The Role of Czech President in the Economic Diplomacy of the Czech Republic

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The Role of Czech President in the Economic Diplomacy of the Czech Republic

Bachelor thesis

Study programme: B6208 – Economics and Management

Study branch: 6210R015 – Economics and Management of International Trade

Author: Veronika Süssová

Supervisor: Ing. Jaroslav Demel, Ph.D.

Liberec 2019

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Role prezidenta v ekonomické diplomacii České republiky

Bakalářská práce

Studijní program: B6208 – Ekonomika a management

Studijní obor: 6210R015 – Ekonomika a management mezinárodního obchodu Autor práce: Veronika Süssová

Vedoucí práce: Ing. Jaroslav Demel, Ph.D.

Liberec 2019

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Prohlášení

Byla jsem seznámena s tím, že na mou bakalářskou práci se plně vzta- huje zákon č. 121/2000 Sb., o právu autorském, zejména § 60 – školní dílo.

Beru na vědomí, že Technická univerzita v Liberci (TUL) nezasahuje do mých autorských práv užitím mé bakalářské práce pro vnitřní potřebu TUL.

Užiji-li bakalářskou práci nebo poskytnu-li licenci k jejímu využití, jsem si vědoma povinnosti informovat o této skutečnosti TUL; v tomto pří- padě má TUL právo ode mne požadovat úhradu nákladů, které vyna- ložila na vytvoření díla, až do jejich skutečné výše.

Bakalářskou práci jsem vypracovala samostatně s použitím uvedené literatury a na základě konzultací s vedoucím mé bakalářské práce a konzultantem.

Současně čestně prohlašuji, že texty tištěné verze práce a elektronické verze práce vložené do IS STAG se shodují.

17. 4. 2019 Veronika Süssová

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Annotation

The bachelor thesis examines the direction of economic diplomacy in the Czech Republic and the impact of the Czech President Miloš Zeman on the economic diplomacy of the country in his first term in office. The theoretical part of the study is dedicated to analysis of the concept of economic diplomacy, its specifics in the Czech Republic and its development since the establishment of the Czech Republic in 1993. The practical part is firstly concerned with the analysis of the President’s speeches and interviews to find the key topics he discusses in the international environment. Secondly, the course of international trade and foreign investments to the Czech Republic is investigated by monitoring the course of trade with individual countries during Zeman's first term in office. Finally, the public opinion on his role is obtained by conducting semi-structured interviews with four Czech citizens. The conclusion of the thesis deals with evaluation of monitored data, drawing possible connections and assessing the overall impression of Miloš Zeman’s actions in pursuating economic diplomacy.

Keywords

Czech Republic, economic diplomacy, international trade, investment, Miloš Zeman

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Anotace

Bakalářská práce se zabývá ekonomickou diplomacií České republiky a vlivem českého prezidenta Miloše Zemana na její směřování v jeho prvním volebním období. Teoretická část práce je věnována rozboru pojmu ekonomická diplomacie, jejím specifikům v České republice a jejímu vývoji od vzniku samostatné České republiky. V praktické části je zkoumáno, jakými tématy se v rámci ekonomické diplomacie zabývá Miloš Zeman, zadruhé je sledován vývoj mezinárodního obchodu a zahraničních investic v České republice během jeho prvního volebního období, a nakonec je získán také pohled veřejnosti na jeho působení prostřednictvím polo-strukturovaných rozhovorů s českými občany. Závěr práce vyhodnocuje sledovaná data, předkládá možné souvislosti a posuzuje celkový dojem z vlivu prezidenta na českou ekonomickou diplomacii.

Klíčová slova

Česká republika, ekonomická diplomacie, investice, mezinárodní obchod, Miloš Zeman

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List of Tables and Figures

Tables

Table 1: Research philosophies ... 30

Table 2: International trade with selected countries in 2013 (mil. USD) ... 43

Table 6: Thematic Analysis of Interviews - Results ... 46

Figures Figure 1: Proportion of foreign trips ... 38

Figure 2: Number of foreign trips by destination state ... 39

Figure 3: State/official visits the President took in his first term in office by EU membership ... 40

Figure 4: State/official visits to the Czech Republic 2013 - 2018 by EU membership ... 40

Figure 5: Turnover in trade with Russia and France 2013 - 2016 (mil. USD) ... 49

Figure 6: Turnover in trade with Ukraine 2013 – 2016 (mil. USD) ... 50

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List of Abbreviations

ČSSD – Czech Social Democratic Party

EGAP – Export Guarantee and Insurance Company EU – European Union

FDI – Foreign Direct Investment GDP – Gross Domestic Product IT - Information Technology

MFA – Ministry of Foreign Affairs of the Czech Republic MIT – Ministry of Industry and Trade of the Czech Republic

OECD – Organisation for Economic Co-operation and Development PM – Prime Minister

