Prague - The Czech Republic will have to pay more interest to its creditors who get increasingly nervous due to the Greek crisis and demand higher yields.

Czech Finance Minister Eduard Janota said this in Sunday's political talk show Questions of Václav Moravec broadcast by the public service Czech Television. Janota estimates that the Czech Republic will have to pay CZK 5 billion (EUR 192 million) more than expected.

„We will be dealing with this all year," said Janota.

0.4 percent in a week

„In the last seven days, the yield curve raised by 0.4 percent. Theoretically, if the situation do not change, this would equal CZK 4 or 5 billion more in state expenses," the minister said. 

This is because the threat of default is still looming over Greece, in spite of the loan agreed by the EU and IMF, and there is still a possibility of a debt contagion spreading to other countries, mainly Portugal and Spain. Thus, the bond markets are extremely tense, with bond yields growing all over the world.

That's why the Czech debt is going to be more costly for the Treasury.

Read more: EU calculation: Czech 2009 budget gap at 270 bln CZK

To issue or not to issue...

Finance Ministry is currently deciding whether to issue new bonds. For some time, the ministry has been preparing to issue bonds in euro. However, Janota recently said the emission of so-called euro-bonds will be postponed, most likely after the national elections to be held at the beginning of June.

„Fortunately, the payment is scheduled at the end of October," the minister added.

Janota also said that it is not necessary for the Czech Republic to issue euro-bonds at all cost.

Read more: ČR will lend over EUR 1bn to IMF

In order to keep the budget deficit under 5.3 percent of the GDP this year, as obliged by the European Commission, Janota suggested additional measures to save as much as CZK 16 billion (EUR 615 million).

According to him, more austerity measures will have to be introduced in 2011 - above all tax increases and spending cuts. „The goal is to keep the deficit under the planned 4.8 percent of GDP," he said.

Reforms needed

In the first three months of 2010, the Czech debt grew by nearly CZK 39 billion (EUR 1.5 billion), to CZK 1,217 billion (EUR 47 billion).

The ministry wants to borrow CZK 280 billion this year, CZK 306 billion in 2011, and CZK 313 billion in 2012 (EUR 10.7 billion, 11.8 billion and 12 billion).

According to economists, the Greek crisis is underlying the necessity of fiscal reforms in the Czech Republic.

„Governments will have to react to this," said Luděk Niedermayer, an analyst to Deloitte consultancy and former Vice Governor of the Czech central bank. Politics were planning to reform public finances in the following years, but now it is clear they will have to be reformed much faster than that, he said.