The lower house of the Czech Parliament amendment the law governing the central bank-the Czech National Bank (CNB)-on Friday. The amendments, put forward by former Prime Minister Vaclav Klaus’ ODS, will restrict the central bank’s independence by a numbers of means. First, the President would appoint CNB board members from a list selected by the government. Second, the CNB would have to produce two budgets: "operational" and "broad." The operational budget would include everything bar "direct expenses on monetary policy conduct" and would be subject to Parliamentary approval. Similarly, wages of central bank officials would be scaled to wages in ministries. In addition, the central bank and the government would set inflation targets and the exchange-rate regime.
Disregarding a critique from the European Central Bank, and fierce opposition from the CNB, deputies from the governing CSSD and the main opposition ODS voted (as per their power-sharing agreement) for the amendments by a wide margin. Interestingly, the minister of finance criticized some of the amendments as unworkable and unconstitutional. While there will be no immediate impact on the central bank’s policy, the changes may make the central bank more responsive to government wishes and may, eventually, lead to less prudence in monetary policy. However, the law may be challenged as unconstitutional and thus it remains to be seen whether it will become applicable.
(Ondrej Schneider)