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1. Introduction

1.1. Background

The Czech Republic, established in 1993, is one of the most developed Post-Soviet countries. It is a small open economy whose development is increasingly intertwined with the external economic environment, thanks to its strong ability to absorb foreign direct investment (FDI) and the increasing share of exports to gross domestic product. While economic themes take on the foreign policies of all countries, as the world economy is more and more integrated, in the Czech Republic, this trend is particularly marked, due to the facts described above. The economic dimension has become an essential component of Czech foreign policy. However;

the increasing dependence on exports, as the economy is being driven by export performance, also means that the growth of Czech economy is sensitive to fluctuations and the economic health of its trading partners in the European Union (Emerging Europe, n. d.). According to an article by Daniel Workman for World’s Top Exports (2018), 32,6 % of total Czech exports in 2017 were delivered to Germany, followed by Slovakia, Poland, France or the United Kingdom, with only two non-European countries (United States and Russia) in the top fifteen. Given that Europe is doing relatively well, the Czech Republic is doing even better (Nelson, 2017). Since the last recession in 2012, Czech economy has been growing steadily and it is being promoted as dynamic and competitive (Emerging Europe, n. d.; Trading Economics, n. d.). In order to maintain the position, actors of Czech foreign politics are required to cultivate the relationships with the existing trade partners and attract new ones.

Although in the Czech Republic the foreign policy agenda is mainly managed by the Ministry of Foreign Affairs of the Czech Republic and the Ministry of Industry and Trade of the Czech Republic, all Czech political actors operating abroad can have an influence on Czech foreign policy. One of the major actors is the President of the Czech Republic. Currently, the post of Czech President is held by Miloš Zeman, only the third person in this position since the establishment of the independent Czech Republic in 1993. The first Czech president was Václav Havel, in office from 1993 to 2003 and second president was Václav Klaus, in office from 2003 to 2013. While both Václav Havel and Václav Klaus were elected by the Parliament of the Czech Republic, Miloš Zeman, elected in 2013 and again in January 2018, is the first president elected in the direct presidential election. In the second round of the latter election, which took place on 26^th and 27^th of January 2018, Zeman won over his opponent Jiří Drahoš with a tight lead, receiving 51.36 % of the votes, only 152 184 votes more than Jiří Drahoš (iDNES, 2018).

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The elections were tense and reflect the state of Czech society, where differences of opinion escalate and a great part of the people who did not vote Zeman is dissatisfied with his style of performing the function, moreover some of them are worried that he harms the interests of the Czech Republic abroad.

1.2. Research Purpose

While the Czech president does not have strong presidential powers, he has a significant ideological influence and represents the country. The current Czech president is a distinct personality with convinced views and sometimes quite inconsiderate style of expression. He is known for his affection for Russia, a country, that is interested in decaying democracy in Europe, and China, a Communist regime, where human rights are not always fully respected (McKenzie, 2018). Consequently, Miloš Zeman is often criticized for his attitudes and it is a subject of public debate, whether his actions bring actual economic results (like FDI by Russian and Chinese companies in the Czech Republic) and at the same time, if it is possible that they hurt the external view of the Czech Republic by Western European countries. As the Czech president is one of the major actors operating abroad, his or her speeches are monitored by the media and the public and therefore can be heard or read by anyone including representatives of other countries and foreign firms even if president’s words are not addressed directly to them.

Therefore, these can influence the opinion of the president and the picture of the country that he or she represents, the Czech Republic. For instance, during Zeman’s last visit to Russia in November 2017, he claimed: “I bring about one hundred and forty businessmen with me. When I flew to France, I had fourteen businessmen with me, here, ten times more, therefore it can be inferred, that doing business with Russia is ten times more important than doing business with France” (Sokolov, 2017). Did such a compliment to Russia help improving the business relations between Russia and the Czech Republic? Did the businessmen sign a lot of contracts in Russia during the visit? And on the other hand, could words like these from the mouth of Czech top official affect the business relations with France? Has it, for example, led to a reduction in the volume of French investment in the Czech Republic?

The purpose of this investigation is to determine the role of the Czech President Miloš Zeman in the economic diplomacy of the Czech Republic, in order to clarify whether he has an impact on Czech foreign relations and if so, help to reveal whether his impact can be judged as positive or negative. The study hopes to conduct a valid research of the influence of Miloš Zeman as the Czech president by examining his actions in his first term of office (March 8,

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2013 – March 8, 2018), like the structure of his state visits and other foreign trips and topics discussed in his speeches, and bring an objective and unbiased overview into the social debate on Zeman’s impact by classifying arguments for evaluation of Zeman's presidency and supporting them with data.

1.3. Aims and Objectives

In order to be able to conduct the research, it is important to clearly identify its main aims and how to achieve them.

The main research question is:

“What role does the current Czech President Miloš Zeman play in the economic diplomacy of the Czech Republic and does he have a positive or negative impact (if any) on Czech foreign business relations?”

To answer the research question, the following aims and partial questions need to be covered:

Aim 1: To analyse what significance Miloš Zeman attached to economic diplomacy in his first term of office.

What economic and foreign policy issues did Zeman discuss in the international environment? Which countries did he visit during the first term in the office and which statesmen visited the Czech Republic?

Aim 2: To discover whether his activities can be connected to any changes in international business activities of the Czech Republic.

Could some of Zeman’s activities have infused new foreign direct investments in the Czech Republic? Is there any possible connection between his presidency and structure and balance of Czech trade?

