Czech Government Approves Financial Constitution to Limit Debt

The Czech government approved a proposal for a so-called financial constitution, which sets limits on state debt.

The proposal sets long-term rules for governments to manage public debt and avoid a crisis, Prime Minister Petr Necas said at a press conference in Prague today. It also sets maximum caps for government debt as well as spending, Necas said.

The proposal would force government to win a confidence vote in Parliament if public debt exceeds 50 percent of gross domestic product, Finance Minister Miroslav Kalousek said at the same briefing. The government should take preventive action if debt rises above 40 percent of GDP, Kalousek added. A newly established National Budget Council will oversee the government’s policy as part of the proposal.

The Czech economy is suffering from weak domestic demand after the government cut investments and raised sales taxes to trim the budget deficit. The Czech Republic’s public debt was 43.3 percent of GDP at the end of the third quarter.

The plan would be enshrined in the constitution and has to be approved by a constitutional majority in Parliament, according to Kalousek.

To contact the reporter on this story: Lenka Ponikelska in Prague at lponikelska1@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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