CZECH REPUBLIC

General

Once part of the Holy Roman Empire and, later, the Austro-Hungarian Monarchy, Czechoslovakia became an independent nation at the end of World War I. Independence ended with the German takeover in 1939. After World War II, Czechoslovakia fell within the Soviet sphere of influence, and in 1968 an invasion by Warsaw Pact troops snuffed out anti-communist demonstrations and riots. With the collapse of the Soviet authority in 1991, Czechoslovakia regained its freedom. On 1 January 1993, the country peacefully split into its two ethnic components, the Czech Republic and Slovakia. The Czech Republic, largely by aspiring to become a NATO and EU member, has moved toward integration in world markets, a development that poses both opportunities and risks. But Prague has had a difficult time convincing the public that membership in NATO is crucial to Czech security. At the same time, support for eventual EU membership is waning. Coupled with the country’s worsening economic situation, Prague’s political scene, troubled for the past three years, will remain so for the foreseeable future.

Economy

Political and financial crises in 1997 shattered the Czech Republic’s image as one of the most stable and prosperous of post-Communist states. Delays in enterprise restructuring and failure to develop a well-functioning capital market played major roles in Czech economic troubles, which culminated in a currency crisis in May. The Czech economy’s transition problems continue to be too much direct and indirect government influence on the privatised economy, the sometimes ineffective management of private firms, and a shortage of experienced financial analysts for the banking system. The country slipped into a mild recession in 1998, but hopes to have rebounded with 1% growth in 1999.