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EU agreement is good news for the Czech Republic according to analysts

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According to the analysts, the agreement on the recovery fund and the multi-annual EU budget is good news for the Czech economy. Although money won’t affect the development of the Czech economy this year, according to economists, it is still a significant aid of about 11 percent of the Czech gross domestic product (GDP). At the same time, economists pointed out that the Czech Republic will remain a net recipient of EU money thanks to the agreement. And the fact that the EU borrows money can lead to more efficient redistribution and management of EU money.

After four days of negotiation, the European Union leaders agreed that the EU states would be able to start drawing 750 billion euros (about 20 trillion crowns) from the reconstruction fund from January, with 390 billion euros of this amount being grants and the rest of the loan. The Czech Republic will receive 8.7 billion (over 230 billion crowns) in subsidies from the new fund, which Prime Minister Andrej Babiš considers a success.

The money to help the economies will increase the EU budget’s value for the period 2021-2027 to more than 1.8 trillion euros. The European Commission will borrow money in an unprecedented way in the financial markets. In the next seven years, the Czech Republic should draw 35.7 billion euros (approximately 950 billion crowns) from the EU budget increased by the crisis recovery fund. It will thus improve by almost four billion euros compared to the ending seven-year period.

“The approval of the agreement and the EU budget for the next period is positive news for the domestic economy, as the total amount of funds going to the Czech Republic will be higher than in the original proposals,” said ING chief economist Jakub Seidler. However, he pointed out that the money in the rescue fund will not be available until January next year, so it will not enter the economy until the middle of next year. “So the rescue package will no longer help to restore GDP this year,” he added.

According to Seidler, the Czech Republic can obtain over four percent of GDP from direct subsidies and over seven percent of GDP in loans from the recovery fund alone. “Overall, the support will exceed 11 percent of GDP, which is already a relatively significant amount, although it will be drawn over several years and can not be used completely arbitrarily,” he said. He added that although the EU will borrow money on the market and have to repay it gradually, the Czech Republic should repay a smaller part in proportion and thus be a net recipient.

“In the Czech Republic’s case, it will be significantly more aid from the EU than the government’s previous steps, which ended mainly with promises,” the director of the Starteepo group, František Bostl, told ČTK. However, according to him, it is soon to make judgments about how positive or negative the report on the recovery fund is.

According to Deloitte’s chief economist David Marek, it is essential for the Czechia that the renewal fund was eventually adopted, albeit in a compromise form. “From the point of view of the Czech economy, the primary point is that the recovery of European economies can be faster and more significant thanks to this fund.

“A common approach is often better than uncoordinated measures that favor companies from one country over another. It would be a great pity and economic loss not to take advantage of this opportunity. But we must have meaningful and smart investments ready,” said Raiffeisenbank chief economist Helena Horská.

However, according to her, the Czechia does not have a good reputation when it comes to drawing subsidies. “We do not have projects ready. The EU will also promote green investment in the fight against climate, which should go to one-third of the support. If we cannot use the maximum aid offered, it will cost us not only billions but also jobs and opportunities,” she said.

According to Natland analyst Petr Bartona, the agreement is primarily a rescue of the euro as a currency. “As economists have warned, without budget transfers, the single currency is difficult to sustain after depriving individual countries of the opportunity to remain competitive by adjusting their currency value. It will be crucial for the Czech Republic will go to large projects, “he said.

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