Vaclav Klaus: Our Freedom Is Endangered

By: Claudio Grass | Tue, Feb 24, 2015
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"The best environment for man is the environment of liberty." - Václav Klaus

Mr. Václav Klaus is a renowned academic and economist, but his worldwide reputation comes from his strong advocacy of liberalism and free market economics as well as his leading role in the peaceful split of Czechoslovakia and the formation of the independent Czech Republic in 1993.

Mr. Klaus remained focused on his academic career in Prague until he ventured into politics in 1989 when he became Federal Minister of Finance of the Czechoslovak federation. It is worth mentioning that Mr. Klaus never joined a political party until he became chairman of the then strongest political entity, the Civic Forum, in 1990. Soon later he co-founded the Civic Democratic Party and remained its chairman until 2002. During that time, he won the 1992 parliamentary elections and became Prime Minister of the Czech Republic. In this capacity, he led the historic peaceful separation of the Czechoslovak federation.

In 2003 he was elected President of the Czech Republic, a position he held until March 2013. He then focused on building the Václav Klaus Institute, a liberal-conservative think tank. Mr. Klaus has many publications and received numerous international awards and honorary doctorates in recognition of his historic role in the peaceful split of the Czechoslovak federation and his advocacy of liberalism.

Liberty is a fundamental human right and the cornerstone of our existence. But in our current world, liberty is being attacked from all directions, whether through higher state control or individuals themselves. Liberty is in search for its protector. Those that value and actively promote the ideals of freedom and liberty are few in such an enclosing environment. In the following article, Claudio Grass, Managing Director at Global Gold Switzerland, ventures into a discussion with one of the vanguards of liberty, former President of the Czech Republic, Prof. Ing. Václav Klaus.

Mr. Klaus talks about how he embraced the values of classic liberalism and free markets while growing up under communism and the challenges he faced. He speaks about the peaceful split of Czechoslovakia which took place during his years as Prime Minister and also about the transition of the currency system, which was successfully initiated at the same time. You will learn about his stance on the situation in Greece and if a potential exit of countries like Greece from the Eurozone would really be such a disaster. This all comes from a man who says he never intended to be a politician or office seeker. After the fall of communism, his motivation was to establish the rules of a market economy - not to plan its outcome.

Communism made me believe in the free market
According to Mr. Klaus, it was communism itself which made him follow the concept of the free market. The system was irrational and based on something else, on the opposite of free markets, freedom and pluralistic democracy, which made it relatively easy to see that attempts to mastermind the economy from above were basically wrong. Mr. Klaus explains that his careful study of economics helped him see this difference, saying that the Austrian School of Economics, the Chicago School of Economics and public choice school offered more arguments than other schools of economic thought. In the 1960s, Mr. Klaus worked at the Czechoslovakian Academy of Science, in the Institution of Economics. Although the objective was for him to study and criticize non-Marxist economic theories, he found himself fully supporting them.

After the fall of communism, everything was possible
Mr. Klaus was born in Czechoslovakia during the communist regime. The idea of separation never occurred to Mr. Klaus, explaining that under communism, all serious discussions about nations, nationality, federation, nation-states and so on were prohibited. Such a debate did not exist. But after the fall of communism, everything became suddenly possible. It is then that the Czechs discovered that Slovakia did not just want the end of communism, but that they also wanted their own sovereign nation-state.

He gives us his account as Prime Minister after winning the 1992 parliamentary election. Mr. Klaus was responsible for leading the negotiation process of the separation and therefore offers his interesting insider view of this experience. In the negotiations, the Czechs gave the Slovaks the option either to stay in a common state or to separate. They accepted the second solution. Mr. Klaus' task as prime minister at the time was to make the separation as friendly, as smoothly and as rapidly as possible. In more or less six months, 25 intergovernmental treaties were signed between the Czech Republic and Slovakia and everything was divided in a peaceful and friendly manner. The 1st of January 1993 marks the official separation of the Czechoslovak federation.

