President Zeman says weak crown could be national bank move to delay the euro

Miloš Zeman, photo: CTK

President Miloš Zeman suggested during a press conference following a meeting with representatives of Czech and Moravian Trade Unions Confederation (ČMKOS) on Thursday that the Czech National Bank may be devaluing the crown in order to avoid entering the Eurozone. Zeman has been critical of the national bank’s decision ever since it announced it was going ahead with the weak crown policy last autumn. But his comments have been dismissed by some economists.

Miloš Zeman,  photo: CTK
President Zeman controversially suggested the central bank’s move was a self-interested step aimed at averting adoption of the euro. “As a result of joining the Eurozone the Czech National Bank would lose many of its competencies to the European Central Bank”, Zeman said. “While unduly suspiciousness is not part of my character, I cannot rule out the possibility that the steps conducted by the Czech National Bank through the devaluation of the Czech crown could be motivated by an attempt to extend the interval before the Czech Republic enters the Eurozone in an attempt to keep the competencies it would otherwise have to give up.”, he stated on Thursday.

The words were aimed at measures employed by the Czech national bank since November last year, when it announced its target is of keeping the crown at a rate of 27 CZK to the euro, which meant an immediate devaluation of the crown by 7 percent. The bank says the move was taken to stop possible deflation which it foresaw in the second and third quarters of 2014, and argued that the artificial devaluation would also lead to improved conditions for Czech companies and more jobs in the long term.

During the press conference on Thursday, the head of the Bohemian-Moravian Confederation of Trade Unions Josef Středula also spoke out against devaluation, voicing the anger of many of the union’s members at the seemingly unfruitful move by the National Bank. “When in November of last year the intervention by the Czech National Bank happened, we were promised it would result in 30 000 job opportunities. So far we know nothing of any jobs being created from the weakening of the Czech crown. A Czech labourer’s work is worth more than the 800 euro he gets,” he added, highlighting the fact that devaluation has hit salaries already well below the EU average.

David Marek local director at Deloitte’s financial advisory services said stated that the concerns voiced by President Zeman and the unions head Středula do not correspond economic theory and said the national bank’s weak crown step was a logical move that was not based on any underhanded strategy by the bank to avoid joining the Eurozone. “In fact,” he said, “it is not just a question of whether the Czech Republic wants to join the euro, but also if the Eurozone is interested in welcoming it right now. The country is still not close to the euro area’s economic level and there are other obstacles to the Czech Republic’s readiness to adopt the euro, such as shortcomings in the flexibility of the Czech labour market.”

Marek added that it will take time for the positive results of the devaluation to really kick in.

Zeman has opposed the national bank’s move ever since it announced its intentions last November. He said then that there was “little understanding for such a move, which will only serve as a short-time boost for exporters,” and that, “similar interventions by the bank only led to loses in the past.”

The Czech government is in no haste to join the Eurozone any time soon. Foreign minister Lubomír Zaorálek recently stated 2020 as the most realistic year for the euro to replace the crown. According to a recent survey by polling agency Ipsos Tambor, 78 percent of the Czech public believes it would be better for the country to remain with the crown.