Czech ministers consider euro adoption
Reading Time: 3 minutesA new report on the pros and cons of euro adoption from the Czech National Economic Council (NERV) warns that joining the eurozone would see Czechia lose control over interest rates and monetary policies, limiting its ability to address domestic economic issues.
On the positive side, the report highlighted that the euro could lower inflation and long-term prices and make price comparisons easier, creating pressure to cut prices on goods that cost more in Czechia. Joining the common currency could also expose Czechs to financial risks if members require bailouts, the NERV adds.
Euro adoption would require full government term
Czechia’s ruling coalition has no plans for euro adoption during its current term, which is due to run until October 2025. Czech Prime Minister Petr Fiala is a member of the largest coalition party The Civic Democrats (ODS), which has historically been hesitant on the pan-European currency. Fiala for his part has said Czechia should carry out internal reforms before considering euro adoption.
Coalition parties TOP 09 and the Mayors and Independents parties are the most vocal advocates in government. Czech Europe Minister of the Mayors and Independents party Martin Dvorak has repeatedly called in vain for an official coordinator for euro adoption, arguing that it would attract foreign investment, boost price transparency and competition, and eliminate currency fluctuations for businesses and tourists.
The NERV said Czechia should consider joining the European Exchange Rate Mechanism (ERM II) and ensure a credible political plan for euro adoption. The NERV also said pre-euro structural reforms should come before any eurozone membership and are more crucial for Czechia’s long-term economic prosperity.
While Czechia does not meet all the Maastricht criteria at present, the NERV believes it soon could. “The euro would make it easier to compare prices and would create pressure to converge and reduce prices for products that are more expensive here.”
Czech meets most criteria to join common currency
The criteria for joining the euro are: a maximum inflation rate of 1.5 percentage points above the average of the three lowest national rates in the eurozone; a long-term interest rate of no more than 2 percentage points above the three lowest; a maximum budget deficit of 3% of GDP and debt ratio of maximum 60% of GDP; and exchange-rate stability, provable by two years in the ERM II.
For his part, Czech Finance Minister Zbynek Stanjura has said any decision on the euro should be based on political agreement and wide public support and would ideally be made at the beginning of the next government term, allowing it to oversee the process. Czech Employment Minister Marian Jurecka has said Czechia could meet euro adoption criteria “by the end of the decade”. Another euro advocate is Czech President Petr Pavel.
Mayors and Independents minister lays euro groundwork
When the Czech cabinet discussed the report by NERV, Dvorak admitted that, as with the country as a whole, his view is a minority one, but the opinions of his colleagues are changing. According to Dvorak, “the debate has shifted to whether, now that we finally meet the Maastricht convergence criteria, apart from one, it’s time to take action.
“The NERV report clearly states that it would be optimal for the entire process to be handled by one government within a single election term: four years would be just about the right amount of time, maybe even a bit less. However, it would be good if the previous government prepared everything, as they say, wrapped up in a bow, laid out in folders, with all the necessary steps ready, should the next government decide to move forward,” Dvorak said.
“We will organize various round tables, host conferences, attend lectures, and engage in discussions with students and citizens… to slightly increase the level of support for the euro.”
“In fact, over the past year, we’ve seen an increase from 20% to about 25%. At this rate, we’ll get there soon. Interestingly, Eurostat has already reported 49% support, so I’m not entirely sure where the methodological difference lies between their system and ours. In any case, it’s a challenge for us—we have work to do, and we are committed to doing it.”
On the risk of inflationary spikes, Dvorak said “If 65% of people fear that adopting the euro would sharply increase prices, the NERV report clearly stated that such concerns are unfounded… I believe our current task is to address these misconceptions.”
Next year’s election could return anti-euro ANO gov’t
Czechia’s main opposition ANO party, currently leading in the polls, opposes euro adoption, and for now, Slovakia and Slovenia remain the only EU-8 countries – the former Communist countries that joined the bloc in 2004 – to have adopted the common currency.
ANO Chairwoman Alena Schillerova explained: “We have a strong Czech crown, which is one of the most stable currencies in Europe. The eurozone is currently a politically controlled grouping with its own internal economic and foreign policy problems.”
Creditas Bank economist Petr Dufek and one-time central bank governor Jiri Rusnok, citing the lack of preparation and societal support, say Czechia should wait on euro adoption.