Czech president seeks to ignite euro adoption debate

Miloš Zeman, photo: Filip Jandourek

Adoption of the euro is not a burning issue in the Czech Republic at the moment for most of the population. But for one man, head of state president Zeman, the issue should urgently be ignited and turned into an informed political debate over whether and when the switch from crown to euro should take place.

Miloš Zeman,  photo: Filip Jandourek
President Miloš Zeman is seeking to kick start a debate about the advantages and disadvantages of ditching the Czech crown and adopting the single currency euro, adding that the switch could take place as soon as 2018. This is what he had to say:

“I would like it if politicians now conducted a reasonable discussion about what the advantages and disadvantages are of the European currency.”

Prime Minister Bohuslav Sobotka, finance minister Andrej Babiš, central bank governor Miroslav Singer and former caretaker prime minister and national bank board member Jiří Rusnok should play a leading role in the debate, Zeman explained.

The head of state’s comments came in a flagship speech on Monday at which president Zeman again took aim at the Czech National Bank and its low crown policy, saying that this strategy could complicate the country’s path to euro adoption and final success of the move.

The central bank’s current policy could mean that the appreciation of the Czech crown to a higher level could be braked and Czechs could end up with a disadvantageous lower final conversion rate to the euro than might otherwise be the case. President Zeman contrasted that situation with the relatively strong conversion rate that Slovakia achieved when it switched to the euro in 2009.

Photo: European Commission
“The Slovaks succeeded in getting from the original 36 Slovak crowns to the euro to finally arrive at around 30 crowns to the euro. So they adopted the euro at a favourable rate.” Thanks to that smart move, around 70 percent of Slovaks were now happy with the euro, the president added.

Zeman’s latest comments go against the flow regarding both the standpoint of the current government and Czech public opinion. The centre-left government has decided not to take a position now on when the country should dump the crown and switch to the euro. That decision should be left to the next government. And a poll taken a year ago suggested 76 percent of Czechs were against adoption of the euro. Sentiment of business leaders appears to have changed from fairly positive on the euro to fairly evenly divided. Continued worries about the fate of Greece within the single currency zone and the stability of the whole euro construction suggest that opposition will not evaporate soon.

The president’s suggested target date of 2018 for adopting the euro looks unrealistic at best. One condition for finally joining is an obligatory minimum two year term in the so-called euro waiting room, the Exchange Rate Mechanism, where the crown would be given limited room to strengthen or weaken against the European single currency. But that wriggle room is a fairly generous 15% up or down against an agreed central exchange rate for the crown. What’s more the central rate can be changed during the period in the waiting room.

Photo: Matěj Skalický
Actually, president Zeman’s comments about the Slovak transition to the euro were not totally correct. The central rate for the Slovak crown to the euro was originally set at 38.45 crowns to the euro in 2005, was later changed to 35.44 crowns and then again to 30.12 crowns on the eve of the final switchover. Thus the Slovak crown strengthened by just under 25 percent against the euro during its time in the so-called waiting room. The Slovak government had hoped a slightly higher and rounded figure of 30 crowns to the euro could be finally achieved for the final changeover but it was not unhappy with the final conversion figure.