 2016 is still hypothetical.  He added that the Czech prime minister was mainly seeking to give a rounded picture of the problem.