Czech government still making no plans for euro-adoption

Despite its fast-paced economic growth and strong currency the Czech Republic will most likely be one of the last countries in central Europe to join the eurozone. If Poland meets its target to adopt the common European currency in 2011, all of the Czech Republic’s neighbours will be using the euro in less than two and a half year’s time. The president of the European Commission, Jose Barosso, last week urged the Czech Republic to set a target date for euro adoption, but it seems unlikely that the date will be set this year. I spoke to economist Tomáš Sedláček and began by asking him why the Czech government is so unwilling to commit:

“The Czech government seems to be one of the last to be willing to commit to a specific date. Not only are we not ready to commit to a specific date but the Czech government, together with the Czech National Bank, seems to be very reluctant to give at least a suggestion of the time when euro adoption could take place. As for the reasons, I think they are mainly ideological and political and they have very little to do with the state of the economy. The Czech economy is one of the most fit economies of the region to join the Eurozone.”

If Poland meets its 2011 target date, the Czech Republic will be one of the last countries to join the Eurozone. How will that affect Czech businesses?

“First of all it will look very strange because the Czech currency or Czech koruna will create an island. We will be surrounded by Eurozone countries and only the Czech Republic, with a population of 10 million people, will still be using the country’s national currency. In terms of the business sphere, if this situation should last for a year or two it wouldn’t really matter. If the uncertainty should be prolonged, I believe that many businesses will consider not investing in the Czech Republic, not having to face all the troubles with foreign exchange, the uncertainty one has to face with the strengthening currency and they will choose Poland or the Slovak Republic rather than the Czech Republic.”

Photo: European Commission

What about Czech businesses? Czech firms claim that the strength of the Czech crown is forcing them to lay people off and some are considering moving some of their operations abroad. Do you think this is likely to happen?

“I have spoken to many businessmen who are actually contemplating along these lines. I think it is very irresponsible of the Czech government to ignore the voice of the vast majority of the Czech economy which is of course focused on exports to the Eurozone. I feel that leaders, if they want to behave as leaders, should at least hint or indicate in what direction they want the country to go. I do feel that it might be a large problem of the outflow of many businesses should the situation last for a longer period of time.”

What can Czech companies do to prevent falling profits?

“If they are operating with the Czech currency there is actually very little that they can do. They can of course hedge themselves but that only pushes the problem forward. You cannot really hedge yourself in the long-term against a strengthening currency. You can hedge yourself against volatility but not against a long-term trend. So in this respect there is very little they can do. Should the companies get really sick and tired of this situation they will consider building new plants elsewhere than in the Czech Republic.”

In your opinion, what would be a reasonable target date for euro adoption?

“I feel that the year 2012, 2013 or 2014 should all be reasonable dates. In my view the sooner the better, but the years don’t really matter in this respect. It would be sufficient if the government indicated that we are planning to adopt the euro in the year 2013, give or take one year.”