EASTERN JOURNAL OF EUROPEAN STUDIES Volume 2, Issue 2, December 2011 21

The Czech Republic impacts of and experience

with EU membership
Ivo LOSARK*

Abstract
This paper analyses the impact of the post-accession experience of the Czech
Republic in the years 2004-2011. In particular, it focuses on the integration into
the EU internal market, preparation for Eurozone accession, transfers from the
EU budget and the formulation of the EU energy policy. In each policy area,
both the impact of the existing EU regulatory framework and Czech preferences
for its reforms are covered. The last section of the paper (chapter 6) describes
the Czech institutional adaptation to the EU membership, in particular the 2009
Czech presidency experience.
Key words: Czech Republic, European Union enlargement, internal market,
Presidency of the Council of EU, transition periods, EU energy policy, EU
budget.
JEL Classification: F15, F36, O52, Q4

1. Introduction
The objective of the following text is to map several areas where the EU
accession of the Czech Republic has changed the political, economic and
regulatory environment in the Czech Republic. In particular, the text will
concentrate on three factors of the post-accession development which will
receive a particular attention.
The first one is the importance of the regulatory change as a result of the
shift from the asymmetric association status to full membership for the Czech
Republic through the 2004 accession. From this perspective, the major challenge
for the post-accession Czech Republic seems to be the transition to the position
of an active player in the EUs decision-making regulatory structures.
The second element of the Czech post-accession experience, which will
be demonstrated later in the text, was that the impact of the post-accession
*

Ivo losark is lecturer at the Department of European Studies, Charles University in

Prague, Czech Republic; e-mail: islosarcik@europeum.org.

22 Ivo LOSARK

experience on the economic situation in the Czech Republic was not radical. The
post-accession development can be interpreted primarily as an extrapolation of
the pre-accession association status in combination with the mitigation impact of
the transitional periods contained in the accession acquis.
The third feature analysed is the dynamic of the process of the Czech
experience as a EU member when the Czech government has undergone some
radical shifts in its position regarding several key EU projects, such as Eurozone,
during the six post-accession years.
2. Czech adaptation to the EUs internal market
The Czech Republic is usually described as a small open economy. The
Czech export is directed primarily towards the European Union (e.g. 85% of
total export in 2008, 84% in 2009) with Germany as the dominant export target
(30% of total export in 2008, 32% in 2009), followed by Slovakia (9% of total
exports in 2008, 8% in 2009), France, Poland, and Austria (Czech Statistical
Office, 2011). The inter-connection between Czech and German economy has
reached such intensity that the Czech Republic has been even labelled as
another German Lander.1
In the first years after the EU accession, the Czech economy experienced
an unprecedented growth since the beginning of the economic transformation at
the beginning of the 90s2. The growth was accompanied by an increase in labour
costs and by the strengthening of the Czech crown.
The impact of the crisis of 2008-2011 has been relatively limited. The
major reason is the conservative approach of Czech banks in the pre-crisis
period. Therefore, no governmental bank rescue package has been required.
Furthermore, the vast majority of the Czech private (household) debt has been
denominated in Czech crowns, which made the financial situations of
households less vulnerable to the currency fluctuation and has prevented
problems experienced, for instance, by Hungary since 2008.
As an export-oriented economy, however, the Czech Republic has been
very sensitive to the consumption trends of its EU neighbours, particularly in
Germany. The export to Germany dropped almost by 10% in 2009 in
comparison with previous years (Czech Statistical Office 2011) and the
economic recovery in Germany in 2010 was reflected in the growth of Czech
exports. The impact of the crisis onto the Czech Republic has also been
1

Zmenk, Miroslav. Sedmnct spolkov? Euro, January 24, 2011.

