Outside the eurozone and away from the worst of the world financial crisis, the Czech Republic appears a reluctant and ill-equipped pilot to chart the EU through a crisis-scripted economic agenda over the next six months.

Prague was dismissive of the first steps to tackle the crisis. Although the tone has changed, reserves over coordinated action to jumpstart EU economies and impose new regulations are still evident from a government whose main reference point is its own domestic reform programme and national budget.

"Our government was slow to realise the impact of the crisis but it has come round now to see it is bigger and can last longer," commented David Marek, chief economist with the Prague-based stock brokerage Patria Finance.

Even so, Finance Minister Miroslav Kalousek gave a tepid initial reaction to the European Commission's proposed 200 billion growth package. The main welcome was for the opportunity of easier access to EU structural and social funds, but he cast doubt on Czech willingness to come up with the national funds that are at the core of the plan.


In economic terms, the coalition government, dominated by the right-wing, low-regulation and, ostensibly, pro-business Civic Democratic Party (ODS) has been bolstered in its conservative, largely non-interventionist stance by relatively strong economic growth, low unemployment and a strong currency. The rosy results are only just beginning to lose their shine but recession' is still a foreign word.

Furthermore, there has been no threat of the bank failures that have blighted other European countries. Czech banks, it should be pointed out, were subject to major state bailouts starting in the late 1990s to purge their books of the disastrous results of crony capitalism', when managers approved loans to their friends regardless of whether they could pay back the cash or had assets that could cover them.

The foreign-owned banks that bought the cleansed remains concentrated on the flourishing local loans market and carried out dealings in new-fangled derivatives at sites outside the Czech Republic.

Despite the government's reluctance to be swayed from its original pro-competition Presidency priorities, there is some optimism that the Czech Republic can grapple with some of the causes of the crisis if not the crisis itself. These causes include the breakdown in regulatory coordination between member states and clear flaws in capital adequacy and other...

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