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Vol 2, No 39
13 November 2000
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EC Progress Reports 2000EC 2000 Progress Report on the Czech Republic
Andreas Beckmann and Kazi Stastna

On 8 November 2000, the EC handed out its annual report cards, the "Regular Reports from the Commission on Progress towards Accession," to the applicant countries on their acheivements and shortcomings in preparing to join the August European body. The overall results for the Czech Republic can be summarized as B minus: satisfactory progress, with considerable room for improvement.

It was not much of a surprise, really, for anyone who has been following developments in the Czech Republic over the past year. Indeed, the only astonishing thing about the Report has been the surprise it has provoked among Czech politicians and media.

Kudos and criticism

The Report roundly praises the progress that the Czech Republic has made in grooming itself to wed Europa. The creation of a fast-track through Parliament for EU-related legislation and closer cooperation between government and legislators on EU matters have paid off, with the Eurocrats praising the substantial progress the Czechs have made in bringing Czech laws into line with EU norms.

Whereas last year, legal approximation was seen to be grossly behind schedule, this year, hardly any of the 29 acquis chapters lacked progress, and areas such as data protection, intellectual property and telecommunications, which were explicitly criticized last year, were commended in this year's report. The "piecemeal approach to the alignment process" so heavily criticized in 1999, seems to have finally turned into a more mature, consistent strategy reflected, in the words of the EC's ambassador to the Czech Republic, Ramiro Cibrian, "horizontally" across sectors.

Prague's efforts on behalf of the Roma minority, which received broadsides from Brussels last year—especially since the release of last year's report coincided (almost to the day) with the building of a wall separating Romani and non-Romani residents in a north Bohemian town—earned honorable mention in this year's report. Likewise, the establishment of 14 new kraje, or regions, the third tier of government, the new assemblies of which will begin meeting in early 2001, was noted as a significant step on the road to EU membership.

Economically, the Progress Report says, the Czech Republic is looking more hale. Dead in the water a year ago, the Czech economy is beginning to stir, while inflation has been kept on a short leash. The banking system has been largely privatized, at long last, and some steps have been made to put state-owned industries into private hands. A significant improvement came in the form of a subtle adjustment of phrase so typical of the Eurospeak found in the annual Progress Reports: the Czech economy was rendered capable of dealing with competitive pressures in the near term, rather than the medium term indicated last year.

These are well-deserved marks, particularly for the minority Social Democratic government, which was more or less left holding the bag after years of foot-dragging on reforms by the previous governments of former Prime Minister Václav Klaus.

This said, there is still significant room for improvement, according to the Eurocrats. The economy is one area where structural reforms still need to be completed, with specific emphasis placed on implementation of new bankruptcy procedures, transparency of business environment, corporate governance, the banking sector and sustainability of fiscal policy. Supervision of the financial sector is still insufficient and its strengthening is identified by the Commissioners as "crucial." Too many large enterprises are still in state hands, threatening the longer-term health of state finances and harming the competitiveness of Czech industry.

Although the Commission conceded that the overall business climate has improved, market entry and exit have not been functioning sufficiently well, with business registration still a lengthy and uncertain process. Small and medium-sized enterprises were specifically identified as in need of support.

Unequivocal criticism came with respect to a controversial amendment to the Czech National Bank law that is to come into force next year. The law has been vastly criticized for threatening the central bank's independence by insisting on government and parliamentary approval of the bank's governors, board and policy. Thus, the fact that the Commission has stated—black on white—that the law is "incompatible with the Treaty" is a significant sign.

Some you win, some you lose

With regard to the environment, substantial progress has been made, the Report says, but key framework legislation on air and water, for example, has still not been adopted. A longer-term system for investment into the environment has yet to be established, and more training and resources are needed.

However, the two areas most in need of major surgery, according to the Commission, are the judiciary and public administration. The creaking Czech judicial system has still not been overhauled, limiting progress, for example, in the fight against corruption. Hardly any progress has been made in reforming the state administration.

