Austerity Plans Spark Czech Protests, Record School Strike

Peter Laca
·2 min read
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(Bloomberg) -- The Czech Republic faced one of the biggest displays of public discontent since the end of communism as unions protest spending cuts and tax hikes that the government sees as central to its agenda.

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More than 7,000 kindergartens and schools were closed across the country on Monday as part of a strike that union leaders called the biggest on record. Industrial workers, including those at Volkswagen AG’s unit Skoda Auto AS, downed tools for a few hours, while thousands marched through Prague’s historic center in an anti-government rally.

The protests are a reaction to a package of $6.7 billion of spending cuts and tax hikes pushed through by Prime Minister Petr Fiala’s government, which aims to halve the budget deficit in two years even as the $300 billion economy teeters on the verge of a recession. The two-year-old administration says the unpopular steps are needed to reverse the pandemic-era borrowing spree.

Fiala criticized unions for not negotiating and said his cabinet is determined to deliver on a key election pledge of restraint after it was forced to boost spending on energy subsidies, defense and aid to Ukrainian refugees.

“If we conceded, we would be giving up a good future for this country, a sustainable economy and sustainable financing,” Fiala told reporters on Monday. “We can’t do that.”

Union leader Josef Stredula blamed the government for the wave of discontent, which followed the worst bout of inflation in three decades. Protesters are demanding more money for non-teaching staff and other state funding, and oppose plans to lift the retirement age and raise some taxes.

The unions are prepared to continue with protest action if the government refuses to accept their demands, Stredula told a crowd of demonstrators in front of the Czech parliament.

While the Czech Republic’s outstanding debt — at 44% of gross domestic product — ranks it at the lower end of European Union peers, the pace of borrowing was faster over the last three years.

The austerity plans are hurting the government’s support. The main opposition ANO party of former billionaire Premier Andrej Babis is currently in the lead with 33.2% support, according to a survey by pollster STEM for CNN Prima News on Sunday. Anti-immigration SPD, which wants to take the Czech Republic out of the European Union and NATO, came second with 12% backing.

In contrast, the budget measures have been embraced by investors. Czech bonds have outperformed most European peers this year. The yield premium investors demand to hold the country’s 10-year notes instead of German bunds has shrunk to about 176 basis points from a peak of 422 basis points mid-last year.

--With assistance from Krystof Chamonikolas.

(Updates with size, scope of protests from second paragraph.)

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