Prime Minister M. Topolánek's speech at the European Union's summit in Brussels
To begin with, I would like to thank European Commission Chairman José Manuel Barroso and French Premier Francois Fillon for their invitation. Firstly, I would like to discuss in general the efforts to minimize the effects of global instability in the financial sector. The government of the Czech Republic understands that countries directly affected by this instability must take steps leading to a return of confidence in financial institutions. We are aware of what the impacts on economic growth and employment would be if the crisis were to persist. Not just in affected countries, but implicitly for us as well. I would like to state beforehand that the Czech financial sector is healthy and stable.
Despite this, allow me to make several comments from the Czech Republic's position that express fears of the impacts of possibly premature decisions motivated by the efforts of governments to intervene radically. Especially when these are selective decisions taken without a common approach from the entire EU.
First: We perceive any loosening of the Stability Pact as a direct threat to confidence in the eurozone and as a dangerous precedent for the future. A breach of financial discipline threatens the long-term stability and credibility of the financial sector and the project of the common currency. In this, the Czech government is united with the Czech National Bank as well as with leaders of important financial institutions.
Second: Massive public support provided by certain governments to the financial sector will have a domino effect and essentially mean nothing less than an export of the crisis to countries that are not affected. This political decision motivates citizens to shift their resources to other banks regardless of whether or not they are healthy, but rather on the basis of publicly-declared state support.
Third: I refuse the oft-repeated thesis that financial instability is a failure of liberal capitalism. On the contrary. It is a fatal failure of market intervention. It was state support for mortgages that led to them being used in large numbers by people who were financially incapable of repaying them. And under the impression of this state support, financial institutions risked far more than was healthy and provided these badly-secured loans. The current bank nationalizations are de facto continuing in this irresponsibility because they sample the business risk of these institutions and replace it with state trusteeship.
Fourth. I cannot remain quiet when the trillions devoted to the rescue of irresponsible acts carried out by financial institutions will come from the pockets of all taxpayers, including the labour of people who will pay for the errors of big executives. Governments will have to take these gigantic assets from somewhere. Either they will go further into debt or they will have to limit public services.
So much for our concerns. Otherwise, it is of course true that the Czech government as well must react somehow to the current situation. In keeping with recommendations, the government has proposed an increase in deposit insurance from the current EUR 25,000 to double that and without a deductible. Essentially this is to a large part a financial and exchange rate correction of the original amount set in 2001.
Of course, we do not see future crises being anticipated by further regulation, but rather by liberalisation. In keeping with our programme announcement, we are continuing with labour market liberalization, with removing bureaucracy and improving the business environment, simplifying the tax system, with social reform and the preparation of pension reforms. Last but not least, in the increase of public support to education and the support of private investment to education, science and research. All these steps lead to the maintenance of the highest possible economic growth even in the event of cyclical fluctuations and crises. I believe these reforms could serve as an inspiration for other member states. Regulation does not increase, but rather decreases the European Union's competitiveness.
With this, we get to the second part of my speech, to the "Climate-Energy Package." You know quite well that we previously had serious reservations about certain planned measures. Especially in emissions permit auctions. Also, that increases in limits with in the proposed form did not reflect the behaviour of the rest of the world, in states such as China, India, Brazil, Russia and the USA. There is currently the threat that the benefits of a climate-energy package for the environment will be minimal (if someone does not join us, then our 20 % emissions cut will make up only 3 % of world production). But the impacts on the competitiveness of European industry will be fatal.
If the only outcome of the new legislation is that pollution sources shift a couple of kilometers beyond the EU's borders, to countries where such strict limits are not enforced, this is certainly not in our interest. Europe would only lose more jobs – with all the social impacts – but from an emissions standpoint nothing positive would occur. Therefore it is necessary to push for a worldwide approach to cutting CO2 emissions. Using only renewable sources will not solve problems with energy. One of the possibilities of how to fulfill limits from the climate-energy package and not break EU competitiveness is to develop nuclear energy. It is a low-emissions, safe, stable and inexpensive resource. I am glad that a discussion is at least starting on this topic, that nuclear energy is no longer a taboo topic in Europe. Nonetheless, a number of states - and the European Commission itself - are not prepared to openly support the atom.
The acceptance of a climate-energy package without changes and without a concurrent renaissance in nuclear energy would require an enormous investment into the energy and processing industries as well as into dependent sectors so that proposed limits would be adhered to. Moreover, if the emissions certificate auctions start off in full immediately in 2013, additional resources necessary for investment into low-emissions technologies would be drawn away from the energy sector. In contrast to other EU countries, the Czech Republic fulfills the Kyoto Protocol. However, we need more time for our industry to adapt to the new requirements. The situation will be especially critical for energy-demanding sectors. Cuts in employment will also occur in a number of subcontracting companies. A number of employees, especially in old member states, are already convinced that companies are very carefully analyzing costs. While in the past they moved their factories because of cheaper labour, in coming years it could be for reasons of lower production costs in countries outside the reach of the European climate-energy package. A positive impulse for sectors working on renewable energy resources and in the sector of green job opportunities will not replace this dropout. The aforementioned sectors will long remain marginal on the European labour market.
For this reason, in our opinion it is necessary to pass new legislation in cooperation with the producers that will be affected. Today leaders of threatened companies are requesting my help either in pushing for a gradual start to securitised emissions certificates in electrical energy, or in the cuts in the high fines for exceeding tough limits in the case of the automobile industry. Or for assorted domestic subsidies, but these run into European legislation in the area of the internal market, which I would very much like to adhere to.
The social impacts of the package should not be overlooked either. A price increase in all forms of energy including electricity will be very strongly felt by a number of citizens. It will lead to an overall increase in price levels. Higher inflation will have impacts on people with low and medium incomes, on families with children, on pensioners, the handicapped, the unemployed and other disadvantaged groups. In discussions about the economic package we should not forget that 2010 will named the year of the fight against poverty. The poor in general favour cheap things, not things that save the environment, and it is an unfortunately sad fact that higher prices have a far stronger impact on socially weaker EU citizens than on richer ones.
It is this more vulnerable majority of citizens that joins both parts of my address today. In the case of instability on the financial markets as well as with the climate-energy package, it is true that the poor would pay primarily because of ill-considered steps. We must find a reasonable measure of compromise. We must find a compromise that returns credibility to the financial sector. We must find a compromise that helps the environment and does not undermine the EU's competitiveness. In both cases, this is also about the kind of influence our decisions will have in a wider context. While public support for banks in certain countries transfers the crisis to other states, the acceptance of the climate-energy package without coordination with the rest of the world on the contrary will drive industry away from Europe and at the same time not help to cut worldwide CO2 emissions.
I believe therefore that governments of EU member states and the European Commission will act not only with courage, but also with discretion.
