Diane Swonk, Chief Economist
Jun. 29, 2009 – 10:40 a.m.
The ICCBE and Czech Republic
"Last year, I was invited to consult in the Czech Republic by two if its top economists – Kamil JanáD ek, who is a risk manager for one of the country's largest banks, and his wife, Slavka, who is the top economic advisor to President Václav Klaus.
Today, I am writing this from the lovely city of Prague, en route to Munich tomorrow to the International Conference for Commercial Bank Economists (ICCBE), my annual meetings with the top international economists. The beauty of the city streets and building facades can't mask the underlying turmoil of one of Central Europe's former stars. Investment from Western Europe – which had dramatically narrowed the gap in living standards between the market-forward Czech Republic and their counterparts in the West – has all but disappeared. Add to that a sharp downdraft in tourism, which had fueled a rapid expansion in the retail, hotel and restaurant businesses in recent years, and it is clear just how much this oasis of beauty is feeling the pain of the worldwide recession.
On the brighter side, the Czech Republic is doing better than many of its counterparts in Central Europe, and remains well ahead of the economies of Eastern Europe. The Baltic States are moments away from an International Monetary Fund bailout, which was one of the primary concerns shared among participants in the conference last year.
The Bottom Line: Western Europe is hurting, and the shock waves of that pain have spread throughout the region. The greatest casualty for the Czech Republic may be our own hometown-educated Vaclav Klaus, who attended the University of Chicago before becoming one of the most charismatic and successful leaders among the former Soviet Bloc states. I have met President Klaus many times – we honored him for his forward-thinking reforms at the National Association for Business Economics meeting in 1991. Most recently, I caught up with him at the memorial service held for the Nobel Prize-winning economist, Milton Friedman, by the University of Chicago. Klaus was a big fan of market reforms and is now under intense pressure from the political opposition. That, coupled with the backlash to capitalism the world over, could cost him his job. Although I hardly believe that markets are perfect, they are still better than the alternative – planned economies such as China.
I sure hope that my meetings during the rest of the week are more encouraging because, for all of its faults, capitalism is still the most flexible and durable economic system we know.
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