Aim 3: To examine whether the public is concerned about the impact of the Czech President Miloš Zeman on Czech economic diplomacy.

Has the President contributed to clear foreign policy and a positive image of the Czech Republic? Semi-structured interviews on the public opinion on the President in context of the presentation of the Czech Republic abroad.

Data needed for answering the partial questions falling under Aim 1 and covering this aim will be sought primarily at Miloš Zeman’s official personal website, where original

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transcripts of all his speeches and interviews are publicised as well as press releases and other articles. Data used for covering the Aim 2 then come from the Ministry of Foreign Affairs, Czech Statistical Office, the Czech National Bank and other official institutions. Firstly, relevant speeches and interviews will be selected and analysed in order to accomplish the Aim 1. Secondly, data on Czech trade and investments in the in the selected time period will be observed. Thirdly, data obtained by conducting semi-structured interviews with a sample of Czechs will be analysed. Finally, discussion of possible relationships between Zeman’s presidency and changes in Czech foreign business relations will take place and results of the research will be delivered.

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2. Literature review

2.1. Economic Diplomacy

Diplomacy deals with the management of relations between states and relations between states and other actors in world politics (Woolcock & Bayne, 2011). Generally, it is the whole mechanism of representation, communication and negotiation though which entities with standing in world politics implement their foreign policy, more specifically, it is the way how states manage their foreign relations and support their national interests abroad via official spokespersons of the state – ministers, ambassadors and envoys; without resort to coercive measures or propaganda. Diplomatic means lead to achieving goals of states without the use of violence, through negotiations between states in order to achieve the stated goals (Berridge, 2010; Roach, Griffiths & Callaghan, 2014).

Economic diplomacy focuses on state’s economic goals, its international economic interests, respectively. Paradoxically, economic diplomacy has a greater width than diplomacy itself, concerns more actors and interferes even in domestic politics. Because of the increasing economic interdependence caused by globalization, economic diplomacy is complex, and it is part of national policies of every state. The main concern of economic diplomacy is the actions of all government members and agencies with economic responsibilities, reaching to the international environment, as well as the actions of non-state actors, whether they act abroad as independent players on their own or shape government policies (Woolcock & Bayne, 2011).

The state is however the primary actor in economic diplomacy (Van Bergeijk, Melissen &

Okano-Heijmans, 2011). The Czech Ministry of Foreign Affairs defines economic diplomacy as ’a set of measures intended to promote government policy in the field of the movement and exchange of goods, services, labour and incoming and outgoing investments’ (Ministry of Foreign Affairs of the Czech Republic [MFA], 2010, p. 471). Economic diplomacy is involved in creating a positive image of the Czech Republic in the world and plays an important role in the process of formulating, promoting and protecting the interests of the country in the European Union institutions and other international (economic) organizations (MFA, 2010).

With the increasing economic dependence of states on each other already mentioned, growth in international trade and the whole development of the international environment and international relations, economic diplomacy is becoming more and more important in the last decades and it happens at the expense of political diplomacy. And even after the 11th of September when the security issues have again been raised and then even more discussed in

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recent years in the context of the migration crisis and terrorism in Europe, the importance of economic diplomacy did not drop and economic targets remain among the top priorities of foreign policy for countries with open, external-dependent economies (Ilie & Dumitriu, 2017;

Woolcock & Bayne, 2011). What is more, often they blend in domestic political goals. The growing interdependence in the globalised world wipes out the differences between domestic and international politics in general and the economic diplomacy more and more depends on national decision-making processes. Apart from the complex of interdependencies, the number of players competing to influence the results of these relationships grows as well (Saner & Yiu, 2003). Therefore, Woolcock & Bayne (2011) distinguish three kinds of contradictory tensions governments must cope with in economic diplomacy: between economics and politics, between domestic and international pressures, and between government and other forces. The tension between international economics and international politics of a state is given by the fact that states are rather political units than economic ones. The impact of this tension is always present, and governments use a variety of methods for reconciling it. It is believed that whatever other states do, it is beneficial for a country to remove trade barriers to external competition; however, that meets political obstacles arising from domestic political pressures and protectionism (Oatley, 2015; Woolcock & Bayne, 2011). The second major tension between domestic and international pressures represents the basis for all economic diplomacy today and hinders domestic decision-making by complicating the position of foreign ministries among other economic diplomacy actors. Finally, the last significant tension is between state and other non- state forces, when decisions taken by the government affect business and the domestic market and the states must now also negotiate with foreign firms (Van Bergeijk et al., 2011). This tension has greatly advanced in last years, especially during the financial crisis in 2008 (Woolcock & Bayne, 2011).

As states cannot be considered unitary actors in economic diplomacy, not only systemic factors shape the economic diplomacy. Woolcock and Bayne (2011) identify six distinct factors forming the economic diplomacy of a state: three systemic, two domestic and one ideational.

