Czech Republic Has De Facto `Opt Out' on Joining Euro, Prime Minister Says
The Czech Republic can delay joining the euro as long as it is beneficial to retain the koruna, Prime Minister Petr Necas said as Europe’s sovereign debt crisis undermines confidence in the single currency.
The government won’t set a target date for euro membership during its term in office, which ends in 2014, Necas, 46, said yesterday. While the Czech Republic committed to adopting the euro when it joined the European Union in 2004, it must first meet fiscal criteria, including cutting the budget deficit by half to a maximum of 3 percent of gross domestic product.
“Nobody can force us into the euro,” Necas said in a live debate on Czech Television, the Prague-based state broadcaster. “De facto we have an opt-out.”
Support for the common currency is declining in the Czech Republic and other eastern EU states after growing deficits forced euro-zone countries to bailout Ireland and Greece. About 70 percent of Czechs oppose dropping the koruna, the most since the survey started five years ago, according to a survey of 1,228 people conducted Sept. 3-13 by the pollster STEM.
Polish central bank Governor Marek Belka said Dec. 2 that this country shouldn’t hurry to adopt the euro until the EU adjusts its political institutions and economy to support a stable common currency.
Switching to the euro must be preceded by spending at least two years in the exchange-rate mechanism to prove currency stability.
“Nobody can force us to enter this mechanism,” Necas said in Prague. “It’s solely up to our will. It’s our decision, and there is no reason to rush.”
The koruna was little changed at 24.995 to the euro as of 9:05 a.m. in Prague. The Czech currency has gained 3.4 percent to the euro since the May 28-29 general elections after which Necas’ administration pledged to cut the fiscal deficit to less than 3 percent of GDP by 2013.
Neighboring Slovakia joined the euro on Jan. 1, 2009, 16 years after Czechoslovakia ceased to exist. Estonia, another former communist state that entered the EU in 2004, is scheduled to adopt the euro next year.
Czech President Vaclav Klaus, a critic of the euro, asked the government to look whether the country may renege on its obligation to join the currency because the monetary union has changed as a result of the bailouts, Necas said yesterday.
“The euro zone has changed from what it was in 2003, when we voted in the referendum on joining the European Union,” Necas said. “Entering the euro zone now, or even setting the target date, would be political and economic foolishness.”
The Czech Republic is recovering from its worst recession since the fall of communism two decades ago. The pace of recovery depends on demand for Czech products in the euro area, the main Czech trading partner. Exports, including cars made by Volkswagen AG’s Skoda Auto, account for about 70 percent of the country’s economic output.
The economy will benefit from having its own currency as the country tries to narrow the wealth and price gaps with western Europe, Necas said.
The Czech Republic’s GDP per capita, an indicator of the standard of living, was about 80 percent of the EU average in 2008, compared with 116 percent in Germany, according to data from Eurostat, the EU’s statistics agency in Brussels.
“It is clear that the costs of maintaining an independent Czech currency are lower than the costs of eventual adoption of the euro,” Necas said. “And it will stay so for quite a long time.”
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