Cost of 'divorce' puts partner nations at odds: Czechs and Slovaks are embittered by their split, Tony Barber reports from Prague

GROUPS of cheerful Czechs were sitting in the open-air cafes of Prague's Old Town Square, sipping glasses of rich golden beer, swapping jokes and anticipating a sunny weekend. Suddenly the sky turned black and the rain came down.

It was a metaphor for events since 1 January, when Czechoslovakia split into two states. This was supposed to be at once a divorce and the start of a new relationship, based on harmony, tolerance and equality. Though not all Czechs and Slovaks were convinced that the separation was a good idea, their political leaders said it was the best way forward.

In fewer than five months, however, the divorce has produced immense bitterness on both sides. It is still nothing like as bad as the furies unleashed by the break-up of Yugoslavia, but it has worried potential foreign investors, who fear that the arguments will harm the economies of both countries and delay the emergence of flourishing free markets. It has also widened the gap between ordinary Czechs and Slovaks, who are realising that the divorce is proving far more final than they had expected.

The most serious dispute broke out in March when the Czech Prime Minister, Vaclav Klaus, said his government would withhold shares in Czech companies from Slovaks who bought them under an ambitious privatisation scheme last year. Mr Klaus said the Czech government would keep the shares as 'bail' until the Slovaks signed agreements on dividing jointly owned property and paid the Czechs 24.7bn crowns (pounds 575m) from the assets of the old federal bank.

The Slovak Prime Minister, Vladimir Meciar, was outraged. 'Blackmail,' he declared. 'We are not a Czech province. We are a sovereign state.'

When negotiating the divorce, the Czechs and Slovaks envisaged a close relationship based on a customs union, a common currency and the free movement of labour. Both countries were determined to join the European Community, and realised that their chances would be higher if they could arrange their affairs efficiently.

But economic realities intervened. Mr Klaus's free-market policies were quite different from Mr Meciar's emphasis on protecting outdated heavy industries. The more Western-oriented Czech economy attracted 92 per cent of foreign investment into Czechoslovakia last year, and its hard currency reserves were much larger than Slovakia's. From late last year, thousands of Slovaks began moving their savings into Czech banks. German and Austrian banks took fright and suspended purchases of the common Czechoslovak currency.

Thirty-eight days after the divorce, Czech and Slovak leaders split the currency. The exchange rate between the Czech and Slovak crowns was set at 1:1, but the Slovak currency immediately came under pressure. By the end of February, Czech banks were quoting the Czech crown at 80 to 100 Slovak crowns.

A revalued Czech crown, however accurately it reflects the relative strengths of the two economies, is not necessarily good news for the Czech Republic. The Economy Minister, Karel Dyba, said that 25 per cent of all Czech exports go to Slovakia, compared with 40 per cent of Slovak exports to the Czech lands. Now that Czech exports are more expensive, trade with Slovakia is certain to fall. The European Bank for Reconstruction and Development estimates that every 10 per cent drop in exports to Slovakia will reduce Czech gross domestic product by 1 per cent. Slovak and Czech economists say bilateral trade may have fallen by almost half in the first few months of 1993.

So Czech companies are under pressure to seek markets in the West. There is a similar incentive for the Slovaks, as their devalued crown has made their products cheaper.

When the Czechs and Slovaks announced their separation last year, almost every Western politician reacted with dismay, fearing economic and security problems in the heart of Europe. But if anyone hoped this particular couple would one day remarry, they under-estimated the role that money plays in a divorce settlement.