The systemic factors include relative economic power – bigger economies usually have bigger economic power; international organizations or regimes (such as World Trade Organisation);

and markets, where the decisions in financial and monetary policies can immediately affect financial markets. But in order to gain more comprehensive view of the structure of state, two further domestic factors must be considered. Firstly, the interests are nowadays no longer simply national – for instance sector interests to a great extent shape national preferences and

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thus economic diplomacy. All the different interests of various social groups influence national approaches to economic topics. Secondly, in the domestic decision-making usually there must be consensus more institutions, especially when ratifying international agreements (Woolcock

& Bayne, 2011). To give an example, in the Czech Republic, according to the Regulation 144/1993 Coll., the international agreements are divided into three categories – presidential, government, and departmental, where presidential international agreements on the most serious issues are negotiated by the president, but must also be approved by the Parliament of the Czech Republic. In addition, the division of these powers itself is part of the domestic decision-making too. Finally, the last factor is the personal set of beliefs of the negotiator. Everyone has their own convictions and ideas which can impact upon economic diplomacy and shape how the negotiator approaches negotiations (Woolcock & Bayne, 2011). And these strong beliefs and their influence are evident, as it will be shown later, in the case of Czech President Miloš Zeman.

The main functions and tasks of economic diplomacy are to create conditions for the fulfilment of the economic interests of the state abroad and to support the commercial and investment activities of national business entities when entering foreign markets. Moreover, economic diplomacy can encourage foreign investors to the Czech market. In this respect, economic diplomacy is to a certain extent also a means of realizing interests of the domestic economic policy of the state, especially its pro-export policies, policies linked to the inflow of foreign investments, and programs to support the investment of domestic entrepreneurs abroad (Štouračová, 2008). In more detail, at the macro level economic diplomacy focuses on multilateral diplomacy aimed at creating conditions for the fulfilment of economic interests of the state, contributing to improving the functioning of world markets by promoting optimal trade and political rules, using participation in meetings of international economic institutions to influence the rules of functioning of international economic processes; as well as bilateral diplomacy focused on relations with specific states, contractual negotiations, presentation of the state as an attractive destination. At the micro level, economic diplomacy is focused mainly on bilateral diplomacy and focuses primarily on supporting domestic business entities in relevant foreign markets (Štouračová, 2008). In addition, between multilateral and bilateral agreements there is also the regional dimension of economic diplomacy, offering a quick way of opening markets, easier to accept as it occurs within a regional group of countries with similar preferences and level of development (Woolcock & Bayne, 2011). The Czech Republic is a member of the Visegrad Group, also known as the Visegrad Four, uniting four countries in the

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Central European region – the Czech Republic, Hungary, Poland and Slovakia (International Visegrad Fund, n. d.). Last, there is the fourth level of cooperation – plurilateralism. Plurilateral level of economic diplomacy is a stage between the regional and multilateral levels. Plurilateral bodies are for example the OECD, the G8 and G20 or the Commonwealth. The Czech Republic is a member of the OECD, since December 1995 (Organisation for Economic Co-operation and Development [OECD], 2018). Organisations on this level of economic diplomacy provide a forum for the member governments and moreover, they enable governments with similar preferences to develop agreed positions for negotiation in multilateral context (Woolcock &

Bayne, 2011).

2.2. Economic Diplomacy of the Czech Republic

In the Czech Republic, as in many countries in today’s world, the trend of strong interdependence of development with external economic environment is significant. It is due to the nature of Czech economy, which is characterized as an open economy with a relatively high and increasing share of exports on the gross domestic product and a growing annual export volume per capita. The Czech economy can be described as dependent on export, territorially dependent on the internal market of the European Union and sector-dependent on the automotive industry (Tlapa, 2018). The Czech Republic is a recipient of massive foreign investment. The growth of Czech economy is driven by exports, the development of economic relations and expansion of investment both by foreign investors in the country and by Czech entrepreneurs abroad. The strategic government programs are led by effective involvement of the Czech economy into world economy, active trade policies and investment support (Štouračová, 2008). A key aspect of the prosperity of the Czech economy is effective use of external environment and the foreign-economic dimension and the government and other relevant actors are more and more aware of the growing significance of economic diplomacy.

The actors of economic diplomacy of the Czech Republic are ministries – particularly the Ministry of Foreign Affairs of the Czech Republic (MFA) and the Ministry of Industry and Trade of the Czech Republic (MIT), the Office of the Government of the Czech Republic, Office of the President of the Republic, the Parliament of the Czech Republic, Czech Export Bank and Export Guarantee and Insurance Company (EGAP), agencies like CzechTrade or CzechInvest, business associations and finally, the commercial sector (Tlapa, 2018). The success of economic diplomacy is based on the coordination of the procedures of all relevant actors, in the case of the Czech Republic, this is especially the MFA and the MIT, and this cooperation should create a policy that takes into account both the foreign policy and economic

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interests of the state. However, especially in the first half of the 1990s, this cooperation did not work well and the ministries were not able to come to an agreement and even though they have realized the importance of promoting economic interests abroad over time, the cooperation of these institutions has greatly improved and some export support tools work smoothly, the Czech economic diplomacy still faces a number of problems (Jonák & Špicar, 2008). The MFA stated that in order for business diplomacy to be effective, it must have a clear vision and orientation, be properly organized, equipped with sufficient human and financial resources, conceived as an active part of the foreign and economic policy of the state, created and implemented in partnership with the business community and based on the real demand of Czech companies for its services (MFA, 2008; MFA, 2009). The vision how to present the Czech Republic uniformly, to build its positive image as a modern, advanced democratic country, a trusted partner in business relations and a suitable location for investment is stated in the Concept of a Unified Presentation of the Czech Republic and in the Foreign Development Cooperation Strategy of the Czech Republic 2018 - 2030 (MFA, 2010; MFA, 2017). Nevertheless, the economic diplomacy of the Czech Republic is damaged by political cycles when the direction of foreign policy changes after each election, respectively, with a new government or minister.

