Budget deficit to approach the Polish


Finance Minister Eduard Janota said he expected this year’s budget deficit to grow due to the floods to somewhere between CZK 160-170 billion (8.6-9.2 billion USD). The recent floods that have affected North Moravia, South and North Bohemia are thought to have caused CZK 7 billion in damage. Decision on the allocation of funds for the recovery of worst affected regions will be made by early August at the latest. According to Mr. Janota, flood damage recovery is the government’s top priority.



Analysis and forecast (↓ decreasing risk)



The OECD forecasted a higher budget deficit than the government did even before the floods (see table below). After the Finance Minister’s announcement, the 4.54% seems to be underrated. The Czech deficit is expected to exceed the Slovakian data and it may even approach the Polish one.


OECD outlook for the Visegrad countries.



Source: OECD



Lisbon treaty case still far from end



President Vaclav Klaus reacted to the German Constitutional Court’s verdict on the Lisbon treaty by saying that some fundamental questions remained unanswered. The Constitutional Court in Karlsruhe ruled that the reform document was compatible with German legislation but some alterations have to be made to German law in order to strengthen the role of the national Parliament. The President reacted to the verdict by saying that proposed changes to German law would not be able to counteract the “immense shift of powers and mechanisms” to Brussels.



Analysis and forecast (↑ increasing risk)


The German verdict was not expected to move the Lisbon treaty case out of deadlock, however President Klaus emphasized again that he would be the last politician in Europe to make a decision on the Lisbon treaty – leaving a bad taste in the mouth after the even very controversial EU-presidency. The Czech Constitutional Court is also expected to rule whether the document is in line with the Czech constitution (last year the Court proclaimed that it was but treaty opponents argued that the court did not regard the treaty as a whole, only considered its selected points). Since it is likely that the Court keeps its point of view unchanged, the approval of the treaty depends on the German and the Polish heads of state who are still to sign the document, and on the Irish referendum that is due to be held in autumn. The Czech President is only expected to sign the treaty after all mentioned conditions are fulfilled.