Czech Cabinet Crash Habit Leaves Yields Steady: Chart of the DayRadoslav Tomek and Peter Laca
The Czech Republic’s economic strength is outweighing political turmoil as an eighth prime minister in a decade is set to inherit financing costs that are among the lowest in the European Union’s east.
The CHART OF THE DAY shows that while the Czech Republic has had seven premiers since 2003, yields on euro-denominated debt are approaching better-rated countries such as the Netherlands or Austria, where leadership turnover is rarer. Slovenia’s five prime ministers in the past 10 years have failed to address economic weaknesses, pushing borrowing costs close to 7 percent, compared with 2.24 percent on Czech debt.
“There are countries where political turbulence is viewed negatively by investors, but the Czech advantage is its solid fundamentals, whether it’s the current-account balance, external debt or foreign currency reserves,” said Helena Horska, the chief economist at Raiffeisenbank AS in Prague.
Caretaker Czech Premier Jiri Rusnok will formally resign tomorrow after failing to secure parliamentary approval, while lawmakers plan to vote this month on dissolving the assembly after proponents of early elections secured support among political parties. Investors, meanwhile, are focusing more on economic growth prospects, whatever political ideology emerges victorious, Horska said.
Czech government debt was at 46 percent of economic output last year, about half of the EU average, according to European Commission data. Poland, the largest post-communist member of the bloc, had debt at 56 percent of gross domestic product, while Italy’s was at 127 percent and France’s 90 percent.
Since 2003, the Czech Republic attracted foreign direct investment of about $65 billion, helping double the size of the economy to $196 billion. The koruna has gained about than 20 percent against the euro.