Moreover, with the new minister, staff changes in the ministry, and the work of the ministry is temporarily disturbed, while the minister may change several times in one regular term. Another problem is that the individual actors of economic diplomacy of the Czech Republic are not always coordinated, that is particularly visible in the relationship between the government and the president and true for all three presidents the Czech Republic has had. Often, there have been situations in which the president's foreign policy differed from government policy, or even denied it (Drulák, 2011). To conclude, the political cycle is shorter and governments and other actors instead of pursuing one long-term line of foreign policy are unstable and sometimes behave inconceivably, although they regularly issue the previously mentioned concepts.

Since the establishment of the independent state, there have been different forms of export support that can be divided to financial and non-financial. Financial support includes loans and insurance policies, non-financial, then, are the investment-promoting agencies, promoting export and culture and stimulating tourism. Private companies are more likely to appreciate financial support, so in 1992 the Export Guarantee and Insurance Company (EGAP) was established. Since 1995, the Czech Export Bank supports exports of Czech companies through provision and financing of export credits. The Czech (Czechoslovak) goods used to have an excellent reputation in many countries and current businesses had the prospect of successfully

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continuing this tradition, but they were hindered by the markets being riskier and by the geopolitical situation. Without the support of the above-mentioned institutions, their expansion into these markets would therefore be difficult to realize (Jonák & Špicar, 2008). In the area of non-financial support, the Czech Republic belongs to countries with the most developed structure of agencies designed to support economic diplomacy. Economic diplomacy has a network of embassies with commercial and economic sections and state-run agencies. It can rely on specialized workplaces, especially in the MFA and in the MIT, which both support economic interests abroad as one of their priorities (MFA, 2010). The business-economic sections of Czech embassies play one of the most important roles in export promotion.

Exporters can expect high-quality information about local events and the innovations and trends in these markets. It is also important to continually assess the mutual economic relations with other states and to help with the resolution of international trade disputes. Finally, the economic sections of the embassies can help to establish contacts in foreign countries, especially in the less developed or less democratic, where the economy and politics are strongly intertwined (Jonák & Špicar, 2008). Although most of Czech export is directed to neighbouring countries headed by Germany (more than half of total export volume, Germany: 32,2% of total export volume in 2017) and Western European countries, in recent years there has been a gradual territorial diversification. Especially developing countries offer considerable potential for Czech companies, because those are economies that are growing even in times of crisis and it is easier to find outlets in their markets provided that the entering company can overcome cultural differences. At the same time, the share of China and Russia in Czech exports is increasing, nevertheless, 83,9% of the Czech export still remains in the European Union and the dominant position of Europe is not likely to change in the years to come. The most exported products are motor vehicles (28,5% of total export), machines, electronic devices and chemicals (Český statistický úřad [ČSÚ], 2018). The overall balance of foreign trade in goods has been positive in the Czech Republic since 2005, as the country entered the European Union in 2004 and the Schengen area in 2007, thus the major barriers to foreign trade with Europe have become a thing of the past. However, with non-European countries, the balance of Czech foreign trade remains negative, mainly due to the volume of imports from China (ČSÚ, 2014).

Throughout Central and Eastern Europe there are similar conditions for foreign investors.

The Czech Republic has investment incentives and a comparative advantage, namely geographical location right in the centre of Europe, good transport infrastructure, qualified and relatively cheap workforce (Petříček, 2003). However, unlike Slovakia, it has not yet adopted

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the euro. To higher quality of the investment environment in the Czech Republic contributes CzechInvest, a business and investment promotion agency established in 1993. It is a sole organization to submit requests for investment incentives to government bodies. It supports foreign investment, the development of industrial zones, the booming of Czech companies and their involvement in the supply chains of multinational companies (MIT, 2006). The foreign investment in the Czech Republic can be divided into three phases. In the first phase, lasting from 1998 to 2002, there was strong inflow of capital from abroad, with most of the newly created FDI earnings then reinvested in the Czech Republic. The average annual inflow of FDI relative to GDP in this period was 8.8%. In the phase two, from 2003 to 2007, the structure of investment changed and mainly the volume of profits generated and reinvested in the Czech Republic grew. However, the attractiveness of the Czech Republic from the point of view of foreign investors within the Central European region started to decrease and capital inflow into the Czech economy continued at an average annual rate of 5% of GDP. In the third phase, from 2008 to 2013, there was a fundamental change in external conditions due to the outbreak of the economic and financial crisis and the average annual FDI inflow dropped to 2.5% of GDP.

