What hinders euro adoption?

The recent strong appreciation of the crown against the euro has resulted in growing internal pressure on the Czech government to set an early target date for euro adoption. After having to revise plans to join the Euro-zone in 2010, the Finance Ministry has spoken of the year 2012 as a soft-target date. However during a televised debate on Sunday the PM said the country must now look beyond 2012 to a time when it had successfully implemented heath and pension reforms. With neighbouring Slovakia looking set to join the euro-zone in 2009 it seems Czechs have gone seriously wrong somewhere. But is the country really lagging so far behind other euro contenders? Economic analyst Tomas Sedlacek says that it is not the economy that’s hindering adoption of the Euro – it is a lack of political will.

“The economy - from a technical point of view - is ready to adopt the euro today. We have been quire good - compared to our peers - in complying with the Maastricht criteria. So the economy is quite ready. It is willingness that we lack and the government should be quite open in presenting it in this way - to say the economy is ready to join the euro but we do not want it. In the ongoing debate whether it will be more favourable for the Czech economy to grow with the euro or to grow outside of the euro-zone it is my firm belief that the Czech Republic will be able to catch up with the euro-zone faster if we adopt the euro rather than staying outside of the euro-zone and being open to all kinds of monetary fluctuations and being hindered on our export and also repelling foreign investors who will more likely chose a country that has euro such as Slovakia or perhaps even Poland who is targeting euro-adoption in 2012-2013.”

So why is the government unwilling to make a commitment?

“This attitude has a long tradition in the Civic Democratic Party and is also the legacy of President Klaus who has always been very sceptical and critical with respect to the euro. I am sure that many people will recall that a couple of years back the president prophesied a very short life for the euro as a currency. Now we know that it is a strong currency, a currency that is being more talked about in terms of a positive outlook than the dollar. So now these fears are no longer in place. However the heritage of very strong criticism of not only the euro but the whole EU from our leading right-wing party has been quite substantial.”

The prime minister’s main argument was that the country was not ready because it had not yet implemented the necessary health and pension reforms. Is that a valid argument?

Photo: European Commission

“That is an argument that I find quite difficult to understand. Euro adoption has nothing to do with health care reform. We can reform our health system inside or outside the euro-zone – it really does not matter. The issue is more complicated with pension reform because once you start your pension reform you will see an immediate increase in the public finance deficit. But the European Commission has created instruments that forgive deficits that are due to pension reform. Slovakia is precisely in that situation. The country is undergoing pension reform and the EC is forgiving a certain percentage of the deficit which is due to the ongoing pension effort.”

An independent group of economic experts – including yourself – have issued a statement saying that 2013 is a realistic target date for adoption of the euro. Are you now saying it could happen even sooner?

“From an economic point of view it could happen much sooner. It depends on the will of the government of course. Together with my colleagues we have drawn an economic and political compromise suggesting that the year 2013 may be something that the government should aim for if it does not want to commit to 2012.”