GNP growth in the post-accession years was as follows: 4.5 % (2004), 6.3% (2005),
6.8% (2006), 6.1% (2007), 2.5% (2008), -4.1% (2009), 2.3% (2010); estimation for 2011
is 2.5% . In contrast, in the pre-accession years 1999-2003, the GNP growth was
between 1.3% (1999) and 3.6% (years 2001 and 2003) (Czech Statistical Office, 2011).
2

THE CZECH REPUBLIC IMPACTS OF AND EXPERIENCE WITH EU MEMBERSHIP 23

mitigated by the relatively low public debt of the Czech state, albeit the
pessimistic dynamics of its development. In 2010, the public debt of the Czech
state reached 36.6% GNP (in comparison to 21.1% in 2004) and the estimate for
2011 is 42% of GNP (Czech Statistical Office, 2011). Against the general trend
in the EU, the position of public finances of the Czech Republic was upgraded
by Standard & Poors from the A to AA- category in August 2011.
The EU membership has been generally considered as a significant, if not
the major, factor of the Czech post-accession economic growth. However, it can
be argued that the most influential factor of the post-enlargement economic
environment has not been the formal opening of the internal market per se. Since
the tariff barriers and quotas for industrial good were removed even before the
Czech accession (as result of the association regime) and significant barriers in
the free movement of services survived even in the post-accession period, the
increase in the credibility and predictability of the regulatory environment in the
Czech Republic and the removal of some technical and administrative barriers
against mobility due to the EU membership can be identified as the most
significant impact of the Czech accession to the EU (Marek and Baun, 2011,
pp.106-108).
As an EU member, the Czech Republic has gained a potential to influence
the regulatory framework of the internal market as an active player, in contrast
to the position of a passive recipient of acquis in the pre-accession period. The
experience of the first post-accession years has demonstrated with great clarity
the importance of defining and pursuing national interests within the EU
structures. In several cases, new EU rules have created significant problems to
the corresponding segments of the Czech economy a frequently used example
is the impact of the new EU regulatory framework for sugar which caused a
radical implosion of the sugar production industry in the Czech Republic.
The Czech Republic has pursued two major trends in the internal market
during its post-accession years. The first has been the support for liberalization
within the internal market; in other words for removing the remaining national
barriers within internal market. Examples of this strategy include Czech calls for
a termination of transitional periods, for the free movement of workers and/or
support of the EU initiatives for further liberalization of the free movement of
services. In the latter case, the Czech representatives criticized the gradual
reduction of the originally ambitious liberalization plan contained in the
Commissions proposal of the Bolkestein directive (directive on free
movement of services) during the legislative process in the European Parliament
and the Council; however, the Czech MEPs voted even for the final, less
ambitious, version of the directive since even the final version of the directive
had eliminated some existing problems and clarified several rules of the service
mobility within the internal market.

24 Ivo LOSARK

The second trend within the internal market, which has been supported by
the Czech Republic since its accession to the European Union, has been the
opposition against new regulatory initiatives establishing new EU standards,
particularly in the domain of taxation or employment policy. Czech politicians
consistently vetoed EUs initiatives for higher tax harmonization in the EU
(quite symbolically, the first Czech veto was applied in the debate on an increase
of the consumption tax on beer). At the same time, the Czech Republic has not
adopted explicit declarations or (quasi)legislative measures stating the national
sovereignty in tax policy, as the Slovak Republic did in 2007.
The EUs impact on the labour market and mobility of workers in the
Czech Republic deserves further elaboration. The full mobility of Czech workers
to other EU states was limited (until 1st May 2011) by transitional periods
negotiated in the accession treaties. The impact of transitional periods was
weakened by the fact that no new EU state in Central Europe and only some old
EU states actually used the regulatory potential contained therein and the list of
EU states applying the transitional periods has been gradually narrowing since
20043. Furthermore, citizens of the Czech Republic used the potential of the
intra-EU mobility less intensively than citizens of its neighbours. Reasons
behind are primarily better economic performance of the Czech Republic in both
pre- and post-accession years and traditional less pro-mobility socio-economic
patterns in the Czech society.
At the same time, the Czech Republic has developed into a significant
recipient county of labour mobility streams in the post-accession period. The
most important countries of origin of foreign workers employed in the Czech
Republic include both EU states (Slovakia, Poland) and non-EU countries
(Ukraine, Vietnam). The EU accession does not seem to have a significant
impact on the structure of the inflow of foreign workers and major initiatives in
this domain remain under autonomous decision of Czech policy makers. For
instance, the Czech Republic opted not to apply transitional periods in the most
recent enlargement (Bulgaria and Romania).
The Czech position towards the liberalization of transport services has its
specificity, similar to those which emerged in Austria. The Czech situation is
primarily influenced by the location of the Czech Republic on the major
transport corridors within the European Union. In particular, the land transport
(haulage) tests the limits of the Czech transport infrastructure (highways)
capacity and generates a financial burden for the Czech budget as a result of the
construction and maintenance costs. The Czech Republic reacted by an attempt
to transfer part of these costs to the transport operators; and the existence of the
3

The United Kingdom, Ireland and Sweden has not used transitional periods at all,
Spain, Finland and Portugal opened their labour markets to Czech workers in 2006 and
France in 2008.