During this period, it is also characteristic that a part of the dividends was outflowing towards foreign parent companies. Foreign parent companies were in trouble and used the newly created profits to own financing or financing their subsidiaries in other countries (Česká národní banka, 2014; Ekonomický deník, 2015). The financial crisis was therefore a milestone when the support of investment and export has once again become one of government priorities, based on the fact that, in the conditions of the crisis and because of the high degree of openness of the Czech economy, the prosperity of the country is dependent on the ability to assert its own economic interests in the world (MFA, 2010). In the recent years, the volume of FDI in Central and Eastern Europe and the Czech Republic is growing quickly. In 2016, the Czech Republic was ranked eighth among the ten most FDI attractive European countries, in terms of the number of jobs created by foreign direct investment (Gričová, 2017). Most investment flows into the financial intermediation sector and the automotive industry. Geographically, the Netherlands, Austria and Germany are the largest contributors to the capital invested in the Czech Republic (Ekonomický deník, 2015).

2.3. Czech President as an Actor of Economic Diplomacy

According to the Constitution of the Czech Republic, the president as the head of state represents the state externally. In the field of foreign policy, he negotiates and ratifies international treaties, is the commander of the armed forces, accepts the heads of embassy

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missions, and appoints and withdraws heads of Czech embassy missions abroad. From this formal definition of power, it may seem that the president does not play an important role in foreign policy. However, this does not apply in practice because all three Czech presidents, Václav Havel, Václav Klaus and Miloš Zeman in the first term of office, benefited from a large authority recruited outside the framework defined by the Constitution. All of them as distinguished personalities could alter the distribution of forces among individual actors of foreign policy (Hloušek, 2014; Kořan, 2017). In addition to the role of the President as defined in the Constitution, the role of the President is influenced by a subjective understanding of this role by its representatives. The practical functioning of the role of the President in foreign policy depends to a large extent on the will and the level of engagement of the protagonist. But this is a potential source of problems because of the ideologically different views of individual actors or the lack of communication between them. From the point of view of the internal political dimension of the external economic policy, it is essential that there is a certain elementary consensus among the decisive political subjects, in order to avoid drastic interference in functioning of the foreign policy depending on political changes (Handl & Pick, 2004). Without this consensus, foreign policy will not be consistent. In addition to lower efficiency, its inconsistency would also be a potential threat to economic relations, particularly in the field of foreign investment, since partners could not be certain about the stability of the country's internal environment. For the consensus on foreign policy to be properly established and maintained, there is need for effective communication between the President and other foreign policy actors, especially the government that is responsible for the formulation of foreign policy. The alignment of the attitudes of the two actors is not easy, however, because the line between the two entities determining the powers to act as a foreign policy actor is unclear.

Besides, communication with the government is provided by the Office of the President of the Republic and its foreign policy department prepares background material for President's foreign-political speeches, which makes it potentially an actor capable of influencing President's view. Historically, communication between the President and the government has tended to malfunction, which could have been the result of both the above-mentioned unclear constitutional law division of powers, but also the consequence of the personal qualities and preferences of the presidents. All three presidents have sometimes tended to promote their own outlook on the Czech Republic's outward appearance (Kořan, 2017).

Miloš Zeman is the longest-standing figure in Czech post-communist politics (BBC News, 2018). Born in 1944, at the start of his second presidential mandate he is 73 years old.

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He graduated from the University of Economics in Prague in 1969. During the Prague Spring in 1968 he became a member of the Communist Party, but he was expelled two years later for the criticism of the Warsaw Pact invasion of Czechoslovakia. Zeman was also dismissed from his job. Over the rest of the communist era, he was dismissed from his jobs for political reasons two more times. During the Velvet Revolution in 1989, he actively participated in the Civic Forum. In 1990, he was elected to the Federal Assembly in which he co-operated with the Social Democratic Orientation Club and two years later he joined the Czech Social Democratic Party (ČSSD), was elected to the Federal Assembly again and became the chairman of the ČSSD Municipal Committee in Prague. In 1993, Miloš Zeman was elected chairman of the ČSSD and in the following years transformed it into one of two major parties in the country as he almost quadrupled its election earnings. Between 1998 and 2002, Zeman was Prime Minister of the Czech Republic. However, for the upcoming elections in 2002 he did not accept the candidacy for the position of chairman of the social democratic party anymore on the grounds that he already accomplished his task by contributing to the fact that Social Democracy became the strongest political party in the Czech Republic (Pražský hrad, 2018). Instead, in 2003 Zeman ran for the post of president, but he lost, because some ČSSD members, including later Prime Minister Sobotka, did not vote for him (Hloušek, 2014). After the defeat, he retired and remained only an ordinary member of the ČSSD, until 2007, when he left the party entirely. He returned to politics in 2009. He founded a new party, Party of Civic Rights – Zemanists, but the party did not win any seats in the 2010 (nor 2013 or 2017) legislative elections. After failure of promise that the party will get to the parliament in the 2010 elections, Zeman resigns from the position of chairman and is only a ‘honorary chairman’ of the party ever since (Pražský hrad, 2018). In 2012, Miloš Zeman announced that he will run in the first direct presidential election in the Czech Republic, taking place in January 2013. In the first round of the presidential elections held on January 11 and 12, 2013, Miloš Zeman was ranked first with 24.21% of the vote. He moved to the second round with Karel Schwarzenberg, at the time the Minister of Foreign Affairs in a right-wing government led by Prime Minister Petr Nečas. The government was quite unpopular, which was however partly a result of the ongoing recession of the Czech economy (Vejmělek, 2013). In the second round, held on January 25 and 26, Miloš Zeman became the President of the Czech Republic with a gain of 54.8% of the votes (ČSÚ, 2013).

