Incoming government more positive on euro-adoption

The imminent change-of-guard in Prague naturally poses questions about the country’s EU role and eventual adoption of the flagship single currency, the euro. Unlike the cautious approach of former center-right governments, the incoming finance minister Andrej Babiš says he has no problem with euro adoption. However, the assurance comes from an astute business magnate who is quick to add that the country is not prepared to guarantee the liabilities of indebted euro users such as Greece or Spain.

Photo: archive of Radio Prague

If Brussels was waiting for a change of rhetoric from one of its least enthusiastic members in recent years, then the incoming government appears to be sending out all the right signals. In an interview for the Internet news daily iDnes last week the incoming foreign minister Lubomir Zaoralek said he would push for the coalition government’s policy program to contain a euro entry timetable and that he hoped to see the country adopt the common currency within the next five years. “This is no longer a time to weigh the pros and cons of such a step and wait on the sidelines to see if the common currency fails. There is no other alternative for the Czech Republic and it is time we pulled our weight and met our commitment under the terms of the country’s 2004 [EU] entry,” Mr. Zaoralek said.

Giving a firm date for euro adoption is something that former center-right governments have refused to do. They adopted a wait-and-see policy that extended to outright skepticism at the height of Europe’s crippling debt crisis that such a scenario would ever be realized.

The country’s incoming finance minister Andrej Babiš confirmed that the question of euro adoption had been on the table during a private meeting with President Miloš Zeman who allegedly said he wanted the Czech Republic to be ready to join within the next five years.

Quizzed on the issue by the media, Mr. Babiš, the owner of a farming and chemicals empire who has pledged to put the country’s finances in order, said he had no problem with the Czech Republic adopting the euro, but of course without guaranteeing the liabilities of indebted countries such as Greece or Spain.

There is, however, still some resistance. The governor of the Czech National Bank, Miroslav Singer, who was recently elected European Banker of the Year for launching forex interventions to weaken the crown and encourage growth, is more cautious. He argues that a flexible exchange rate is a buffer against external economic shocks and says he sees no need to rush euro adoption, particularly before the banking union’s mechanisms are tried and tested. He has described 2019 as the earliest euro-entry date possible.

Although the central bank only has an advisory voice in the matter, it is a voice that will be heard and the bank’s policy on the exchange rate will be an important factor in boosting economic growth and meeting the established entry criteria.

The conditions for joining the euro include a public finance deficit below 3 percent of gross domestic product, public debt below 60 percent of GDP, price stability, stability of long-term interest rates and of the national currency's exchange rate.

In the end, as Babiš, Singer, and Zaoralek, all know, adopting the euro is a political decision. What Mr. Babiš should also know, given his Slovak background, is that you’re not allowed to select which part of the single currency club’s rules you can take and which you can throw away. Slovakia protested against paying its contribution to bailing out Greece, on the grounds that it was a poorer country, but to no avail. With the EU funds providing most of the financing for Slovakia’s new infrastructure investments, the protests soon died down and the euro denominated pragmatic give and take took their place.