THE CZECH REPUBLIC IMPACTS OF AND EXPERIENCE WITH EU MEMBERSHIP 25

EU limits on the price of vignettes (toll stickers) for heavy trucks has been one
of the factors for the Czech decision to introduce a road-toll system, calculated
for each vehicle according to the distance actually travelled, where the EU
provides more discretion for individual member states.
3. Eurozone and economic governance
The Czech Republic did not become a (full) member of the Eurozone at
the moment of its accession to the EU. The experience of delayed accession to
the Eurozone has been shared also by other new EU members. What
distinguishes the Czech Republic from other new members of the enlarged EU is
the fact that the approach of the Czech Republic to the European monetary
integration project had experienced a radical shift since 2004.
Originally, the Czech executive expressed the intention to join the
Eurozone within a relatively short time framework/horizon, with target dates of
January 1, 2010 (based on the plan of the Social Democratic government in
2005). Later, the updated governmental strategies for the Eurozone postponed
the target date for 2012 while the Czech National Bank stressed its neutral
position regarding the date of the Eurozone entry (losark et al, 2011, pp. 101102, Bene and Braun, 2008, p. 65). The only vocal critic of the Eurozone
project in the Czech Republic at the moment of the Czech accession to the EU
was the President of the Republic, Vclav Klaus (Bene and Braun, 2008, p. 82).
A major argument in favour of the Eurozone accession was the expected
stabilization impact on the Czech industry and the export-oriented industrial
lobby (e.g. car producers) was also the most vocal supporter of a prompt
replacement of the Czech national currency by the Euro, particularly with the
objective to increase the stability and predictability of the business environment
in the Czech Republic.
However, the Czech government, since the very beginning of the Czech
EU membership, has expressed a need to balance the impact of the future
Eurozone accession onto different actors in the Czech Republic. It has also
stressed the political nature of the timing of the Czech accession to the
Eurozone, regardless of the formal obligation of the Czech Republic to make
steps towards the Eurozone accession, as provided in the Accession Treaty. To
identify and evaluate the impact of the Eurozone accession on different socioeconomic actors in the Czech Republic was also the key objective of the major
analytical advisory study commissioned by the Czech government in 2007
(Lacina, 2007).
However, the Czech position has changed radically since 2008 and debate
about plans to join the Eurozone, or even about a target date, have virtually
disappeared at present (Bene and Braun, 2011, pp. 59-60). Reasons behind this
development are threefold. The first is the change in composition of the Board of
Governors (Banking Board) of the Czech National Bank, a body co-responsible

26 Ivo LOSARK

(together with the Ministry of Finance) for Czech preparation for the Eurozone
membership. Members of the Board of Governors are appointed by the President
of the Republic for a six-year term and the appointment(s) are exclusively within
discretion of the President (i.e. no approval of the government is required). As
President Vclav Klaus has been in office since 2003, he has directly appointed
all serving members of the Board of Governors by the end of the decade.
Logically, President Klaus appointed economists with an approach to the
Eurozone similar to his own, i.e. primarily sceptical to the viability of the
Eurozone project.
The second reason behind the decline in the Czech support of Eurozone
membership is the impact of the 2008-2011 economic crisis on the Czech
Republic. As demonstrated above, the impact of the crisis on the Czech public
finances was relatively limited. However, even the limited impact of the crisis
has moved the Czech public budget outside the limits of the convergence criteria
necessary for the Eurozone accession. The present (2011) Czech government
declares itself the government of financial responsibility and the Greek crisis
was used by centre-right political parties as an argument against the centre-left
political parties during the 2010 election campaign. However, the obligation to
comply with the Eurozone convergence criteria does not occur in the
governmental argumentation for fiscal responsibility and/or austerity measures;
the arguments used are primarily focused on the need for the stability and
sustainability of the Czech national budget.
The third reason for the Czech sceptical approach to the Eurozone is the
2010-2011 Eurozone internal crisis. In general, the Czech Republic tended to
adopt the wait and see tactics towards the crisis and refused to make any longterm commitments regarding its future participation in the Eurozone project. In
line with this passive approach is the Czech decision not to participate in the
European financial mechanisms formed during the crisis, such as the European
Financial Mechanism which was joined by all non-Eurozone countries with the
exception of the United Kingdom, Sweden, Hungary and the Czech Republic.
(Bene and Braun, 2011, pp. 66-67).
Thus, the statement of the President Klaus that, in contrast to his refusal of
the Czech accession to the Eurozone, he could imagine his support of the Czech
accession to a post-Eurozone monetary union of the northern EU states linked
with the German economy (Markozone) is a rather anecdotic comment. In a
more general and serious analysis, the President of the Republic frequently
comments on the unsuitability of the Eurozone membership for the EU states
with lower economic productivity (Klaus 2011).
4. Energy policy
The energy policy of the Czech Republic is relatively complicated,
reflecting both the historical and geographical context of the Czech state. The