The second round of the presidential election was accompanied by a negative campaign, especially against Karel Schwarzenberg. Miloš Zeman used already his initial post-first round speech to direct attack on his rival and the negative campaign escalated during the next two

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weeks, leaving the Czech society polarized (Mánert, 2013; Pálková, 2013). After the election, Zeman promised to be the President of all Czechs; however, in spite of his promises, during his first term of presidency he has considerably deepened the division of Czech society (Czech News Agency, 2018).

Zeman was first inaugurated on March 8, 2013 (Pražský hrad, 2018). Soon after the inauguration Zeman used the opportunity to weaken the right-wing government of Petr Nečas in a dispute over the nomination of new Czech envoys to Bratislava and to Moscow. Usually, the names of the envoys are decided by the government on a proposal by the Minister of Foreign Affairs, and then the names are recommended to the president. The President approves the decision and PM countersigns it. But Zeman wanted to push his own candidates and the situation ended in a stalemate, which lasted until the fall of the government in June 2013 (Hloušek, 2014). In June 2013, a political scandal concerning the Prime Minister Nečas surfaced and the government had to resign. With the resignation of the government, two possibilities were opened for the President: announcing early elections; or allowing formation of a new government by entrusting the post of prime minister to someone other than Nečas, while it is the duty of the President to take into account the current distribution of political forces in the Chamber of Deputies. Coalition parties of Nečas's government in resignation agreed to continue the government with a new PM. Miroslava Němcová became the candidate for this position and the majority of the deputies promised to support the government, therefore such a government would probably gain the confidence of the Chamber of Deputies and could rule until proper elections (Rozehnal, 2017). But Miloš Zeman had built a large part of his presidential campaign on the criticism of Nečas's government, and this was an opportunity to get rid of it (Hospodářské noviny, 2013; Kutek, 2013). As a result, Zeman did not listen to the will of the deputies and arguing that there had been a long-term dissatisfaction with the former government of Petr Nečas, which was to be documented by several surveys by various agencies, he appointed a ‘government of experts’ led by politically independent Jiří Rusnok, who however used to work closely with Zeman in the past and supported him in the struggle for the Prague Castle (Hospodářské noviny, 2018; Lopatka, 2013; Rozehnal, 2017). In an analysis for Hlidacipes.org, lawyer Aleš Rozehnal (2017) argues that Miloš Zeman acted in violation of the Constitution, because the Czech constitution does not allow anything like a ‘government of experts’. The government of Jiří Rusnok did not win the confidence vote in the Chamber of Deputies and ruled in resignation to early elections and following appointment of a new government, headed by Prime Minister Bohuslav Sobotka, the chairman of the ČSSD, in

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January 2014. The appointment of the new government was smooth, nevertheless, during its existence, Zeman had more support for the chairman of the second strongest government party, the Finance Minister Andrej Babiš, than Prime Minister Sobotka, because the PM did not vote for him in the presidential elections in 2003 and he also blamed him for the relatively weak election result of the ČSSD, which won the elections by only a tight leadership. Immediately after the autumn parliamentary elections he also together with several members of the ČSSD tried to remove Sobotka from the post of chairman of the party and oust him as the next prime minister at a secret meeting in Lány, known as ‘the Lány coup’ (Hloušek, 2014). During the ruling of Sobotka's government, disputes between Sobotka and Finance Minister Babiš had grown, which resulted in efforts to withdraw Babiš from the post of the Minister of Finance.

However; Babiš refused to resign. As a result, in May 2017 Sobotka announced his intention to resign the whole government. Despite the Constitution, Zeman was willing to accept the resignation of the Prime Minister only. Eventually, Babiš resigned and Ivan Pilný, a member of Babiš’s party, became the new Minister of Finance (Hospodářské noviny, 2018). President Zeman, however, did not spare indiscriminate commentary on the situation and vulgarly criticized the Prime Minister (ČTK, 2017). To conclude, it is evident from Zeman's behaviour that he does not have much respect government and likes to enforce his own attitudes (Hloušek, 2014; Lopatka, 2013; Rozehnal, 2017). That was also reflected in his foreign policy.

