In the speech at the University of Economics and Business, I also mentioned two problems that are and will continue to be relevant: (1) the CNB's large balance sheet and (2) government debt. 3/6  BIS - Central bankers' speeches  Regarding the CNB's large balance sheet, over the last ten years, interest rates were too low, in fact zero for a long time. In addition, in early 2017, interventions led to an increase in the CNB's balance sheet within four months, or rather in the banking sector's liquidity. It increased from CZK 1,300 billion in December 2016 to CZK 2,300 billion in April 2017, i.e. there was an additional CZK 1,000 billion in the balance sheet, or an almost doubling of the balance sheet within four months of 2017. During these interventions, demand for Czech government bonds from non-residents increased. This further expanded the country's borrowing options. Budget constraints were eased. Then, during Covid, in particular at the end of March 2020, interest rates were reduced too close to zero. And fiscal policy was expansive for too long – we created a dangerous entitlement economy in which the state was the rich uncle who helped with almost everything. When an economy such as this one (especially one with a huge surplus of money and incomplete price convergence) was hit by a strong cost shock after the lockdowns, the Czech Republic ended up with the highest core inflation in the EU (from November 2021 to October 2022).
All this shows that there is enormous potential for the expansion of bilateral economic relations between our two countries. BIS Review 45/2005  1  Many politicians in Europe seem to forget that China, like all the other emerging economies in Asia and South America, has become one of the dynamic poles in the global economy in recent years. By contrast, Europe has trailed behind in terms of growth. This is precisely why globalisation makes sense for an economy open to international markets such as ours. For both historical and geographical reasons, our country is exposed to a considerable commercial risk in Europe: 60% of our exports are destined for European countries; accounting for 25%, Germany ranks first among our export markets. These European markets are no longer the most dynamic today, nor will they be in the future. It is essential that we step up the diversification process so as to ensure the expansion of our export sector. It is therefore in our own best interests to strengthen economic relations with Asia, in particular with China. Business relations between industrialised countries and China currently take centre stage in political discussions. In particular, harsh criticism has been levelled at China because of its exchange rate policy of pegging its currency to the US dollar despite the fact that it has made considerable progress in terms of efficiency.