THE CZECH REPUBLIC IMPACTS OF AND EXPERIENCE WITH EU MEMBERSHIP 27

energy mix of the Czech Republic includes domestically produced coal,

imported gas and crude oil, nuclear energy and a limited amount of renewable
resources (water, solar, wind).
The governmental energy policy has to balance the mutually competing
disadvantages of the individual elements of the energy mix which include the
supply interruption risk (gas, crude oil), negative impact on the environment
(coal) and ideologically driven criticism (nuclear energy). In the post-accession
years, the Czech Republic has experienced problems both with the interruption
of supplies from Russia (e.g. gas crisis in January 2009) and inter-state tension
linked with the nuclear energy (in particular, diplomatic tension and public
protests in Austria).
The Czech energy policy at the EU level thus follows two directions. The
first one is a call for more efficient EU external policy focused on the stability of
energy supplies, including EU support for infrastructure projects (Czech support
for Nabucco gas pipeline or for strengthening the intra-EU electricity grid) and
for firm EU position(s) during negotiations with third-party countries. However,
the Czech Republic supports primarily EU funding of specific infrastructure
projects instead of creation of a general EU financial framework for energy
infrastructure (such as Connection Europe Facility) that is perceived as a threat
to a scope of EU funding of general policy of social and territorial cohesion.
The second direction of the Czech activity at the EU level is the
opposition to the attempts to regulate the nuclear energy and the relatively
sceptical approach to the EU carbon emission policy (Bene and Braun, 2010,
pp. 66-67).
5. The EU budget
The expected financial transfers from the EU budget were frequently used
as the argument in favour of the Czech accession to the EU. As a state with a
GDP per capita bellow the EU average, the Czech Republic had a strong
potential to turn into a significant beneficiary of the intra-EU transfers. This
potential has materialized in the first post-accession years when the Czech
Republic developed into a net recipient from the EU budget, particularly in the
domain of economic and social cohesion (and only gradually in the CAP, as
described later). From the short-term perspective, the major problems linked
with the EU budget in the Czech Republic concerned the technicalities of the
utilization of funds allocated to the Czech Republic, such as setting the
respective administrative bodies in the Czech Republic, negotiating the
agreement(s) with the European Commission on the cohesion policy priorities,
the red tape linked with project implementation, the co-financing required by the
EU rules or occasional corruption connected with financial transfers. Insufficient
extraction of the EU funds caused by a lack of quality programs and by the

28 Ivo LOSARK

intensive administrative burden on private applicants is usually identified as the

