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EYE ON EUROPEAN UNION PRESIDENCY:
Vaclav Klaus—More Theoretical Than Practical

Vaclav Klaus’s son recalled in an interview that when he was 13 his father told him to read Aleksandr Solzhenitzyn to better understand Communism’s oppressiveness. Those not familiar with Solzhenitzyn should note that the Russian novelist, dramatist, and historian exposed the Gulag, the Soviet Union’s forced labor camp system, which he himself served in and became the basis for his book One Day in the Life of Ivan Denisovich.

Suffice it to say that 67-year-old president of the Czech Republic Vaclav Klaus, who recently assumed the rotating presidency of the European Union, is a man shaped by his communist upbringing. In an interview Klaus said, “if you lived under communism, then you are very sensitive to forces that try to control or limit human liberty.”

It is this point about communism’s “repressive” nature that has become the crux of Klaus’s outlook, as a politician and economist. He is an economic liberalist that demands personal and state individualism. Without question, Klaus has provoked strong reactions from the international community.

For one, he is a fervent critic of the environmental movement, calling global warming a dangerous “myth,” arguing that the fight against climate change threatens economic growth. He went so far as to call out Al Gore as an “apostle of arrogance” for his role in the fight against global warming. Additionally, Klaus is a zealous eurosceptic. He claimed that the Czech Republic’s accession to the EU would reduce Czech sovereignty, and said in 2005 to a group of visiting US politicians that the EU was a “failed and bankrupt entity” that should be “scrapped”. He has most recently blamed the banking crisis on too much regulation, rather than too little, which some say display his dogmatic devotion to the free market economist Milton Friedman, who deeply influenced him when he was obtaining his economics degree.

So it should have come as no big surprise—although it played out as a big PR disturbance—that Klaus refused to fly the EU’s flag over Prague Castle on the 1st of January, the day French president Nicolas Sarkozy handed the presidency of the 27-member union to Klaus and the Czech Republic.

Yet while much of the European community is outraged the Klaus represents the “face” of the EU, Klaus garners appeal by Czechs. His credentials certainly speak for themselves: he became finance minister after the Velvet Revolution in 1989, founded the center-right Democratic Party to become prime minister between 1, and has been President since 2003 (reelected in 2008). He is credited with presiding over the peaceful 1993 split of Czechoslovakia into two states and helping to transform the Czech Republic into one of the former Soviet bloc’s most successful economies.

Yet Klaus has also been credited with what Vaclav Havel has called “gangster capitalism”, referring to his radical privatization strategy in 1992—including a voucher scheme that was later emulated in Russia—that led to the amassing of wealth by a few oligarchs. Klaus was also forced to resign as prime minister in November 1997 after a government crisis caused by a party financing scandal. Finally, he espouses friendly ties with Russia and criticized Georgia for causing war with Russia in August.

Klaus’s position as leader of the 6-month European Union presidency begs the question of his possible influence (and to what degree) on Europe and the Czech Republic. Critics say given the largely symbolic function of president in the Czech Republic he will wield little power. Yet Bohumil Dolezal, a leading commentator who once advised Klaus, said Klaus’s greatest talent—and therefore appeal—is his ability to appeal to average Czechs.

While Klaus’s role as President could be written off as strictly ceremonial, Klaus’s popularity and stature could sway the Czech “majority”. While we cannot substantiate this point, fact is that Klaus has an affinity for Russia (at least to the extent that he sided with the Russians in their attack on Georgia), and with the Czech Republic’s geographic location closer to Russia it is worth considering that the former “East” could have more influence Europe now that the “capital” has move to Eastern Europe.

Conversely this geographic shift from Paris to Prague will encourage Central and Eastern European countries not in the EU, or not using the Euro, to join. If Russia hasn’t put a bad taste in their mouths already, its recent stranglehold on natural gas may just tip the balance.

We’ll be looking more closely at the Czech Republic’s balance sheet as we considered our investment strategy in Europe.

Matthew Hedrick
Analyst
Howard W. Penney
Managing Director