Prime Minister Topolánek joked at the Thursday Hospodářské noviny Forum and said that the Czech Republic might need foreign aid because of its bad reputation with the investors causing the Czech crown fall by CZK 0.25 on Friday morning. Crown stopped falling only when Topolánek denied his statement.
Nothing shows more blatantly the impact one hasty Prime Minister’s statement can have on Czech currency and thus the whole Czech economy, in the time of financial crisis. This is not the first time that the Czech Prime Minister influenced the development of currency by a single statement.
Red warning
Topolánek complained at HN Forum on Thursday at around half past five that the investors view the Czech Republic as one of the less stable central and eastern European countries that have already asked for foreign aid. “All we need is for them not to put us in the same box… Just because they do put us in the same box, I am afraid we might actually need the aid in the end,” Topolánek replied to the question by Reuters and started laughing in a couple of seconds with his typical jovial laugh.
But 10 minutes later, exactly at 5:36pm, Reuters sent out Topolánek’s statement about possible foreign aid onto the screens of all prominent Czech currency brokers. “Czech PM Topolánek said he is afraid that the Czech Republic might need foreign aid because it is being connected to other countries due to the crisis,” all world Czech currency traders read the news in red colour that is used to describe the information of top importance.
“It is hard to tell, how big an impact the news had on Czech crown. But I know for sure that they did look at it a lot in London, since I saw it in reports coming from various analytical groups,” said Jan Lopatka, main Czech Reuters correspondent.
Some economic analysts see it more clearly. “I do connect the Friday loss of the crown with the PM Topolánek’s statement. An ordinary London trader just thought that the economy is in trouble and so he speculated with the weakening of the crown,” said Markéta Šichtařová, head of Next Finance.
Crown started to pick up only when Topolánek denied any possibility of foreign aid.
When politicians talk
Topolánek managed to influence the Czech crown currency last year in July too when the crown was the strongest in history. He told HN that the strong crown is not a problem for Czech economy. “I don’t think that strengthening of the crown represents a serious threat for Czech economy.” His statement was published in HN on 21 July and during that day the crown reached a record CZK 22.92 to euro. Topolánek moderated his statement in the afternoon and the crown immediately fell by CZK 0.10.
Jiří Paroubek, as a prime minister, managed something similar in the middle of February 2006. Paroubek said that euro will cost CZK 25 in 2010 at his meeting with Moroccan businessmen in Rabat. The crown went up by CZK 0.19. Paroubek was later criticised for this statement by the central bank Governor Tůma. “I think that the Prime Minister did not realise that such a statement, coming from him, represents a very sensitive information for the market,” said Tůma who is usually very careful when it comes to politics.
Paroubek strengthened the crown again within a fortnight. At a press conference with the head of the World Bank Paul Wolfowitz on 28 February 2006, Paroubek said that the crown will be growing by 2.5% to 3% per year and the crown went up by CZK 0.10 to CZK 28.26 to euro afterwards.
Most politicians prefer to hold back during financial and economic crisis when the financial markets are particularly sensitive to every news on the development of economy. “I am very careful about statements that could influence the currency. Finance Ministers’ meetings especially stir up great expectations,” said Miroslav Kalousek, finance minister and head of the Ecofin Council of the EU.
Important summits, are often moved to the weekends when the markets are closed during the crisis due to great impact of the politicians’ statements on the world markets. The informal European summit where the European politicians will address the solutions to the financial crisis will therefore take place this Sunday. Czech representatives organising the summit told HN, under the condition of anonymity, that the summit is taking place on a Sunday because it might dangerously rock the markets on a workday.
