Czechs to Keep Shunning Euro as Next Premier Sets No Goal

Photographer: Martin Divisek/Bloomberg
Bohuslav Sobotka, incoming Czech prime minister, pauses during a Bloomberg interview at the parliament in Prague on Jan. 14, 2014.

The Czech Republic probably won’t adopt the euro for at least four years as political leaders need time to overcome public opposition to the switch, the country’s next prime minister said.

The future cabinet of the Social Democrats, the pro-business ANO party and the Christian Democrats is unlikely to set a target date for entering Europe’s monetary union during its term through 2017, Bohuslav Sobotka, who’ll be named premier on Jan. 17, said yesterday in an interview in Prague.

“It’s not possible to force the euro on people at a time when there isn’t demand for it,” Sobotka said. “Setting a euro date needs to be done in a credible way, because once it’s set, it needs to be met. We don’t want to set the date without a broad agreement, even with opposition parties.”

The Czechs, Poland and Hungary, the biggest of the European Union’s eastern economies, are eschewing euro adoption 10 years after they joined the trading bloc as the euro-area crisis dims the currency’s lure and central banks seek to retain independence to calibrate their policies. While smaller ex-communist economies from Slovenia to Latvia have adopted the euro, the Czech government says the crisis highlights risks.

The central bank in Prague argues the koruna is a cushion against economic shocks from abroad and is selling the local currency to boost inflation and help perk up the economy. The koruna has weakened 6.6 percent against the euro in the past three months, the sixth-worst performance among 24 emerging-market currencies tracked by Bloomberg. It traded little changed at 27.419 at 4:34 p.m. in Prague.

Photographer: Martin Divisek/Bloomberg

Pedestrians pass an advertisement for koruna currency coins in Prague, Czech Republic. Close

Pedestrians pass an advertisement for koruna currency coins in Prague, Czech Republic.

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Photographer: Martin Divisek/Bloomberg

Pedestrians pass an advertisement for koruna currency coins in Prague, Czech Republic.

Lacking Support

The crisis intensified public resistance to euro adoption in the Czech Republic, already one of the nations most opposed to ditching its currency, according to opinion polls. Less than 20 percent support euro entry, while 77 percent are against, according to a survey last year by the Czech Academy of Science.

Czech central bankers say there’s no need to rush to hand monetary-policy decisions over to the European Central Bank in Frankfurt. The monetary authority is in the midst of currency intervention after the benchmark interest rate fell to what policy makers call a “technical zero” of 0.05 percent, the lowest in emerging Europe.

The yield on the 10-year Czech government debt has averaged 3.8 percent over the past decade, compared with 5.6 percent for Poland, the EU’s largest post-communist economy, and 3.5 percent for higher-rated France. The Czech 10-year yield fell 5 basis points, or 0.05 percentage point, to 2.43 percent by 4:05 p.m. in Prague, below comparable U.S. Treasuries.

Photographer: Martin Divisek/Bloomberg

The central bank’s koruna sales will probably spark “quite an intensive debate” on the pros and cons of independent monetary policy and euro adoption, said Bohuslav Sobotka, incoming Czech prime minister. Close

The central bank’s koruna sales will probably spark “quite an intensive debate” on the... Read More

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Photographer: Martin Divisek/Bloomberg

The central bank’s koruna sales will probably spark “quite an intensive debate” on the pros and cons of independent monetary policy and euro adoption, said Bohuslav Sobotka, incoming Czech prime minister.

Procedural Steps

Procedural steps required for joining the euro zone, including locking the koruna into the exchange-rate mechanism to prove currency stability for at least two years, mean the Czech Republic will probably stay outside through 2020, according to Daniel Hewitt, an economist at Barclays Plc. in London.

“Given the comment by future Prime Minister Sobotka that the government will not prioritize entering the euro area, it is very unlikely that the Czech Republic will be able to join before 2020 since it takes several years to complete the process,” he said by e-mail.

While the interventions allowed by the central bank’s more independent currency policy boost the competitiveness of Czech goods abroad, some exporters are critical of the weakening push, according to the Confederation of Industry, a business lobby grouping more than 1,600 companies with almost a million employees. It favors joining the euro area.

‘Main Tool’

“The currency interventions aren’t an entirely understandable step for entrepreneurs,” the industry confederation said in a Nov. 20 statement. “The main tool for removing volatility is euro adoption.”

The Czech Republic, where foreign sales account for about 80 percent of gross domestic product, relies on the euro region as the main driver of economic growth, with the currency bloc buying two thirds of the country’s exports, including cars, auto parts and electronics goods.

The central bank’s koruna sales will probably spark “quite an intensive debate” on the pros and cons of independent monetary policy and euro adoption, Sobotka said.

“I’m ready to contribute to the discussion with arguments supporting euro adoption, but it doesn’t mean that the government will agree during this term on setting an entry date,” Sobotka said. “Things may change, there may be some impulses that will accelerate the debate about this, but the government shouldn’t jump ahead of society.”

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

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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