Czech Republic is not preparing to join Eurozone

The Czech Republic will no longer require a euro coordinator, as it is not preparing to join the Eurozone, said Finance Minister Andrej Babiš.

Economist Oldrich Dedek – who has served as the so-called ‚Mr. Euro’ at the Ministry of Finance ministry for the past 11 years – leaves his post in February to join the board of the central bank, obliging Prague to reexamine its attitude towards the EU and the single European currency.

„We don’t need a coordinator as we are not preparing to join the euro,” Babiš, who is also the Deputy Prime Minister, told the Lidove Noviny daily, adding that the post should be cut after elections later this year.

„We’ll leave it to the next government,” said Babiš, who is likely to become the next prime minister with his centrist ANO movement leading the polls ahead of October’s parliamentary elections.

The Czech Republic joined the EU in 2004 and as part of its accession took on the obligation to eventually adopt the euro after meeting the required economic criteria in terms of budget deficit reduction, low inflation and low interest rates.

But since then the timeframe has since been pushed back, with estimates suggesting the Czechs would not adopt the euro any time before 2020. Brexit may push back adoption even further.

However, as in other Central European nations, Hungary and Poland, there is little enthusiasm for adopting the euro in the Czech Republic.

A Eurobarometer survey conducted for the EU in November found that more Czechs had a negative than a positive opinion of the EU, 32 per cent to 28 per cent.

Ex-president Vaclav Klaus reiterated in January his opposition to the single currency. „I am a big opponent of a single European currency for very diverse countries. I don’t see any reason why the Czech Republic should join the euro area. In addition, all opinion polls show that people don’t want it. I believe that this is the strongest ‚no’ in the whole of Europe, (although) I’m not sure how things are in Poland,” he said

According to a 2015 Eurobarometer poll of seven EU countries that haven’t joined the euro, 70 per cent of respondents in the Czech Republic were opposed to joining the euro, the largest proportion of all those countries polled. In Poland 53 per cent opposed joining the euro.

The European single currency project has been hit by a series of disasters such as the European debt crisis, the Greek bailout and the threat of insolvency hanging over Italian banks.

The poster child

Meanwhile, Slovakia is the poster child for the benefits of the euro, Unicredit’s Global Chief Economist, Erik F Nielsen, told Pound Sterling LIVE.

„Slovakia has seen robust growth after joining the Eurozone, whilst its neighbor, the Czech Republic, which decided to remain independent and keep its old currency has done comparatively less well,” Nielsen argues.

The argument is that the euro prevents countries from adapting their monetary policy and therefore their exchange rates during periods of boom and bust.

During a recession it is advantageous for countries to lower their exchange rates to support exports, so they can export their way out of their recessions. The normal way of achieving this would be for the central bank of that country to try to manipulate the exchange rate, either by lowering interest rates or directly intervening.

However, by being a member of a currency union the country is not able to do so, since interest rates and market interventions are controlled by the European Central Bank (ECB) in Brussels.

Nielsen argues that for its member states the Eurozone has actually been economically positive for them. “European integration is good, and I’ll illustrate it with possibly the most controversial of topics, namely the Eurozone, which has been blamed for all sorts of European malaises,” he said.

“Let me use the occasion of Bratislava to compare how Slovakia has been performing relative to its ‚big brother’, the Czech Republic – and specifically since 2009, when Slovakia joined the Eurozone, while the Czech Republic decided to keep what they believe to be monetary independence,” he goes on. Growth in Slovakia averaged 1.6 per cent annually in the eight years, whilst in Czech Republic it only rose 0.4 per cent.

“As a result, the gap between Slovak per capita GDP and Czech per capita GDP shrank from 21 per cent in 2008 to 7 per cent last year,” notes Nielsen.

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