Economist: “50% chance Czechia will adopt euro by 2030”
The minister of labour and social affairs, Marian Jurečka, says that Czechia could be on track to adopt the euro by 2030. But, nearly 20 years after EU accession, what are the chances the country will actually adopt the common European currency this decade? I discussed issues surrounding the euro with Lukáš Kovanda, chief economist with Trinity Bank.
“Czechs are quite reluctant to adopt the euro because they are satisfied with the Czech crown, and that’s because of historical reasons. Czechs trust the crown more than, for example, people in Croatia or Bulgaria, countries that have had hyperinflation in the past. There are also other reasons why they did not trust their former national currencies like the Czechs do.
“There are also political reasons. The Czech Republic is in the heart of Europe, so there isn’t the same need to adopt the euro like countries who are on the periphery of the continent like Baltic countries, Cyprus, or Malta. These countries felt like adopting the euro would bring them closer to the heart of Europe, and that the euro would bring them to the centre of development and of future economic perspectives for the continent.
“This is a feeling Czechs do not have, they are already geographically in the heart of Europe and they are neighbours to Germany, so they didn’t feel that euro adoption was necessary to feel closer to Europe.”
If Czechia were to adopt the euro, what would be the visible changes?
“Of course there will be a change with banknotes and coins.
“But from the economic point of view the biggest change would be that we would lose our independent monetary policy. Today the situation is clear, our national bank can set interest rates without having to discuss it with anybody.
“Once the euro is adopted, our representative would go to Frankfurt and he or she would be the governor of our national bank who would be one out of 20, or more than 20 people who will decide on interest rates for all of the Eurozone.
“This would be the major change, and of course sometimes interest rates set for the whole Eurozone won’t be the best for the Czech economy itself.
“But there are also advantages of the euro adoption, for example when there is turbulence in the global market, the euro is more stable than the Czech crown because it is a much smaller currency.
“It’s like when you fly in a small plane and there’s turbulence. It’s much more comfortable to fly in a bigger plane when there is turbulence because then it’s not felt so strongly.
“It’s similar with currency. When there are some strong markets, it’s better to have a bigger currency because the volatility is much lower than with smaller currency.”
The Minister of Labour Marian Jurečka just said that the euro may be adopted in Czechia within the next seven years. How likely do you think it is that the euro would be adopted by the end of the decade?
“I think it’s a 50% likelihood it would happen. There is still a large portion of the Czech population who are against the euro adoption. Seventy percent are against it, so for many politicians it’s a very sensitive topic. They do not want to be the politicians who are promoting it, because they don’t want to turn the population against them.
“Many politicians are neutral or sceptical, and the leading government party, the Civic Democrats, has been against euro adoption since the ‘90s. So in the next seven years, there is maximum 50% likelihood that Czech Republic will adopt the euro.”