Friday, 25 April 2014

PM: Gov't won't set target date for euro adoption for now

21 December 2012

Prague, Dec 20 (CTK) - The government will not set a target date for euro adoption at the time being and the Czech Republic will not try to enter the exchange rate mechanism (ERM II) in 2013, Prime Minister Petr Necas said at a press conference after yesterday's government meeting.

At the moment, the situation in the Czech Republic is not favourable for joining the euro zone, he explained.

The government yesterday discussed the Finance Ministry's document evaluating meeting of the Maastricht criteria and the degrees at which the Czech economy is harmonised with the euro zone.

The Czech Republic has pledged to take steps to be prepared as soon as possible to join the euro zone. Setting the date for the euro zone's entry is up to the member countries and depends on the preparedness of the relevant country.

A potential failure to meet the Maastricht criteria has no direct consequences for the Czech Republic now. The criterion of the sustainability of public finances is an exception.

The Czech Republic has thus far been meeting without any problems the criteria of price stability and long-term interest rates.

However, the Finance Ministry said in last year's report that due to the impact of the raising of the lower VAT rate, the price stability criterion would probably not be fulfilled this year.

Debt is not the Czech Republic's problem, either. By the Maastricht criteria, the debt cannot be higher than 60 percent of GDP. According to the Finance Ministry's estimates, the debt should rise to 47.6 percent of GDP next year.

On the other hand, the Czech Republic will not fulfil the criterion of sustainability of public finances this year. For next year, the government has drafted a budget with a public finance deficit at 2.9 percent of GDP. For euro adoption, keeping the gap below 3 percent of GDP is a must.

For this year, the ministry expects the public finance deficit to grow to 5 percent of GDP, mainly due to the accounting impact of the recently approved church restitutions and also to the problems with drawing of money from EU funds.

Church restitutions will not be reflected in the debt this year because the compensations will be paid gradually for thirty years, according to the ministry's document. Originally, the ministry counted on a public finance gap equal to 3.2 percent of GDP.

The evaluation of the exchange rate stability criterion will be possible only when the crown enters the ERM II and a central parity is be set for the crown to the euro.

For a EU country to enter the euro zone, its national currency has to stay successfully within the ERM II for at least two years.

The Czech Republic does not plan to introduce the euro in the near future. The government has been striving in the long term that the Czech Republic adopts the single European currency only when it is advantageous for it.

Moreover, politicians believe that the current situation in the euro zone, provoked by the debt crisis, is not good for euro adoption, either.

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