Generali SpA


    Interview with Miroslav Singer: Euro is no motivation for the Czech Republic

    Targeted interventions kept the Czech crown at lower levels in recent years, which was criticised by politicians yet welcomed by experts. The policy of a weak Czech crown was defended by former Governor of the Czech National Bank and current Chief Economist of Generali CEE Holding, Miroslav Singer. Within the TASR project – “Personalities: Faces, ideas” - he explained in an interview why euro is not attractive currency for the Czech Republic, why the debate about belonging to the core of the European Union is just a political gesture and whether any debt brake is required in the Slovak Republic and the Czech Republic.

    You took up the position of governor in 2010. At that time it seemed that the Czech economy had passed the worst times. Did you expect at that time that you would have to face problems in the economy?

    We were prepared that these problems could come. The second economic downfall followed not only in our country, and the weakness of the economy in 2010 was not that perceptible. At that time, we had to live with the risk that the downfall may be repeated.

    In this period, inflation in Europe started to decline to zero level. Later, it decreased even lower and became deflation. At that time, you considered interventions to weaken the Czech crown to support the economy. Was this the most difficult decision-making in your position?

    No, it was not. Intellectually it was a relatively simple decision. Since 2011 we were discussing what to do in the situation if the economy was nearing deflation. To weaken the currency as an impetus for the economy is a textbook example.

    In your book “How to lose weight and weaken the crown” you stated that you had wanted to accept the decision to intervene against the Czech crown even before November 2013...

    We had voted about this twice with no success. Well, having the advantage of retrospective view and with respect to the development in Europe, I can say today that this decision should have been accepted earlier. However, everybody is a general after the battle.

    Was there a major risk that deflation could make harm to the Czech economy?

    The Czech economy, unlike the Slovak one, got into a period when both companies and households started to save significantly. Income did not rise, but savings in banks had grown by one third in five years. Slovakia at that time stimulated the economy by fiscal measures and consumer fever never subsided in your country. That is why you could also simply overcome the period of deflation. Plus - you did not have any economic tool to face the deflation.

    How do you retrospectively perceive the period of the weak Czech crown? Was that a wise move?

    What we had expected from this decision was fulfilled. Even more than we anticipated, as confirmed, by the way, by many studies dealing with the currency rate as a mean to stimulate the economy. In particular in the gross domestic product, this decision brought more benefits than expected.

    Stimulation helped Czech export significantly. According to the Association of Exporters, these interventions brought more than CZK 700 billion to them directly, and indirectly nearly CZK 600 billion. Did this confirm your expectations?

    From the perspective of exporters, it was a wise move. Paradoxically it was also a wise move for importers. With the growing export, also imports were rising. In 2014, the first year of interventions, imports grew by 14 % on a year-on-year basis. The weak crown pulled the economy from the state of gradual freezing and re-launched it.

    Does the economy already work well at present?

    At present, the economy is in a totally different situation. When travelling by metro, I can see a phrase which I had not expected to see any more after the fall of the communism – the recruitment allowance. The Czech economy suffers in particular from the lack of labour force which is, in its way, a pretty nice problem.

    The policy of the weak Czech crown was often criticised by politicians. For example Miloš Zeman said that in his view it was “illegal doping”. Have the results confirmed your opinion?

    I do not see any sense in the phrase “illegal doping”. The monetary policy should stabilise the economy over the period of the economic cycle and it has been operating in this manner since the Czechoslovakia was established.

    You mentioned also the phrase recruitment allowance (contribution) and the issue related to the lack of labour force. Slovakia has to face a similar problem. What do you think, how can this problem be solved?

    Wages have started to grow. Companies, which will fail to adjust themselves to the growing wages, will have to decrease their production and release the redundant people to the labour market. This problem can be solved easily by self-development.

    In Slovakia there were many discussions regarding the historically first strike since VW Slovakia entered the market in the country. Trade unionists enforced an increase in wages and the question whether this growth in wage costs will not harm competitiveness of Slovak companies is currently discussed. How do you perceive this from the perspective of the Czech economy which is facing the similar development?

    Such concerns are not in place in the period of a record-breaking low unemployment rate, I remember a similar situation in 2005 and 2006. Exporters used to come to us saying that there were two things they were concerned of: too strong currency rate of the Czech crown and failure to get people. I told them that if the currency rate of the Czech crown was too strong, there would be nobody to produce for, as they would not be able to sell their expensive products, and, therefore, they would not have any problems with the lack of people. This all will be solved when companies not able to remain competitive have been excluded from the competition under these circumstances due to the fast growing wages. As far as VW is concerned, what matters is the proportion between the wage and total costs – and this proportion still is not too high. And as the Slovak unionists have discovered, the management toleration to this pressure is pretty high.

