Prague - The Czech government should not panic during the first phase of the looming economic recession in Europe. Instead of implementing drastic fiscal measures, it should only rearrange the expenses side of the 2012 budget.
However, in case the European crisis gets deeper or lasts years instead of months, the government will have to freeze or cut pensions.
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That's, in short, the advice of three economic experts from National Economic Council of the Government (NERV) - President of International Board of Commerce Michal Mejstřík, former Finance Minister Jiří Rusnok and former senior official of Revitalization Agency and Consolidation Bank Miroslav Zámečník.
Aktualne.cz, a Czech online daily, has asked them what should the government do to ease the effects of the crisis.
The group has prepared several scenarios, ranging from conservative to severe. NERV is expected to submit its suggestions to the government before the end of this month.
While the Czech economy (alongside with all the EU) is facing a serious possibility of contraction next year, the budget is prepared for a 2.5 percent GDP growth.
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"But I think by January (2012) we still won't know how will the situation develop," said Rusnok.
Do nothing, or very little
All three experts agreed that there will be no drastic economic slump. The economy will grow by zero, or will shrink by no more than one percent.
"The recession will be very, very mild," said Rusnok.
"All of this providing that the Italy problem will not escalate, the EFSF will work and the eurozone will agree on something," added Zámečník.
If these three conditions are met, the government should not implement any significant budget cuts, said the economists. Rather, it should postpone everything that is not necessary and rearrange the expenses (instead of cutting them).
In addition, there will be some possibilities to improve the revenues side of the budget and stimulate economic growth. Above all, the state should support Czech exporters, the experts agreed.
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In addition, Jiří Rusnok said that the government should increase VAT, but only if the economy shrinks 3 percent or more.
Crisis scenario
The economists have also prepared a severe crisis scenario for a longer or deeper crisis. For example, German chancellor Angela Merkel has already hinted at a possibility of EU's "lost decade".
For that case, Zámečník speaks about "measures of increasing painfulness," mentioning the example of reforms recently implemented in Estonia and Latvia. This means freezing incomes in both private and public sectors, and if necessary freeze or slow down the growth of pensions, or even cut them.
These measures should go hand-in-hand with higher taxes for the rich. Not in order to improve the budget balance, explained the economists, but to avoid social tension.
"A society will survive real misery only when it perceive the pain as justly shared," said Zámečník.
Among less traditional measures suggested by NERV is even a four-day workweek.
