Industry leader Radek Špicar: The Czech economy will survive, but it will be a different kind of economy

06-04-2020

The Czech government needs to invest hundreds of billions of crowns to shore up the economy, with the crucial auto industry particularly vulnerable. Measures being taken now will alleviate the unemployment that will inevitably follow the coronavirus crisis. And the weak crown is of no benefit to exporters if they aren’t producing anything. So says the vice president of the Czech Confederation of Industry, Radek Špicar, who I spoke to late last week.

Radek Špicar, photo: Ian WilloughbyRadek Špicar, photo: Ian Willoughby At what point did you realise, This is very serious, the Czech economy is going to be in deep, deep trouble?

“Well, it came very fast, because the impact on hotels, restaurants and tourism in general was heavy.

“It was very fast and we saw the consequences immediately.

“And, moreover, it spilled over very fast to the automotive industry, which as you know is the backbone of Czech industry, and Czech industry is the backbone of the Czech economy in general.

“So immediately, as we realised that the automotive industry would not stay intact, we knew this would be bad.”

When you talk to employers and people in industry, how satisfied are they with the government measures we’ve seen so far?

“We immediately started talking to the government, because we knew that there would have to very intensive dialogue and cooperation between businesses, employers in general, and the government.

“We remembered what was going on in 2009 and we immediately started talking to the government.

“I have to say that their response was also very quick and we started talking right away about the things that needed to be done.

“Our priority number one was so-called kurzarbeit, short-time working basically, and the government reacted very fast.

“It remains to be seen whether the government will be willing to invest enough. I’m afraid we are talking about hundreds of billions of Czech crowns.”

“We introduced it very quickly, but the parameters were not good enough and it didn’t work in the real economy at the beginning.

“But fortunately the government changed the parameters this week at one of its meetings and at the moment we are quite happy with that.

“But, there is another thing which the government must do right and that’s the volume of aid – and it remains to be seen whether they will be willing and ready to invest enough.

“I’m afraid that we are talking about hundreds of billions of Czech crowns.”

Just go back for a second to explain, this short-time working system is one under which the state tops up workers salaries, if for example factories aren’t working for some time. How long is that kind of system sustainable?

“What’s happening at the moment in the real economy is that, for example in the automotive industry, a lot of companies lost demand in the amount of 90 percent within five days.

“The companies, just like they did in 2009 during the global economic crisis, are doing their best to keep employment. They are trying not to fire employees.

“But when you are in a situation where you don’t have any demand, you are basically producing without anybody buying your products, you don’t have enough cash.

Photo: ČTK/AP/Rick BowmerPhoto: ČTK/AP/Rick Bowmer “But at the same time, you have to pay your employees, you have to pay your loans, etcetera, etcetera.

“So the government really needed to contribute to salaries of employees, if the company guarantees that it will not fire its people.

“This is extremely important at the moment, because companies don’t want to fire their people.”

Are there any other forms of support that the government should be giving to business, apart from what they are doing already?

“Absolutely. At the moment after kurzarbeit, short-time working, the priority is state-guaranteed loans provided to companies through commercial banks.

“This money must be available to companies very fast, very soon.

“The administration must be as simple as possible – and the amount of these state guarantees must be high enough.

“That’s what we are discussing with the government at the moment and we hope it’s the government’s priority as well.”

I saw an earlier interview with you, in which you suggested that the government should set some date “by which the patient can go home from hospital and not get bed sores and die in hospital”. I understand why you’re saying this, but is it really possible, do you think, for the government to make such a clear statement now as to when things will go back to normal, given that so much is unclear regarding the health situation?

“In the automotive industry, a lot of companies lost demand in the amount of 90 percent within five days.”

“Look, experts need to say this. It’s not up to us to say, OK, the health situation is under control, we can reopen the economy.

“This must be said by experts. We are waiting for that, for their decision.

“All we are saying is, Once this is said, then the government must release the restrictions.

“Because the economy is suffering and if this stays for too long, the recovery will be really, really difficult and it will take years to get back to where we are at the moment.”

But still, surely it must be a very unenviable task for the government to have to try to walk that line between safeguarding public health and also saving the economy and ultimately saving people’s livelihoods?

“Well, what we are counting on in this respect is that the government will be able to do massive testing, which should help the smart quarantine.