major problem in the first post-accession years.
At the same time, the Czech Republic has been a critic of the structures
and priorities of the EU budget, particularly opposing the allocation of resources
to the Common Agricultural Policy at the expense of other policy areas, such as
education or modern infrastructure. The critique of the CAP spending by the
Czech Republic has been simplified by the relatively small size of the Czech
agricultural sector, in comparison with other new EU states. On the other hand,
the Czech position regarding the EU spending is more pragmatic than
ideologically-driven and the Czech Republic proved to be able to lobby in
favour of specific Czech agriculture interests, such as the important role of large
farms in the Czech agriculture (Dostl, Karsek, Thim, 2011, p. 120).
Since it belongs to the more advanced and richer part of the new EU
states, it is not clear whether the Czech Republic will be net-recipient or netpayer in the medium term perspective, such as after 2020.
Therefore, the Czech position towards the budget seems to be trapped
between two colliding objectives. The Czech priority is the general expansion of
the EU budget, where the Czech Republic would benefit as a net-recipient. The
second one is the pressure on the reform of the EU spending structure which
would more properly correspond to the Czech priorities and to the fact that, in
the medium term perspective, some Czech regions are likely to cease their
eligibility to a significant number of segments for the EUs funding.
6. Institutional adaptation, the 2009 Czech Presidency and ratification of
the Lisbon Treaty
Two events in the Czech Republic distinguished themselves among the
generally low profile activities of the Czech state within the EU. The first was
the Czech presidency of the European Council and the Council of the EU in the
first half of year 2009; the latter was the ratification process of the Lisbon Treaty
in the second half thereof.
The Czech Presidency demonstrated both strong features and weaknesses
of the Czech behaviour within the European Union. The Czech Presidency
adopted a relatively moderate program focused on internal EU economic
liberalization, energy security and Eastern dimension of the EU foreign policy.
Within these priorities, the Presidency focused on practical policy initiatives
(e.g. launching the summit of the Eastern Partnership organized in Prague) and
concrete legislative measures. At the same time, the Presidency activities were
from the very beginning hijacked by unexpected events outside the EU
(interruption of gas supplies caused by the dispute between Russia and Ukraine,
escalation of Gaza crisis).
In the economic sphere, the Czech presidency regarded its primary role as
the opponent and/or corrector of massive use of spending power of the EU states

THE CZECH REPUBLIC IMPACTS OF AND EXPERIENCE WITH EU MEMBERSHIP 29

(Bene and Karlas, 2010, pp. 74-75). Prime Minister Mirek Topolnek gained
even some unwelcomed attention from global media when he criticized the US
financial crisis plan as road to hell in his speech before the European
Parliament in March 2009. The Czech presidency also criticized, among others,
the national financial schemes stimulating purchasing of new vehicles (Bene
and Braun, 2010, pp. 65-66). Paradoxically, the Czech car industry was a
significant beneficiary of the stimulation programs introduced by its neighbours
(particularly by Germany and Slovakia) when its export to the countries in
question had increased as a result of the stimulation programs introduced by
local Slovak and German governments.
From the external perspective, however, the major event of the Czech
Presidency was the fall of the government in the middle of the presidency. This
political crisis, caused primarily by domestic political competition, significantly
weakened the performance of the Czech executive during the second half of the
Presidency, and seriously damaged the reputation of the Czech state.
The Czech Republic was a relatively active player during the preparation
of the Treaty establishing the Constitution for Europe. This pro-active approach
has not, however, continued during the preparation and ratification of the Lisbon
Treaty. The new Czech centre-right government did not belong to the most
ardent supporters of the treaty reform but, ultimately, the Lisbon Treaty was
approved by the Czech government. The following ratification procedure was
then interrupted twice by reviews before the Constitutional Court and further
delayed by the insistence of the President of the Republic that the Lisbon Treaty
should include guarantees against destabilization of the property regime in the
Czech Republic. This requirement has been tackled, albeit in a legally very
opaque form, at the EU level and the Czech Republic has been the last EU state
ratifying the Lisbon Treaty in the autumn of 2011.
7. Conclusions
EU has not turned into a panacea for all shortcomings of the Czech state.
At the same time, major fears of the EUs impact on the vulnerable elements of
the Czech economy or society have not materialized either.
Within the EU, the Czech Republic had to learn how to formulate and
defend national interests within the EU structures. After a relatively short postaccession learning phase, the Czech Republic started to systematically pursue
those elements of the EU integration which correlated with its export-oriented
economy and (allegedly) relatively low level of labour and welfare regulation.
However, while the Czech Republic proved to be a relatively skilful learner in
coping with the more technical and short-term policy objectives, debates about
the Lisbon Treaty and turmoil of the post-2008 crisis demonstrated that the
Czech Republic still keeps a rather low profile within the long-term trends of the
European integration project.

30 Ivo LOSARK

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