Opening speech of the Prime Minister Mirek Topolánek at the European Banking and Financial Forum on 1st April 2008

Dear participants of the European Banking and Financial Forum, dear guests,

I feel greatly honoured to have an opportunity to welcome you to Prague, here in the congress hall of the Czech National Bank and to give an opening speech at this 16th forum. When going through the programme of the individual discussion blocks, I found lots of topics I am interested in and I was exposed to temptation to take part in the discussion more actively and deeply. I can calm you as I succumbed to that temptation. Allow me to say just some comments on certain topical financial and bank issues from the point of view of the Prime Minister of a small, open, successful and export-oriented country which organizes that forum - and I should add from the point of view of a proud Prime Minister – head of an institution which is on the one hand influenced by financial markets, and which on the other hand influence these markets through its activities, sometimes even in a positive way. That is why I will not make any statements, which could influence the rate of exchange.

As we are at the European Banking and Investment Forum, I will start with the issue of euro adoption, so that I would make you expectation and predictions easier, because all of you are asking about it whether it is aloud or in your thoughts. When will the Czech Republic become not only a member of the European Monetary Union, but also a user of a single currency? By way of introduction, I want to say that we will adopt euro once it is advantageous for the Czech Republic and for Czech citizens. It is important not to confuse cause and effect. Adoption of euro will be only an effect of reforms and correct measures concerning the Czech economy. Measures that will enable to adopt euro without problems are preciously those which we need to enforce and introduce anyway, so that we would have sound public finances, long-term high growth; so that we would meet not only nominal criteria but also real convergent criteria. To meet "merely" the Maastricht criteria is not enough. The Maastricht criteria are necessary condition but not sufficient condition. They are a condition necessary for accession a new country, so that it would not impair the single currency. Nevertheless, they do not guarantee expedience for the new country of the euro-zone. We must meet far more extensive set of "super-criteria" to ensure a real asset of euro for the Czech Republic. There is no space for more detailed analysis here, but it concerns in particular wages, prices, productivity, and harmonization of economic cycles and flexibility of our economy, which will make it capable of riding out a potential shock resulting from disharmony of these cycles. Owing to close link of the Czech and German economy, we must compare our economy especially with the German one. I am against hurried accession to the euro-zone. The government acts in compliance with the Czech National Bank, which assesses meeting the additional criteria annually. It is obvious that the greatest deal of work is ahead of the cabinet.

While harmonization of the economic cycles is a question of time and natural economic processes, removal of rigid matters, which hamper flexible response to the shocks of economic cycles, is a responsibility of the government. It concerns especially the flexible labour market and reduction of mandatory expense share, which restrict fiscal policy. It concerns reform connecting with aging population; I mean reforms of the health care sphere and pensions. It also concerns the public budgets discipline and confidence of people. The Czechs trust in rather anomaly strengthening Czech crown more than anytime before; it is necessary to prepare them to change.

Further topical financial issue, I would like to express my opinion on, concerns the operation of the so called Sovereign Wealth Funds, as it has connection with the decision-making process of the government. To regulate or not to regulate? Do these state funds pose a problem? Of course, it can be dangerous when sometime non-democratic regimes buy property shares in the democratic part of the world. Nevertheless, I am of the opinion that protection and regulation should apply mainly to those areas in which they already function today. That is, to businesses of strategic importance and the defence industry. But to try to prevent somebody from buying on the free market, even if it would be a Chinese state fund, cannot be effective without destroying that free market. It is just the market which is the greatest advantage of our economy. Funds that operate on it must act in a rational way and thus political interventions into fund strategies are reduced.

There is certain analogy with the oil crisis in 1970´. Not even huge transfers of money from west countries to the Persian Gulf area breached the financial balance. It was thanks to the fact that petrodollars still remained in the same banks. Only owners were changed in computers. Also in this case the financial means resulting from exports are returned to developed countries; first, it means that there is no possibility to spend them elsewhere than in the developed part of the world, second, this linkage stabilizes the world economy. That liberal and market conformal attitude does not exclude regulation in well-founded cases, as I have already mentioned.

As to the debate on the reform of the International Monetary Fund, I can just state that everybody should be able to undergo such treatment which he prescribes to the others. If the IMF was saving countries facing to problems by prescribing them a slimming diet, it must slim down itself. As the Prime Minister of the government which must do the same in its offices I know that it is not easy. But it is necessary and useful. We will definitely insist on further economies in this institution. I, as an informed laic, could speak here for hours about prospects of the world economy, about infection coming from the USA, whether it concerns rather a crisis of liquidity or a crisis of solvency, about the influence of new economies expansion on the growth of food and oil prices, and so on. But you are not likely to forgive me that. I will just summarize my comments.

The common denominator of my speech is combination of "less regulation" with "free market". A well-functioning free market will cope with euro, it will make it possible to utilize its benefits and reduce its disadvantages to minimum. It is precisely market that attracts so called sovereign funds to our country – not the other way round. The capital is attracted by the better part of the world not by the worse one. Therefore, do not let us to adopt the reality of those countries the financial means are coming from. Do not let us destroy the market, that precious tool, by regulation. Do not let us believe in existence of a better regulation. Better regulation is better than overregulation. But no regulation is better than better regulation. And finally, also the IMF must try the free market, as the IMF is responsible for its promotion otherwise, it can be flooded, as a spouting volcano, by its own eruption. In the very conclusion, I will share a seemingly paradoxical experience. To ensure really free functioning of the market, the government must exert a lot of bureaucratic efforts.

I wish you a pleasant stay in Prague, full of discussions. If you are here, try to notice that the Czech Republic has been and will always be an ideal place for your investments. If you have come here to discuss, it is excellent. If you have come to spend big money - do it; you have chosen the right place. And if you want to invest really big money, stay here. Have a nice day.