What can we learn from the Czech's transition experience?
The political split of the Czech federation entailed that its currency would be divided as well. Due to Mr. Klaus' leading role in the orchestration of this transition, it is interesting to learn his opinion on whether a potential exit of countries like Greece from the Eurozone would really be such a disaster. Mr. Klaus believes that the political split of the federation was a very useful experience in many respects. The people in Catalonia, Scotland, Quebec, and Flanders have been approaching Mr. Klaus in the last twenty years, asking what to do. However, Mr. Klaus asserts he was never a proponent of separatism. He only understood that a division of a country is useful when the old arrangements could not function efficiently. On the other hand, he is confident that the split of his country set a good example that a friendly split is possible, and that it does not necessarily create big economic losses. However, to quantitatively measure how much the country lost because of the split was impossible, as it was not a controlled experiment.

The Czech experience with currency transition is relevant for the current Euro. According to Mr. Klaus, it showed that it's very easy to divide the currency. For the Czechs and Slovaks, it was practically a non-issue. He argues that "to say that the exit of countries like Greece from the Eurozone would be a disaster is a complete nonsense. It is wishful thinking, or even propaganda." Mr. Klaus has to laugh when some Europeans keep telling him "look how deeply the Greek and European economies are intertwined". The Greek economy represents around 2% of Europe's GDP. Meanwhile, the Slovak economy was 1/3 of the Czechoslovak economy and the interconnections were much deeper and bigger.

When asked about the Czech central bank's decision to introduce a price limit on the Euro (similarly to the Swiss central bank), effectively tying the Czech Crown to the Euro, Mr. Klaus says that he does not consider the intervention of the Czech National Bank (CNB) in November 2013 as paving the way for the introduction of the Euro. The CNB tried to intervene because of its fear that the Czech economy is going down and that the small inflation could turn into deflation. It was a standard macroeconomic argument, but one that he totally disagrees with.

"We wanted to give a chance to the citizens of the country to buy the privatized firms"
During his time as Prime Minister, Mr. Klaus oversaw the privatization process where state assets were sold after the collapse of the communist system. According to him, all Western advisors were very much against the privatization methods, arguing they should apply standard privatization methods instead. But the question is: how do you value the price of those companies? He explains the process as follows: "In reality, we tried to avoid this issue as much as possible. That was our trick. We used several privatization methods in parallel. We also used standard privatization which involved selling the firm to a foreign owner; in some cases it was a Czech owner. But the specificity of our privatization process was the so-called "voucher privatization". We didn't know economically meaningful values of enterprises. In addition to it, we had to privatize in a situation where the Czech economic agents (the Czech citizens) didn't have any capital prepared for privatization. So, we created a very unique and very special privatization method, which was called "voucher privatization", or "coupon privatization"."

The objective was to give all citizens the opportunity to participate in this process which was applied on just one fourth of the economy. The state transformed the state-owned companies into joint-stock companies and issued voucher booklets. Those vouchers were sold to the people of the country (over 18 years old). He further clarifies that these vouchers were not given away like it was done in other countries, like Russia. The vouchers were sold, but not at the price of the correctly or incorrectly estimated values of those enterprises. The government set a price equivalent to an average week's salary in the country, which meant that it was not for free. But at the same time it was not something unacceptable to the majority of the people. This started a fully computerized process of buying and selling shares for vouchers. According to Mr. Klaus, "it was one of the biggest computerized games in the history of mankind. 8 million people participated." It took four rounds to find an equilibrium price, and the process was done twice in a total time frame of three years. Mr. Klaus highlights that their goal was not to make money for the government from the privatization process, as opposed to standard privatizations all over the world. He explains, "we wanted something else. We wanted to find private owners. That was our aim, which was misunderstood by all the sophisticated experts coming from business schools in America and elsewhere." He refers to his illustration of this experience in the book: "The Great Rebirth: Lessons from the History of Capitalism over Communism", where he wrote a chapter titled "The Spirit and the main contours of Czech (or Czechoslovak) Post-Communist Transformation".

The Czech Republic and the EU
On the question whether EU membership has negatively impacted the Czech Republic, Mr. Klaus points out that main problem lies in the initial idea behind the European integration process, which has transformed into the European Union. The European integration process started as an attempt to build a friendly and cooperating community of nations. Europe needed liberalization, deregulation and elimination of all kinds of barriers among its member states to do business, to trade and carry out investments. According to him, the turning point was the Maastricht Treaty in 1992, which changed the name, as well as the acronyms. "To move from the community of nations to the unity of people is the main problem", he adds.

