EU Commissioner: Czechs have work cut out for themselves before entering the euro-zone

Prime Minister Jiri Paroubek and EU Commissioner Joaquin Almunia, photo: CTK

'We meet EU criteria, inflation has gone back down to 2.2 percent; as far as our economy is concerned we have nothing to be ashamed of' - words with which Prime Minister Jiri Paroubek greeted EU Economic and Monetary Affairs Commissioner Joaquin Almunia this week.

Prime Minister Jiri Paroubek and EU Commissioner Joaquin Almunia,  photo: CTK
Mr Almunia was in Prague to discuss the financial perspectives of the European Union and evaluate the Czech Republic's progress towards adopting the single European currency. But has the Czech Prime Minister managed to impress Brussels?

"We know that the Czech government aims to join the euro zone in 2010. This means that all the criteria required should be fulfilled in three years time. But we also think - and I have told that to the Prime Minister - that we should work a lot from now on, because we need to prepare the economy, continue to improve the economic conditions. This, not only to meet what's necessary for joining the euro with those criteria but also to meet the needs of the Czech citizens, who would want to have even better economic conditions. We also need to prepare public opinion to understand what the advantages of the single currency are and how we will avoid the possible abuses when the changeover takes place."

So, a cautious warning there from Commissioner Almunia. While the Czech Republic has fulfilled four of the five Maastricht criteria for euro adoption, it has only taken one of the 38 steps that the European Commission has recommended. So why has the country's approach been so sluggish? Economist Marketa Sichtarova assesses the situation:

"I have no idea why the Czech Republic is so slow in its preparations for the euro but I clearly think that it is in fact good. First of all I think the Czech Republic should prepare an analysis of the pros and cons of accepting the euro."

So when do you think the adoption should take place?

Photo: European Commission
"I suppose that the result of the analysis would set the most suitable date at 2012 or 2013. If we hurry too much into the euro-zone, it may easily happen that the Czech Republic would accept the euro in a different stage of the economic circle than the current euro-zone. This would mean that the Czech Republic would require a different level of interest rates than the euro-zone. Higher interest rates than the euro-zone would bring inflation into the Czech economy. If, on the contrary, the Czech economy accepts the euro in a moment when it needs lower interest rates than the euro-zone it would raise unemployment and lower the economic growth."

The opposition Civic Democrats have been saying that the euro cannot be adopted before reforms such as health care and pension system reforms have taken place. Do you agree with that?

"Yes, I do. This is because health care and pension reforms also mean the liberalisation of the labour market. If we accept the pension reform, it would have one surprising effect - it would lower the price of the labour force."