In his presentation of the Report, Ambassador Cibrian identified these two areas as the country's top two priorities for the coming period—and with due reason, as they impact heavily on other problem areas and are undoubtedly directly responsible for some of this year's less-than-admirable grades in other sectors.

On the question of civil service reform, Cibrian stressed that the EU will not provide or insist upon a specific methodology but that it is expected that at the end of the day, the Czech Republic will have a functioning civil service characterized by professionalism, independence, competence and stability—Ramiro has obviously not been to renew his residency permit yet this season.

On many issues, implementation—rather than legislation—is identified as the main obstacle. This is particularly evident in the fight against corruption and economic crime, where cooperation between law enforcement and institutions was seen to be nonexistent and resources and trained personnel lacking.

Out for the grade

The reaction of Czech politicians and media to the Reports may reveal as much about the readiness of Czech society—or at least of the Czech elite—to join the European Union as the Reports themselves.

Despite the court system and civil service being identified as the most serious of the country's ills, it was the Report's economic assessment that the Czech politicians and media seized upon in the days following the Report's release (perhaps because it is easier to say "but look at our GDP!" than to extol the efficiency of the Czech court system or the professionalism of the state's bureaucrats).

When Ramiro Cibrian, in his usual understated way, announced that this year's assessment of economic criteria may be "a little bit of a surprise" for some, he wasn't kidding. Judging by the reaction of the country's top politicians, one would think that Brussels had committed betrayal of the highest order. And, in fact, that very word did appear in the Czech press with respect to the economic ranking given in the Report.

The incriminating paragraph that caused all the fuss is to be found not in the Czech Republic's actual Progress Report but in the "Enlargement Strategy Paper," which outlines the EU's general policy on accession and compares the progress of each of the candidate countries.

The concluding paragraph of section III.2b makes a summarizing statement about the fulfillment of economic criteria of the main candidates, identifying Cyprus and Malta as functioning market economies able to cope with competitive pressure of market forces in the Union; Poland, Hungary and Estonia as functioning market economies that should be able to cope with competitive pressure of market forces in the near term; and the Czech Republic and Slovenia are regarded as functioning market economies that should be able to cope with competitive pressure of market forces in the near term providing they complete and implement remaining reforms.

A fairly accurate assessment that doesn't differ radically from last year's, in which Cyprus and Malta were considered full market economies; Hungary, Poland, Slovenia and Estonia had made significant progress; and the Czech Republic had an economic situation that gave "rise to concern." In fact, Czech Republic actually came out significantly better this year—having "caught up" with Slovenia.

The view from the top

Alas, this was not how the Czech elite saw it. Prime Minister Miloš Zeman described the entire Report as "strange, contradictory and a bit comical," while Foreign Minister Jan Kavan questioned the ranking's validity, alleging that it was not backed up with proof but was rather someone's "political opinion." Trade and Industry Minister Miroslav Grégr also questioned the assessment's objectivity, and even President Václav Havel admitted he was "disturbed" by the third place ranking. Not to be outdone, Chairman of the lower house Václav Klaus dismissed many of the Report's evaluations as "exceptionally insensitive" and "very subjective" and described the implication that Poland and Estonia have a better economy than the Czech Republic as a "joke" that "no one can take seriously."

Despite Ambassador Cibrian's attempts to allay fears and point out that the ranking was of "limited value" and the difference between Poland and Hungary and the Czech Republic one that is "relatively unimportant" and would "rapidly vanish" if structural reforms continue. His reassurance that this was but one criterion of accession and that, for example, although Malta was in first position economically, it had not opened even half of the acquis chapters, including some that have already been closed by the Czech Republic, fell on deaf ears and the issue was soon turned into one of national pride. The Czech media began parading out the GDP statistics and scientifically demonstrating that it was all just a matter of Brussels's own brand of preferential politics.

EU Enlargement Commissioner Günter Verheugen was so baffled by the reaction that he made a statement expressing his confusion at the negative reaction and stressing that there was no reason whatsoever for concern on account of the ranking. Unfortunately, he also mentioned the fact that if anyone is responsible for the economy's lagging behind other candidates, it is Václav Klaus, who in his terms as prime minister delayed restructuring of industry and the banking sector. Predictably, this set off another litany of invectives, with Klaus accusing the Commissioner of interfering in his Civic Democratic Party's election campaign for the 12 November Senate and regional elections.