This brought up the question whether Eastern Europeans might be more free market-oriented than the rest of Europe. Mr. Klaus does not see easy analogies. He explains that in our part of the world, it is very difficult to say that Brussels is similar to the former communist Moscow. But when looking at the political, economic and social system in the European Union, there seem to be many similarities. Mr. Klaus would have never expected that there would be so much regulation and so much state power as there is now. He would have never expected that the people would believe so much in the state and not the market and would have never believed that after the fall of communism, government failure would be so underestimated vis-à-vis market failure.

Europeans live in a nirvana of self-satisfaction, blind to the geopolitical power shift underway
There is a massive power shift underway from the West to the East, whether economically, militarily, etc.. But most of the West is unaware or blind towards this fact; they are still focused on the West. Many people, especially in Europe still live in a nirvana of self-satisfaction, totally disregarding that the European economy has been stagnating for a very long time, whereas the rest of the world has been moving upward. "We tragically underestimate this fact," says Mr. Klaus, admitting he is absolutely shocked that the European politicians, business people, and intellectuals don't take this issue seriously.

New wave of infringements expected after Charlie Hebdo attack
The 2001 attacks in the United states had very negative repercussions on the European public. Mr. Klaus fears there will be a new wave of attempts to limit our personal freedom due to the so-called fight against terrorism. On the same day of the Paris attacks an estimated 2000 people were killed by terrorists in Nigeria. But Paris, of course, was closer to home. "We should look for the reasons behind what happened here and there", argues Mr. Klaus. He believes that the main reason is twofold. One of them is the erroneous idea of multiculturalism which is destroying our societies and the other is a parallel-going concept, the doctrine of universalism. The fall of communism allowed for a sort of ideological vacuum, which was very rapidly filled by the export of democracy and of our Western concept of human rights to the rest of the world. This created many unsuccessful wars and destabilized countries in the Middle East, Africa, Asia, and elsewhere. The export of Western-style democracy and of new universalism created a reaction that came in another form of universalism, namely Islamism. His personal stance is that multiculturalism and the doctrine of universalism are the roots of terrorism.

Global warming is an "irrational ideology"
Another manifestation of deprivation of our freedom is related to the issue of global warming. Mr. Klaus considers it an "irrational ideology". Eight years ago he wrote a book about the nonsense of global warming, titled "Blue Planet in Green Shackles" with the subtitle "What is Endangered: Climate or Freedom?". His answer was and is: Freedom is endangered! The climate is o.k. The book was translated into twenty languages, including Japanese, Arabic, Chinese, Indonesian, for readers all over the world. Mr. Klaus simply does not believe in the doctrine of global warming. He explains that he is not a climatologist but an economist who worked as a statistician and econometrician for 15 years. He therefore knows how easy it is to play with the parameters and how easy it is to get the results you want to get. To Mr. Klaus, this doctrine is basically not a doctrine from natural sciences about climate, but rather a doctrine about man and society. The greens and environmentalists are introducing the old collectivist ideas to "control and regulate" and un-free society under new banners.

How to regain liberty again
Mr. Klaus highlights we need to fight for liberty permanently, every day, all over the world, in every country. It is necessary to have different ways to communicate those views advocating for liberty and freedom. He finally says: "Free press and free speech are fundamental issues. I know that they are restricted in many places in the current world we live in." In fact, he finds that to criticize the European Union has become almost impossible in some European publications. Mr. Klaus explains that his sharp criticism of Europe has caused him losing contact with some newspapers, journals and journalists. Additionally, because of his views on the situation in Ukraine, CATO, supposedly a free market think tank, severed its relationship with Mr. Klaus after having named him a Distinguished Senior Fellow there two years ago. He explains he is furious with the misinterpretation of the situation in Ukraine, highlighting that this is like a communist propaganda which he experienced for fifty years of his life.


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Claudio Grass

Author: Claudio Grass

Claudio Grass

Claudio Grass

Claudio Grass is a passionate advocate of free-market thinking and libertarian philosophy. Following the teachings of the Austrian School of Economics he is convinced that sound money and human freedom are inextricably linked to each other.

In his function as Managing Director at Global Gold in Switzerland he is able to combine his passion with his work.Global Gold offers private and institutional clients a safe, convenient and competitive Swiss solution for buying, selling, storing and delivering a variety of physically allocated bullion coins and bars made of gold, silver, platinum and palladium outside of the banking system.

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