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32 I Companies & Markets bne September 2022
The second major challenge related to energy that the government faces is how to manage the cost of living crisis caused by rising fuel bills. Unlike its neighbours, it believes in neoliberal shibboleths about not interfering in the market and keeping budget expenditures low. This has meant that it has been reluctant to impose price caps (as in Hungary) or to throw money at energy customers (as in Poland).
It is still working out what kind of aid to give to consumers, though it is likely to be a one-size-fits-all payment, rather than a progressive one linked to need, as international financial institutions have recommended.
The government’s hesitation on splashing the cash is due to its concerns over the ballooning deficit. After ripping up the 2022 budget passed by Babiš‘ outgoing government, it made a huge fanfare of announcing one with nearly
a CZK100bn lower deficit. Now it has been forced to widen the deficit by CZK50bn again, blaming the Ukraine war, though in reality it is its refusal to raise taxes that has made the deficit bulge again.
At the same time it has left itself wide open to charges from Babiš – who is likely to announce his candidature for president this autumn – that it is being niggardly about helping consumers, while at the same time being overly generous in helping Ukrainian refugees. This is a trope that populists across the region are now beginning to rehearse.
Taking away the blindfolds
But there are also even more fundamental challenges the country faces. Recent Czech governments have taken a very half hearted attitude towards fighting climate change, and the country remains one of the worst greenhouse gas polluters per capita in the EU.
Public opinion is still ambivalent about climate change compared to Western Europe, encouraged by the fact that several political parties – notably the ODS – continue to downplay the problém. This is slowly changing: From 42%
of Czechs not worried about climate change in 2016, now 28% are not worried, but this still makes Czechs among the most relaxed about climate change in Europe.
A succession of droughts and floods and now a devastating fire in the beautiful Bohemian Switzerland region are now gradually opening Czechs eyes to the fact that climate change is a very real threat.
Even Fiala admitted as much to CNN this week: "I would have to have blindfolds on my eyes and not to think with reason
– which would not be right wing at all – if I did not see that climate is changing in a certain way and that all of Europe copes with fires caused by extraordinary heat."
Popular blogger Karel Patak (known as Visegrad rider) told bne IntelliNews that with the ongoing blaze “climate change has for a little while made it to the top of the interest list of
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the Czech electorate”, and that normally it would have been there for a long time had not the “populist, extremists as well as some coalition parties turned denying the impact of climate change” into an ideology.
“Hopefully Fiala’s awakening will last and won’t disappear with the containment of the last flames in the Bohemian Switzerland. There has been too much fossil hypocrisy already,” added Patak.
Fourthly, there is also a need to seize the opportunity of the EU’s Green Deal to shift Czechia from an old assembly line model of development, based on energy-intensive heavy industry – especially petrol engine cars – and attracting foreign investment through low wages and taxes and generous incentives.
“Hopefully Fiala’s awakening will last and won’t disappear with the containment of the last flames in the Bohemian Switzerland. There has been too much fossil hypocrisy already”
Over the past 25 years this model has helped bring the country close to the EU’s average GDP per capita on a purchasing power basis but convergence has now virtually halted and has actually gone backwards because of the coronacrisis. Czechia’s GDP per capita (at purchasing power standard) as a percentage of the EU average fell from 93% in 2020 to 91% last year.
The old model has reached its limits and is now challenged by rising energy prices, climate change, competition from lower-cost developing countries, as well as automation and the digital revolution – where Czechia ranks well below the EU average in the EU’s Digital Economy and Society Index.
The country needs to move into more higher value-added industries, such as green techologies and e-mobility solutions. However, until now politicians have just given lip service to this idea. The government’s targets for renewable energy and reducing greenhouse gases have been regularly criticised by the EU for lacking ambition. Incentives for green energy investments and electric vehicles are also very low compared to the EU average.
Fiala’s ODS seems to have an ideological block on this subject, stemming from the continuing influence of its founder, Vaclav Klaus, who has subsequently come out as a climate change denier and now openly supports Germany’s