Czechs count the cost of floods

Prague residents survey the damage

Severe flooding in central Europe looks set seriously to disrupt the Czech Republic's economy, forcing the government to borrow more.

The final repair bill could exceed the £1.2bn spent putting right the damage caused by a previous bout of flooding in 1997, according to reports.

The Czech crown fell by more than 1% against the euro on Tuesday amid fears that public sector borrowing will have to rise in order to pay for reparations.

The Czech government, which was already planning to run a budget deficit next year, is now thought likely to fall even deeper into the red.

The latest inundation came as the government was facing final payouts on bonds it issued to pay for repairs after the 1997 floods.

It has so far announced an initial emergency aid package worth $34m.

And with economic growth likely to falter as the country's industries struggle to get back on an even keel, it will be even harder for the government to plug the gap in its finances.

Shutdown

The tourism and agriculture sectors are likely to be most seriously affected.

The floods have also hit the town of Ceske Budejovice, home of the country's most famous company, the Budvar brewery.

In Prague, the stock exchange suspended trade on Tuesday as much of the city centre was evacuated, with leading banks and brokerages also shutting up shop.

The floods represent a sharp reversal of fortune for the Czech Republic, which has until now escaped the worst of the economic downturn afflicting parts of Western Europe.

The country's success in managing its economy had made it a front-runner among the 12 East European countries lining up to join the European Union over the next few years.