CZECHIA SPECIAL UPDATE - COVID UPDATE DIPLOMATIC TENSIONS WITH RUSSIA MEPS ON BABIS' CONFLICT OF INTEREST - CEC Government Relations

CZECHIA SPECIAL UPDATE
            15.5.2020

          COVID UPDATE
                 -
 DIPLOMATIC TENSIONS WITH RUSSIA
                 -
MEPS ON BABIS’ CONFLICT OF INTEREST

General COVID-19 Update

Number of reported cases: 8,352

Number of deaths: 293

Number of cured cases: 5,249 (By May 15, 12 PM)

On May 11, the Government released another easement of restrictions regarding the COVID-19
pandemic. In the third phase, the Government no longer prohibits travels abroad, yet at the return, it
is necessary to prove yourself with negative covid test or enter a 14-day quarantine. PM Babis
implied that Czechia could open its borders with Austria and Slovakia either on June 8 or June 15,
negotiations with Poland and Germany are currently being held. Furthermore, a new set of services
is available such as outside restaurants, hairdressers and retailers in shopping malls. Elementary
schools are partially opened since May 11 but under strict regulations leading many parents to keep
their children at home. The Ministry of Health acknowledged the difficulty of the situation and said
that parent “care subventions” would be kept. Notably, wearing face masks will no longer be
necessary in public spaces while keeping 2m distance after May 25, but still compulsory in enclosed
spaces until further notice.

The Government has also updated the following economic measures:

   •   The current system of Electronic records of sales (EET), as well as the launch of the 3rd and
       4th phase, was postponed until January 1, 2021.

   •   Amendment increasing the 2020 State Budget deficit up to CZK 300 billion (EUR 11 billion)
       published in the Collection of Laws.

   •   The survey of the Ministry of Finance shows that the Czech economy will decrease by 7.6%
       in 2020 due to the Covid-19 crisis. The inflation is expected to reach 2.7% and the growth of
       wages will slow down to 1.6%, compared to 7.1% in 2019.

   •   Financial support for self-employed was extended until the end of June, additionally, small
       companies “s.r.o” (Ltd.) up to 2 partners are included in the support as well.

   •   Minister of Industry and Trade Karel Havlicek (for ANO) implied that new guarantee program
       COVID III is prepared to launch. Within the new program, commercial banks should decide
       who receives a loan with state guarantee. In overall CZK 500 billion (EUR 18 billion) should
       be used in order to help Czech firms.

Diplomatic tensions with Russia

Czech-Russian relations have been tense over the past months as a result of a series of moves
made by representatives of Prague’s municipal administration and angered Russian reaction. At
first, Russia criticized the decision of Prague City Council led by Mayor Zdenek Hrib (the Pirates) to
rename the street where the Russian Embassy is based in Prague to Boris Nemtsov Square, after
the Russian critic of Putin’s rule, who was assassinated in 2015. Subsequently, the tensions
intensified due to the removal of a statue of controversial Red Army commander Ivan Konev ordered
by Mayor of Prague 6 Ondrej Kolar (TOP 09) on April 3. The decision sparked outrage in Russia,
which accused Prague of violating the treaty about the protection of each other’s monuments. Last
but not least, Mayor of Reporyje Prague district Pavel Novotny (ODS) got into conflict with the
Russian administration over his intention to raise a monument to Soviets who fought under the
Germans before joining the Prague Uprising in May 1945.

Despite the call of Minister of Foreign Affairs Tomas Petricek (CSSD) for starting a mutual discussion
to normalize the relations, the situation further worsened due to the leaked information of the Czech
intelligence services regarding the arrival of a supposed member of the Russian intelligence
community carrying ricin poison. As a result, all three municipal politicians were provided with police
protection.

The dispute attracted the attention of NATO Secretary-General Jens Stoltenberg, who has spoken
out in defence of Czech politicians and rejected attempts to intimidate democratically elected
officials. PM Babis commented on the situation saying that it is unacceptable for anyone to interfere
in the Czech domestic political scene, however, he also expressed hope that the conflict will be
solved via a diplomatic dialogue.

                                MEPs on Babis’ conflict of interest

The alleged conflict of interests of Czech Prime Minister Andrej Babis remains a persisting issue. In
the early days of May, the Budgetary Control Committee (CONT) of the European Parliament issued
a statement regarding the issue. In relation to the mission of the CONT to Prague this February, the
Committee has voiced its deep concern about the situation with the Czech legislative framework
regarding the conflict of interest in general. Babis’ “undiplomatic” reaction towards the members of
the mission was strictly opposed at the domestic scene, but also by Manfred Weber (EPP), one of
the most powerful politicians in the EU Parliament.

CONT Chair Monika Hohlmeier (EPP) and other MEPs urged the Czech officials to take necessary
action to immediately tackle the “systematic issues”. They called upon a higher level of transparency
among the public figures’ financial interests. The MEPs demand clear ownership structures and real
beneficiaries of major funds, a higher budget, and public contract transparency. The Committee also

tackled the issue of big agricultural companies, crushing smaller entrepreneurs in the arable land
market. Furthermore, CONT members suggested that the Czech Supreme Audit Office (NKU) should
obtain broader competences in the field of real beneficiaries’ audit so that they could efficiently
supervise the compliance with international standards. The POLITICO cited influential MEPs that in
addition to that “Babis should refrain from participating in negotiations over the next long-term EU
budget”. Chairwoman Hohlmeier insisted that the mission proved serious doubts about an “oligarchic
structure” in the Czechia vis-a-vis European funding adding that if the European Commission inquiry
confirms the conflict of interests, the Czech PM should solve it or resign.

The overall result of the Committee hearing is a set of advice to all concerned parties. According to
them, the European Commission should halt any funding to the Agrofert holding, allegedly still under
influence of PM Babis, until the conflict of interest process is closed. The Commission should also
apply zero-tolerance policy towards such practices and should immediately demand to return all
funding that was processed illegally. However, the Commission said in the bilateral negotiations that
it will deliver the suspended subsidies to the Agrofert holding, and it will draft the final audit report
within six months, which is thus due in mid-October. Babis however maintains he has given up his
business interests and denies any wrongdoing.