Zeman presents himself as a pro-European president. After taking office in March 2013, Zeman's first foreign-policy act was raising the European Union flag at Prague Castle for the first time as his predecessor was Václav Klaus, known for being Eurosceptic. However, for most of his first presidential mandate, his foreign policy was more focused on relations with Russia and China. In particular, Zeman sought to promote trade with these countries and support increase in the volume of their investments in the Czech Republic as the economic diplomacy is according to him one of the two pillars of Czech foreign policy (the other is fight against terrorism) (Hospodářské noviny, 2018). Unfortunately, while working on improving relations with these countries, he often caused indignation in the Western world. Foreign media often report about his words or actions that do not represent the Czech Republic in good light and contradict the position of Western Europe in various topics or even contradict official foreign policy of the Czech Republic (Mail Online, 2017). Some of his attitudes may even be potentially dangerous because his view as a Czech and European statesman may be interpreted outside of Europe as the attitude of the Czech Republic and Europe. For instance, in autumn 2014 Zeman visited China. During the state visit Zeman reassured the Chinese President Si Jinping that the

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Czech Republic acknowledges the territorial integrity of China, including Tibet and Taiwan, and in an interview with Chinese state television he said that he had come to China to “learn how to increase economic growth and how to stabilize society” (Macek, 2014). Western media noticed that Czech president wants to learn how to ‘stabilize society’ in a state that does not respect human rights and suppresses opposition (Andreu & Vidal Liy, 2014; Lopatka & Muller, 2016; WELT, 2014). In 2015, Zeman attended the celebrations of the anniversary of the end of the Second World War in both Russia and China, although many other European statesmen did not attend those events, what is more, in China, Zeman was the only highest representative of the EU countries, who arrived (Hospodářské noviny, 2018). In May 2017 at a meeting with the Russian President Putin, Zeman joked that there are too many journalists and they should be liquidated while Russia ranks extremely low on freedom of press relative to the developed world, with many cases of journalists being killed or attacked (De Goeij, 2017; Sharkov, 2017).

And regarding his relationship with Russia, there is another problematic aspect, namely Zeman’s advisers (MacFarquhar, 2016). The President is surrounded by co-workers with close ties to Russia and that is raising doubts with Western partners, Czech online news server Aktuálně (2017) indicates that it is the reason why Zeman has never been invited to the White House, even though he has been very keen on getting there and as the first European statesman he supported the current US President Donald Trump in the presidential elections. Zeman’s stance on the migration crisis, terrorism and Islam also raised a few eyebrows in the world.

Whereas the Czech western neighbour, Germany, is the country most open to help migrants, many Czech politicians including the Czech president have a strong anti-migrant and anti- Islamic rhetoric (Cowburn & Ng, 2016; Spiegel Online, 2016; Tait, 2016). Most articles in foreign newspapers on the last Czech presidential elections described Zeman as a populist, moving the Czech Republic closer to the East and harming relations with the West (Janda, 2018;

Stone, 2018; The Irish Times, 2018).

From the hitherto described, two questions have surfaced. Firstly, whether an increase in the volume of mutual trade and investment with Russia and China has taken place and secondly, whether the economic relations of the Czech Republic with other states might have suffered.

While the events described so far certainly do not benefit Czech relations with the advanced world in general, they have not directly affected any particular state. However, there were some state-specific references too. One of problematic topics was Zeman’s attitude towards Crimea and EU sanctions against Russia. In the previously mentioned interview with Chinese television Zeman also claimed that “[the annexation of Crimea, Ukraine by Russia] is not primarily

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Russian aggression, but simply a civil war [...] One of the first steps of the new [Ukrainian]

government was the abolition of the Russian language on the territory of Ukraine, which was a complete nonsense. It was one of the facts that provoked a civil war.” (Macek, 2014). It is well documented that the ‘civil war in Ukraine’ is a disinformation (Špalková & Janda 2018). In October 2017, during a speech in the Council of Europe, Zeman declared the annexation of the Crimea as a ‘finished matter’ and again criticized EU sanctions against Russia, which he criticized throughout his presidential term (Hospodářské noviny, 2018). The Czech government distanced itself from the statement, like from many other Zeman’s statements, and the Ukrainian Prime Minister Volodymyr Hrojsman called Zeman “a mentally ill person” (ČTK, 2017). Finally, in an interview from November 2017 Miloš Zeman compared Crimea to Kosovo, saying that the European Union practices double standards (TASS, 2017). In addition, on the subject of Kosovo, he also stated that Kosovo is a state ruled by mafia and he does not recognize its independence, which the Czech Republic did recognize back in 2008 (Government of the Czech Republic, 2008; InSerbia, 2015). The Czech foreign policy has repeatedly appeared to be inconsistent and that may be potentially bad for Czech foreign economic relations. Miloš Zeman separates his personal opinions and the question of human rights from economic interests but that is a subjective view, which may vary for other people, and state representatives who speak in public should remain neutral, or formulate their views in such a way as not to slander the representatives and inhabitants of other countries. In summary, it is clear that some Zeman's steps and statements are controversial, the question remains whether they could be actually harming the reputation of the Czech Republic in terms of foreign investment and trade with states like Ukraine and EU members and at the same time, if the economic relations especially with Russia and China have improved thanks to Zeman’s effort and if there has been an increase in exports to these countries or in the volume of investment from these countries in the Czech Republic.

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3. Methodology

This chapter of the dissertation is concerned with the approaches to methodology used in this research and the process leading to the selection of these methodological approaches. The study is designed to answer this research question: