Press conference after the meeting of the government held on Monday 12th March 2007

Martin Schmarcz, head of the press unit of the Office of the Government: Ladies and gentlemen, welcome to the press conference after the meeting of the government of the Czech Republic. I excuse absence of the Prime Minister, because he has further meeting together with other ministers and then further and further meetings. Therefore, I welcome now the Deputy Prime Minister Alexandr Vondra, who will stand in for the Prime Minister, and I also welcome here the Minister of Finance Miroslav Kalousek. As an introduction, the Deputy Prime Minister Alexandr Vondra will briefly inform you on the debate of the government, on issues, which were discussed.

Alexandr Vondra, Deputy Prime Minister and Minister for European Affairs: Well, ladies and gentlemen, good afternoon. Perhaps the most important issue that has been debated at today's meeting of the government was the updated Convergence Programme, which we would submit to the European Commission. This is also one of reasons why the Minister of Finance, submitter of this material, is here with us. It means that there will be time later on so that he could inform you about the content of the Convergence Programme. Apart from it, in the framework of the points of the agenda that concerned legislative norms, it is worth mentioning the approval of the Bill amending the Act on Executionary Order. Furthermore, the government took its stand on certain deputies´ bills and it took negative stand in fact, as well as in autumn last years, on the bill of deputies concerning the Constitutional Act on Referendum on Anti-missile Defence Facilities. It also took negative stand on the communist bill amending the constitutional act, which defines mandate of deputies of the Chamber of Deputies. In the framework of the agenda we also approved assessment of preparation for the presidency of the Czech Republic in 2009 that is in progress, and the second material, which was directly related to this issue – we approved revised coordination procedure for the presidency; in other words, forming a central organizational group, which will be in charge of preparation. Regarding this we suppose that meetings at high level, i.e. at ministerial and higher levels, will be organized centrally during our presidency. As far as organization of tens or perhaps hundreds of meetings of working groups is concerned, we will accept a decentralized model. The government also approved prolongation of the mandate of the Mrs. Pelikánová, judge of the European Court, and it approved the Bill amending the Act on the Service of a Term of Imprisonment. It also approved information on fulfilment of the realization contract on recultivation works following environmental damage, which was concluded between the company of Diamo and association Clean Ostrava; it concerns that corrective measure in the lagoon of Ostramo company. And finally, perhaps the last point or material, which is worth mentioning is that in the framework of using financial means from structural funds in the next budgetary period 2007 – 2013 the government approved the proposal of operational programmes of cross border cooperation, those which had been remaining. They are those four operational programmes that concern cross-border cooperation with Saxony and Bavaria, Austria and Slovakia. The programme of cooperation with Poland has been already approved. Well, that was an introduction and now, I would like to ask the Minister of Finance to inform you in detail on the approved Convergence Programme.

Miroslav Kalousek, Minister of Finance: Thank you for the floor, Deputy Prime Minister. Ladies and gentlemen, the government approved today the Convergence Programme. To remind you this issue, I allow myself to note that it is for the first time in fact, that it is approved and submitted as late as in March, because it is common for member countries to submit the Convergence Programme by 1st December. Due to the political situation, which was here in the end of the last year, the government did not feel it had a mandate to adopt medium-term obligations and therefore it decided to submit this programme in March and it charged the Ministry of Finance to work it out by the end of February. And it happened after all. Chapters 2-8 of this programme must be based on the budget approved by the Chamber of Deputies for 2007, according to the methodology of elaboration of the Convergence Programme, and they also must be based on the approved medium-term outlook, which is approved concurrently with the debate on the state budget. It means that the dominant part of the Convergence Programme is an autonomous scenario without considering reforms, because the state budget and the medium-term outlook for 2007 were approved without consideration reforms. In addition to chapters 2-8, the new chapter 9 was appended – the New Budgetary Policy, which is based on the Programme Declaration of the Government and which defines the objective that the government is decided to achieve – decrease of deficit down to 3%, 2,6% and 2,3% of GNP in 2008, 2009 and 2010. It is based on the methodology of fiscal focusing. These objectives are set in the methodology of fiscal focusing higher than in the methodology ESA 95; figures will by 0,1% higher. It is undoubted that the Convergence Programme submitted in this form will be subjected to deserved criticism of the European Commission. I remind you that in 2004 there were proceedings regarding excessive deficit and the Czech Republic undertook to decrease deficit under 3% in 2008 and that it would remain under this level for a long time. The actual situation is that in 2007 we are by 0,7% above declared figure and that we do not expect in that medium-term autonomous scenario to decrease deficit below 3%. We expect this as late as in 2010 in the autonomous development as it was approved after the debate on the state budget. Therefore that criticism will be justified. The only one thing that can revive our credit is not only submission of concrete reform steps, but above all their implementation, when the trend of the autonomous development will be changed thanks to reforms to those figures, which I have already mentioned – 3%, 2,6% and 2,3%. It will also be subject of a debate during the summer defence of the Convergence Programme at the commission of ministers of finance at ECOFIN, when we will be explaining this issue and will be facing criticism for what had happen; but we will try to explain what will happen in the future and that we are ready to take reform steps. In spite of the fact that I proceeded in a logical way, because the Convergence Programme is our obligation to the EU and therefore I was focusing on the debate with the European Union, I beg to conclude it with relatively important sentence – I would be very unhappy, if need of reform and need to decrease the deficit is reasoned only by our obligations to the EU; it is not like this. Reforms and deficit decrease must be done because of us, our future and because of our children. We cannot burden our children with further 100 and 100 and 100 billion crowns of debts every year, which they would have to pay one day.

Martin Schmarcz, head of the press unit of the Office of the Government: I thank the minister and I believe it will not escape your attention. Now there is time for your questions, first, as usual, those concerning the meeting of the government and then other questions if any.

Aleš Sosnovský, ČTK: Good afternoon. A question to the Minister of Finance concerning the Convergence Programme. Can you say whether the Convergence Programme includes, as the previous versions, any date of introduction of the single European currency unit? And can you say what the plan of deficit decrease in the methodology ESA is like, if it is stated there. And regarding the meeting of the government, if the government debated what minister Bursík indicated – the removal of Mrs. Drábová from her position? Thank you.

Miroslav Kalousek, Minister of Finance: The Convergence Programme, chapter no.9 of the Convergence Programme. I remind you that chapters 2-8 are worked out according approved documents; it means that the approved budget and approved medium-term outlook are autonomous outlooks without consideration of reforms and therefore what is the most important from the reform point of view is the chapter no.9, which will have to be modifies based on concrete steps of the reform, which the government is ready to publish at the turn of March and April, as I have said many times. So, the chapter no.9 – the reform effort of the government is worked out to enable achievement of the real term of introduction of Euro in 2012, in spite of the fact it is not mentioned there. A different thing is whether that term will be mentioned in that August strategy on access to the Eurozone, which we will submit together with the CNB (the Czech National Bank). You certainly know well that I tend to the opinion that the term should be mentioned there. If it is not mentioned there it will not be any tragedy. Tragedy would be in such a case when the implementation itself would not enable it; it means that the programme is prepared so that the date 2012 would be realistic. In the actual methodology, I mean in the methodology ESA there is an article, in which there is highlighted that the concrete figure may by higher by 0,2% or more and the concrete figure must be calculated according the latest actual agreement on change of tax rates, because it has influence on it. While the change of the corporate tax has no influence on fiscal aims in 2008 it will have influence in the methodology ESA. It means that it depends on the final version whether the change will be by 0,1% or 0,2%. We know that it will not be by more, but final calculation we want to do on the basis of the final decision on tax rates.

Alexandr Vondra, Deputy Prime Minister and Minister for European Affairs: The government did not debate on Dana Drábová; no minister proposed such a debate.

Martin Schmarcz, head of the press unit of the Office of the Government: Thank you, now the TV Prima.

Martin Erva, TV Prima: I would like to ask both gentlemen if they could explain the stand of the government, I mean that rejection of the proposal of the chairman Filip for bound mandates and I would ask the Minister of Finance to inform us about the standpoint of the KDU-ČSL. Thank you.

Alexandr Vondra, Deputy Prime Minister and Minister for European Affairs: We base our position on the Constitution; a mandate cannot be bound with anything else but with conscience and for this reason we rejected this proposal.

Miroslav Kalousek, Minister of Finance: I can just agree, I cannot imagine the proposed proceedings, when it would be assessed whether a deputy did it because of this or that reason. The application of this norm itself would be greater risk than a defection.

Martin Schmarcz, head of the press unit of the Office of the Government: You at the back; I cannot see who it is, but I can see a hand.

Jan Pulkrábek, Bloomberg News: Minister, do you expect any criticism or any sanctions of Brussels because of the Convergence Programme? Thank you.

Miroslav Kalousek, Minister of Finance: I think I said it openly in the introduction; we expect really justified criticism with regard to the fact that the Czech Republic undertook in 2004 to follow certain development of public budgets and it is has not fulfilled apparently. If we take into consideration that we are by 0,7% above the figure that was agreed in the framework of the Protocol on Excessive Deficit, the criticism will be justified. There is no sense in making excuses because of the fact that a political representation was not fulfilling its obligation and was wasting time necessary for reforms. I think that if we are able to demonstrate credibly our reform steps, no direct sanctions threats. Nevertheless, if we are not able to transfer our reform resolution into practice, then proceedings will be open against us, of course, and sanction will become to be a great risk.

Martin Schmarcz, head of the press unit of the Office of the Government: I just add something to what the minister said here. As this matter is really very serious and we had been indebted in the past and we were asked to eliminate them, we undertook to implement certain programmes and these programmes were not implemented – therefore if you would like to have background information ask the press unit and we will provide you with the respective decisions and figures. Now further question, please.

Marek Petruš, Reuters: I would like to ask the minister whether he supposes to issue bonds on foreign markets to cover increasing deficit of the state budget in the time when the reform strategy of the government is not clearly defined yet.

Miroslav Kalousek, Minister of Finance: Coverage of the state budget for 2007 is approved by the Act on Bond Programme. Partly it is a loan of the European Investment Bank, excuse me I cannot tell you concrete figures from memory. It mainly concerns a bond programme.

Martin Schmarcz, head of the press unit of the Office of the Government: Further question, please. Hospodářské noviny and then Česká televize.

Robert Břešťan, Hospodářské noviny: Good afternoon. The assessment of preparation for the Czech presidency in 2009 was on the agenda. Do you have a feeling that we are behind with our preparation or that we are not able to meet deadlines? This issue was spoken about a lot in the time of discussion on forming a new government and it was indicated that we had wasted important time. Have we made up time or are we behind with preparation?

Alexandr Vondra, Deputy Prime Minister and Minister for European Affairs: It was discussed in the course of the last year due to the non-existence of the government with a mandate. But I think that based on these materials and those debates it is apparent that we meet those deadlines that were expected; there is no delay or a deficit there.

Martin Schmarcz, head of the press unit of the Office of the Government: Česká televize, please.

Alice Machálková, ČT: I wanted to ask the same question. Can you be more concrete, what have been achieved during preparations of the Czech Republic and what are we facing? What are the main tasks? Thank you.

Alexandr Vondra, Deputy Prime Minister and Minister for European Affairs: Financial means are earmarked, mode of coordination is set and a team is being formed, which will coordinate it centrally, I mean at the Office of the Government under my leadership. There also exist coordination teams at the individual ministries; they discussed the first programme priorities, as we have already informed you. We have prepared a preliminary motto "Europe without Barriers". We are starting to prepare other matters. We also said that the content itself does not depend only on our choice but it results from the expected agenda of the EU, the European Commission. We are conducting talks in this sense. We expect closer cooperation with preceding presidency of France and the subsequent presidency of Sweden after French elections. In other words, it concerns number of steps. I took part in the meeting of the Association of Regional Commissioners in Třebíč on Friday and we were debating involvement of regions in this issue. An agreement was signed on cooperation between the Ministry of Foreign Affairs and the Association of Regions of the Czech Republic and on ways of cooperation in Brussels and use of the new Trone building. We are also preparing the time schedule of our presidency and as soon as it is ready, as soon as the basic pillars of our presidency are clear, we will agree on the rate of activities and meetings, which of them will be held in Prague and which of them will be held out of Prague; we want our presidency to be nation-wide issue, to get it also out of Prague.

Martin Schmarcz, head of the press unit of the Office of the Government: Ladies and gentlemen, do you have further questions? The TV Nova.

Jakub Klingohr, TV Nova: I would like to ask both gentlemen about a different subject. How do you regard those efforts to avert re-election of the President Václav Klaus?

Martin Schmarcz, head of the press unit of the Office of the Government: Could you specify your question? Efforts to avert re-election? Any demonstrations or assassinations?

Jakub Klingohr, TV Nova: I mean efforts of Jiří Paroubek to ally with other parties and avert the re-election.

Miroslav Kalousek, Minister of Finance: I think that number of talks is held before any elections, with the exception of direct elections.. I am not the chairman or vice-chairman of my party and therefore I can only say that there was no debate on the presidential election for the present. And the KDU-ČSL has not communicated with any other party. As far as I am concerned, so as not to speak tangentially, I regard the existing president as a competent and successful head of the state.

Martin Schmarcz, head of the press unit of the Office of the Government: Ladies and gentlemen, now, with regard to the fact that there occurred certain speculations last week and nobody asked about this issue, I give the floor to the Deputy Prime Minister Alexandr Vondra, who will respond to those media speculations of the last week.

Alexandr Vondra, Deputy Prime Minister and Minister for European Affairs: Nobody asked about the Army Intelligence Service, therefore I will provide you with three-point information. The Prime Minister debated this issue of operation of the Army Intelligence Service with the Minister of Defence today and one of conclusions of this meeting was that, in compliance with concept changes that are being prepared, General Krejčík would terminate his activities in the function of the Director of the Army Intelligence Service sooner than it had been expected based on his service obligation. A general proposal of the concept of the intelligence system, not only the army intelligence system, will be prepared by the end of March and further personnel and organizations changes will result from it. That is all. Thank you.

Martin Schmarcz, head of the press unit of the Office of the Government: Ladies and gentlemen, with regard to the fact that ministers have to participate in further meetings, thank you for your attention.