    Czech and Slovak enterprises belonging to international concerns such as VW rank among the best within these holdings. Qualified labour force is still an advantage. Are you not afraid that we may lose the people?

    I am rather afraid of something else. I am not familiar with the situation in Slovakia but in the Czech Republic we are not successful in getting mathematics back into the educational system to a greater extent. Qualification means also ability of people to think and work with numbers. This is a long-term issue. Growth in wages in corporations does not mean that they should leave the Czech Republic or Slovak Republic. This could have an adverse effect only in case if they were considering some further expansion.

    In the Czech Republic it is occasionally discussed whether to keep the Czech crown or to adopt euro. The Czech National Bank is a bit reserved in this matter...

    Reserved attitude is understandable, as the Bank is the object of such decision, rather than the subject. Not even carps can decide whether they like Christmas or not. Behind this reserved attitude, there is a position that it is not obvious that adopting Euro would bring any extraordinary benefits to the Czech economy. Euro is a major change offering relatively little positive points for the Czech economy. However this is the reason why the mentioned discussion is only theoretical. In practice we ask – what will we gain by adopting euro? In our country, changes in the currency rate by 5 – 7% are perceived as something dramatic. However this underlines how much the currency is stable. In Slovakia, at the end of the Mečiar’s period, the rate dropped by one third. At that time everybody can think that probably a new currency would be a good option.

    Was this also the reason for the Slovak Republic?

    Exactly. As well as determination of several political garnitures in succession to meet the obligations related to the access to the Euro zone which is positive. In the Czech Republic you can hardly motivate anybody by implementing euro, as nobody can see any positive changes it could bring.

    Did euro help Slovak economy?

    We must yet to wait for responsible evaluation. When I was still governor, I agreed upon this with my colleagues from the Slovak National Bank. It is not clear yet, in which direction the development in the Euro zone will go and how the crisis situations coming from Greece to Spain and Italy will be solved. When this is clear, the time to assess the development in Slovakia will also come.

    At the European level, discussions take place about the future of the integration. There are talks about the multi-speed EU. Slovak Prime Minister Fico has several times declared that Slovakia should belong among the core of the EU. Do you think that Central-European countries such as Slovakia, and the Czech Republic should belong among the countries deciding the direction and setting of the EU?

    I was listening to this debate for more than 11 years at the negotiations of the Czech government. In fact, it is more a political slogan than actual reality. The reality is that either the EU is driven by big countries or it is not able to come to any agreement. The idea of belonging to the hard core shows the interest to sit with them at the table and nod to their decisions.

    Is the EU currently able to move further also in the problems associated with the migration crisis or with the onset of right-wing political forces?

    The fundamental problem of the EU is the current elite rather than right-wing forces.

    When speaking about the elite, you experienced many governments and presidents while you were in the office of governor. You mention this also in your book. With which president did you experience the best cooperation?

    You may be surprised but in fact I never needed presidents. On the other hand, even when appointing new members of the Bank Council, presidents never asked governors for their opinion. I always thought that president must be a sufficiently judicious person to appoint competent people to the council. My task was to ensure that these people have sufficient space within the Bank and that their abilities and experience are fully used. And, believe me, I did not need any president for this. The Czech National Bank is a strong and independent institution which does not need any special relationships with politicians for its successful operation.

    Was it not even an advantage that President Klaus and President Zeman are economists?

    To be quite sincere, I do not consider President Zeman a great economist. The necessary dialogue is negligible. If the President was not an economist, absolutely nothing would happen from the perspective of the Central Bank.

    In Slovakia, we have an act on fiscal (budget) responsibility, implementing a so called debt brake. There are speculations about softening this brake. Is this institute required and necessary in EU countries after the experience from the crisis period at the end of the last decade?

    This depends on the country. We do not have it and I dare say that with the exception of 2010, our fiscal policy has always been within reasonable and conservative standards. The only disadvantage is that we tend to spend a lot in good times and excessively cut expenses in worse periods. However, there are no excesses in either direction. Of course, there are countries where the debt brake is necessary as these countries tend to be less sensible in their fiscal policy.

    Does the Slovak economy need such break?

    There were periods when the Slovak economy had the tendency to accept an extremely high budget deficit; therefore it is definitely not a bad thing that you have it here.


    Interview with Mr. Miroslav Singer is part of multimedia project of the TASR (Slovak Press Agency) – “Personalities: Faces, ideas”. Within this project, the TASR each week brings interviews, photos and videos of Slovak, European and world personalities of political, social, economic, sports and cultural life.