Ironically, it was the finance minister, Pavel Mertlík, who was least disturbed by the third-place ranking and was the only one who did not find the assessment unjustified or inaccurate. But amidst the arrogant grandstanding of his fellow cabinet ministers and parliamentarians, this irony was not picked up on by the media.

In fact, as is often the case in the Czech Republic, ironies abound: on the day of the Report's release, the government voted to prolong the mining of uranium two years past the previously agreed-upon deadline, in effect reneging on an agreement made with the European Union to phase out such mining in 2001.

Why the surprise?

Only the most obtuse could have failed to recognize over the past year the all too obvious flaws on the Czech Republic's record of achievement.

The Czech banking system virtually collapsed, pulled down by mountains of bad debt (26 percent of GDP, the Progress Report notes) and outright corruption. Major fraud was discovered at the country's largest—and last state-owned—bank, Komerční banka, postponing its privatization until 2001, the country's credit unions collapsed and the third largest bank, IPB, had to be bailed out and sold off by the state.

The Czech gift for innovation was underlined by businessmen-"tunnelers" (the latest quirky Czech contribution to the world's vocabulary, after "defenestration" and "robot"), who cannily exploited vague legislation and lax controls to hollow out firms from the inside out. A string of political scandals came to light, but have still not been cleared up.

This has all given plenty of reason for concern. But even more disconcerting has been the almost complete failure of control mechanisms. In case after case the Czech police, judiciary and, ultimately, decision-makers have been at best unable and at worst unwilling to come to grips with these problems. Notably,
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the Report stressed that precisely such a stronger supervision of the banking sector could have prevented the need for state intervention in the collapse and sale of IPB. The government's so-called Clean Hands campaign has precious little to show for two years of rhetoric—not even the clean hands of those who launched it in the first place. It was dealt a severe blow in the Report, which, in this case, was forthright in its assessment: "There has been no substantial progress in the fight against corruption and organized crime."

Anyone who has had the pleasure of applying for a work permit or visa, for example, knows large areas of the state administration remain a skansen of the Communist period. In the halls of the Foreigner Police, responsible for handing out visas to people such as this very correspondent, Brussels still seems very far off, indeed.

Spitballs from the back row

Much of the Czech political establishment, it seems, has lost its sense of perspective and its capacity for critical self-reflection and self-responsibility.

The whole point of preparing for accession to the European Union is not jumping through hoops and winning the prize, but self-improvement-achieving the standards for membership in the European body, from economic prosperity to a clean environment and an accountable civil service.

The general reaction to the 2000 Progress Report by the Czech political establishment (a reaction clearly fueled by imminent elections to the Senate and new regional assemblies) was one of fury at the slight made to Czech national pride rather than any deeper reflection.

Rather than be pleased by the kudos and ashamed by the criticism, many preferred to throw spitballs from the back row of the classroom. In the process, they showed just how far from Europe they really are.

Andreas Beckmann and Kazi Stastna,
11 November 2000

Also of interest:

Moving on:


Sam Vaknin
Retarding Development

Jana Altman
Czech Media Crisis

Mel Huang
Dubya and CEE

Patrick Burke
Détente from Below

Delia Dumitrica
A Woman's Place

Jan Čulík
Mean Meter Maids

EC Progress Reports:
Czech Republic

Media Reactions: Austria & France

Benjamin Halligan
The Slowness of Andrei Tarkovsky

Petr Zídek
Mnichovský komplex

Martin D Brown
Czech Historical Amnesia

Dejan Anastasijević (ed)
Out of Time

Gusztáv Kosztolányi
Hungarian Oil Scandal

Sam Vaknin
After the Rain

Press Reviews:
Andrea Mrozek
Fish and Red Tape

Oliver Craske
A Means and an End


Mixed Nuts

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