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Viewing cable 06PRAGUE1296, AMBASSADOR'S INTRODUCTORY CALL AT MINISTRY OF

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Reference ID Created Released Classification Origin
06PRAGUE1296 2006-10-18 06:38 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Prague
VZCZCXRO2640
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHPG #1296 2910638
ZNR UUUUU ZZH
R 180638Z OCT 06 ZDK
FM AMEMBASSY PRAGUE
TO RUEHC/SECSTATE WASHDC 8102
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEAIIA/CIA WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
UNCLAS PRAGUE 001296 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/NCE ERIC FICHTE, 
COMMERCE FOR ITA/MAC/EUR MIKE ROGERS 
TREASURY FOR OASIA ANNE ALIKONIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV ELAB EZ
SUBJECT: AMBASSADOR'S INTRODUCTORY CALL AT MINISTRY OF 
LABOR AND SOCIAL AFFAIRS 
 
REF: PRAGUE 01173 
 
1. (SBU) Summary: During the Ambassador,s October 16 
introductory call on Deputy Prime Minister and Minister of 
Labor and Social Affairs Petr Necas, Necas expressed his 
support for strong transatlantic ties as a fundamental 
foreign policy pillar for the current government, and 
lamented the Czechs' exclusion from the Visa Waiver Program. 
Necas agreed to a follow-up meeting to discuss the impact of 
a new law making it mandatory for all non-EU citizens to pay 
into the Czech social security system. Necas reviewed the 
challenges his government faces implementing fiscal policy 
and pension system reforms, regretted continued decrease in 
the defense budget and admitted that reform prospects were 
dim until early elections, likely to take place in summer 
2007. End Summary. 
 
2. (SBU) Minister of Labor and Social Affairs Petr Necas (who 
is also deputy chairman of the governing ODS, and previously 
served as ODS shadow Defense Minister) emphasized that 
maintaining strong transatlantic ties with the U.S. was a key 
priority for his government. He reiterated his government,s 
continued support to NATO and coalition military missions 
abroad, including in Iraq. Necas pointed out the only problem 
in the strong bilateral relationship involved the visa 
requirement for Czechs, and said he was perplexed that the 
U.S. would limit the free movement of people, one of the 
greatest privileges of a democratic system. He explained that 
the visa issue is a tool for anti-Americanism among Czechs 
and should be abolished or "softened" in the next couple of 
years. 
 
3. (SBU) The Ambassador raised concerns about the new law 
that requires all citizens of non-EU countries and countries 
without a bilateral totalization agreement to pay into the 
Czech social security system starting January 2007. 
Acknowledging the problem, Necas agreed to meet separately on 
the issue. 
 
4. (SBU) Necas briefed the Ambassador on the state of the 
draft 2007 budget, lamented that the defense budget continued 
to shrink further below the 2% GDP NATO target, and laid out 
his priorities for pension reform. He reported that the Czech 
budget deficit has accelerated over the last several years 
and caused the Czechs to miss the Maastricht convergence 
criteria for government deficits of 3.0% of GDP. He said the 
government deficit reached 3.6% of GDP in 2005, is expected 
to be in the range of 3.6% to 3.8% for 2006, and may go as 
high as 4.2% of GDP in 2007 (reftel A). 
 
5. (SBU) Necas blamed the previous government for the budget 
deficits, and has proposed reforming the pension system to 
control government spending. He reported that the pension 
system will cost the government CZK 5 billion (USD 230 
million) in 2006, and CZK 10 to 15 billion (USD 500 to 750 
million) by 2010. To ensure the solvency of the pension 
system and start reducing expenditures, he wants to increase 
the number of years workers pay into the social security 
system as well as the mandatory retirement age to claim 
benefits. He is also calling for a reduction in welfare 
benefits for the unemployed to encourage recipients to take 
one of the estimated 250,000 available jobs and start 
contributing to the economic system. 
 
6. (SBU) Despite his bold plans for reform, Necas appeared 
pessimistic about implementing any changes before possible 
early elections in 2007. Given his government's failed vote 
of confidence on October 3, Necas predicted a caretaker 
government of technocrats would rule until early elections in 
either May or August 2007. He ruled out any chances of a 
grand-coalition between the two leading parties, CSSD and 
ODS, and said it was "unacceptable" to the vast majority of 
ODS members. He made clear that without a strong political 
consensus on the need for economic reform, it was unlikely to 
happen. 
GRABER