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Czech Republic Still Able to Opt Out of Adopting Euro, Prime Minister Says

The Czech Republic can still in practice opt out of joining the euro and shouldn’t hurry in making a decision on adopting the single currency, Prime Minister Petr Necas said.

The country doesn’t have a target date for euro membership, though it’s among the former communist states that had committed to the switch as part of their accession treaties with the European Union. The Czechs need to meet the euro-entry conditions, including cutting the budget deficit by half to a maximum of 3 percent of gross domestic product.

“Nobody can force us into the euro, de facto we have an opt-out,” Necas said in a live debate on the state Czech Television today. The switch to the euro must be preceded by spending at least two years in the exchange rate mechanism to prove currency stability, and “nobody can force us to enter this mechanism,” he said. “It’s solely up to our will, it’s our decision, and there is no reason to rush.”

Support for adopting the euro is fading in the Czech Republic and other eastern EU members as financing difficulties in Greece and Ireland roil investors. Some 70 percent of Czechs oppose dropping the koruna, according to an Oct. 11 opinion poll, the most since the survey started five years ago. Neighboring Slovakia joined the euro on Jan. 1, 2009, 16 years after Czechoslovakia ceased to exist.

Czech President Vaclav Klaus, a critic of the euro, asked the government in Prague to look whether the country may renege on the obligation to join the currency because the monetary union has changed, Necas said today.

‘Foolishness’

The Czech Republic is recovering from the worst recession since the fall of communism two decades ago. The pace of recovery depends on demand from the euro area, the main Czech trading partner, as exports including Skoda Auto AS cars account for about 70 percent of the country’s economic output.

Necas reiterated today the economy will benefit from controlling its own currency as it moves to narrow the wealth and price gaps with western Europe. The government also won’t set a target date for the euro-switch, he said.

“Entering the euro zone now, or even setting the target date, would be political and economic foolishness,” said Necas.

To contact the reporters on this story: Peter Laca in Prague at placa@bloomberg.net

To contact the editor responsible for this story: Willy Morris at wmorris@bloomberg.net

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