Marketplace Czech euro enthusiasts fear delay will make adoption a lot more difficult
Czech Secretary of State for European Affairs Tomáš Prouza kicked off an all day conference last week about the benefits and risks of adopting the single currency euro. He wants the issue to return to the centre stage again although euro backers are now in a minority in the Czech Republic.
Prouza, who was the first government appointed coordinator for euro adoption more than a decade ago, did not hide his pro-euro stance. He outlined how he and the government hope to re-start the euro debate in what is now a much more euro-skeptical country. Studies about euro adoption should be released this year and discussions about the euro taken out of Prague and into the country.
This was one of the contributions from Prime Minister Bohuslav Sobotka at the conference about the direction he hopes the euro adoption debate to take.
“The topic of the benefits and disadvantages of adopting the single currency is the subject of public debate in the Czech Republic and I would like that discussion to become a lot more intense. I would like the discussion to be based on rational facts and arguments and it should focus on the advantages, risks and costs that are connected with it.”
Just to recap here, when the Czech Republic joined the European Union in 2004 it also pledged to adopt the euro some time in the future. A date was not set, but Prague is supposed to join as soon as possible. The current coalition government will not be taking a decision on this hot potato of a subject, but the way is open for the next government to do so.
State Secretary Prouza says the more informed people are, the more likely they are to favour euro adoption as the false myths about the single currency are destroyed. He says the default position for those without information is usually opposition to the euro.
I would like the discussion to be based on rational facts and arguments and it should focus on the advantages, risks and costs that are connected with it.
But there is perhaps a more fundamental reason why the euro adoption debate is being revived. In the wake of the 2008 banking and financial crisis the flaws and weaknesses of the euro zone - a zone where the interest rates and monetary policy are set by the European Central Bank (ECB) but the fiscal policy is still very much in the hands of national governments – were cruelly exposed. What was first a banking crisis transformed into a crisis of confidence in euro-zone countries with weak finances, and that eventually morphed into a crisis in the euro currency itself.
And that has sparked moves to bolster the euro zone structure across all the aspects to fill in the gaps. One of those on the horizon is banking union – where the European Central Bank would be given the main task of checking the financial solidity of nationally based banks to head off the threat of collapse.
That banking union is open to non-euro zone countries and the Czech government should be getting a report this month summing up the options whether to sign up to banking union as well. Likely as not though a wait and see attitude will be taken for the moment to see how that process pans out.
One of the star speakers at last Friday’s conference was the former Latvian prime minister who took his country into the eurozone in January 2014, Valdis Dombrovskis. He is now a European Commissioner in charge of the euro and social dialogue. This is a short extract from his speech in Prague.
“It is clear that Economic and Monetary Union is not complete. The work is not over. And that is why last year the presidents of the five EU institutions came with the initiative, they came with the five presidents’ report on completing Economic and Monetary Union. And already in October, the European Commission came with a first package of proposals, first package of measures, to follow up on the five presidents’ report.”
The measures are divided into what can be done now within the framework of the current treaties and rules regarding the euro and euro zone and the more problematic moves that will perhaps need a re-write or adaption of the existing treaties. But the direction is clear and that is deeper and wider euro-zone integration.
But that work in progress bolstering the structures around the single currency means that while the Czech Republic currently fulfills all the Maastricht entry criteria, apart from the mandatory period within the European Monetary System II where the crown would be given a fairly generous band to fluctuate against the euro, the technical details of euro zone membership look like becoming more demanding and difficult over time.
So do movers and shakers in the Czech Republic feel pushed into joining the euro zone before the small print and technical details get too complex and the country is cut out from negotiations about how the single currency zone will shape up?
Before we have that balanced budget and continued convergence, we should not set a deadline for adoption of the common European currency.
Prime minister Sobotka clearly wants the debate to start again but he does not appear to be pushing for immediate membership steps or a move to get into the so-called euro waiting room, otherwise known as ERM II. This is what the Czech prime minister had to say in a mid-conference press conference:
“We still have a public finance deficit. We still have relatively high unemployment in some regions of the Czech Republic. And there still is a great differences between the earnings of our citizens and countries where the euro is used, for example Austria and Germany. I think that the Czech Republic needs a certain amount of time to continue [economic] convergence in order for us to have a balanced public deficit. And before we have that balanced budget and continued convergence we should not set a deadline for adoption of the common European currency. It is important that we improve or economic parameters, increase our social stability and approach the living standards in our country with those neighbouring countries where the euro is used. And I hope that this government will take a big step forward in that direction.”
Translate that into specific figures and you are not really going to see any steps taken, according to current Czech budget deficit predictions, before 2018, and more realistically you could add a couple more years to that.
And what about wider sentiment towards euro adoption? Neighbouring Slovakia is seen as a shining example of euro adoption success. And at the conference, the current minister of finance, Peter Kažímir, said he reckoned that euro adoption had accounted for around 10 percent of the country’s GDP growth since the process was started.
It’s an internal political question in the Czech Republic, the degree of euro skepticism is very strong.
But a euro opponent and current governor of the Czech National Bank, Miroslav Singer, points out, Slovaks were not that much attached to the Slovak crown, a short lived currency which had a turbulent time after the break up of Czechoslovakia in 1993. The euro adoption decision was taken by a small Slovak elite with most of the population later in favour. Singer adds that those countries that have been members of the euro zone have had a lot slower and weaker exit from the 2008 economic crisis than most of those outside the zone.
And even the head of the biggest Czech grouping of trades unions, Josef Středula, said it is opposed to fast Czech adoption of the euro until some of the fundamental differences, especially on wages, between most of the euro countries and the Czech Republic are ironed out.
Former finance minister Pavel Mertlík says he believes there are some grounds for the charge that the Czech Republic is staying on the fence too long over euro and is perfectly capable of taking the step right now if the political will was there:
“It’s an internal political question in the Czech Republic, the degree of euro skepticism is very strong, and definitely the institutional crisis of the euro zone in 2010, 2011, strongly enforced it. If you look at public opinion barometers you see that public support for euro adoption before 2010 was decreasingly but was around 55 to 60 percent. Nowadays it is around 20 to 25 percent, so there is a big difference.”
But Mertlík points out that the Czech economy is ever more tightly linked with that of its biggest trading partner Germany and the other euro zone countries. And the way he looks at things he says the Czechs cannot afford in the long term to be a small currency island. It comes down, he argues, to a choice between the euro and whatever rouble or other currency that will be founded on a Moscow leaning trade and economic block.