“This means that we will know who is affected by the pandemic, these people will be isolated, we will know where they are, what to do with them, they will be well taken care of, and the rest will be allowed to go to their work and travel, etcetera, etcetera.

“But as I said, it must be decided by experts.”

What particular sectors of the Czech economy should we be most worried about in this moment?

Photo: Michal Bělka, Wikimedia Commons, CC BY-SA 4.0Photo: Michal Bělka, Wikimedia Commons, CC BY-SA 4.0 “At the moment, as I said, three sectors that are suffering are accommodation, hotels, restaurants – tourism.

“But what we are most afraid of is the condition of the automotive industry, of course.

“Škoda Auto has stopped production and Škoda represents 9 percent of this country’s economy. That’s huge.”

The Czech crown has fallen quite a bit against the euro since this whole crisis began. What does that mean for Czech industry?

“Well, a lot of economists say it’s great for Czech exports to have a weak Czech crown.

“But unfortunately we cannot use it much.

“When you don’t produce, or when there is no demand in the Czech Republic or abroad, it doesn’t count much that the Czech currency is weaker – because you don’t export.

“At the same time, we are one of the most open economies in the world.

“This means that we export a lot and yes, in this respect a weaker crown helps.

“At the same time, we also import a lot.

“What we are counting on is that the government will be able to do massive testing, which should help the smart quarantine.”

“So for a lot of our companies – and I’m talking about big, industrial, export-oriented companies – what they get when it comes to their exports they lose when it comes to their imports.”

What about unemployment? That’s going to come obviously. A lot of people are already losing their jobs. That’s clearly bad for many people – but from the perspective of employers is there an upside to that?

“No, I don’t be the one praising higher unemployment.

“And it will happen, but we have to keep in mind that we entered this crisis with the lowest unemployment in the European Union, so there is some space which we will be able to use.

“And how big unemployment will be… we are influencing it right now, through the actions of companies and through the actions of the government.

“If we do the right things, it will be increased but it might be relatively OK.

“If we don’t do the right things, then it might really be a big problem for the economy in the future.”

There was a piece today in The Guardian entitled “Coronavirus could be final straw for European Union, experts warn”. I know you’re a big supporter of the EU. Do you fear for the impact this crisis can have on the European Union?

“Look, the European Union did not react in time. The initial reaction was insufficient.

“We are going actually not back but forward when it comes to European integration, thanks to the crisis.”

“But it is no wonder it was like this, because it had no authority to act, to act fast and in an efficient way.

“Because nation states didn’t provide it with any meaningful authority in this respect, when it comes to fighting pandemics.

“This was the same situation in 2009, during the global economic crisis – and it didn’t kill the Union.

“On the contrary, it actually improved economic planning across the Union.

“So we are going actually not back but forward when it comes to European integration, thanks to the crisis.

“The global economic crisis improved coordinated economic planning across Europe.

“The migration crisis in 2015 is the same case. A lot of people were saying the Union did not react, it did nothing, this will be the end of the Union.

“On the contrary, when you see the Eurobarometer in 2018 pan-European support, across all the nation states, for European integration increased enormously after both crises – after the economic crisis and the migration crisis.

“At the moment it’s 67 percent – it’s the highest in the last 40 years.

“Because it shows that when we are coordinated, when we work together, we are stronger.

“When we are not coordinated, we weaken ourselves.

“And this crisis will have the same result.

“I think that we will be better coordinated next time when it comes to health policies across Europe.”

“I think this crisis – although it’s horrible, people are dying, companies will go bankrupt, which is extremely sad – will give an enormous push to what we call Industry 4.0, the fourth industrial revolution.”

My final question is, in your heart of hearts, where do you think the Czech economy will be, for example, one year from today?

“We will survive. The economy will survive, but it will be a different kind of economy.

“I’m an optimist, so I always look at the bright side of life, as the Monty Pythons sing.

“And there will be one very positive effect.

“We will modernise, we will be forced to modernise the economy much faster than would otherwise be the case.

“I think this crisis – although it’s horrible, people are dying, companies will go bankrupt, which is extremely sad – will give an enormous push to what we call Industry 4.0, the fourth industrial revolution.

“So we will see more digitilisation, automisation, robotisation, use of digital twins, virtual reality, etcetera.

“And that’s what this economy needs.”

06-04-2020