Euro adoption in the Czech Republic is likely to be postponed due to the global financial crisis. “I was always convinced that an early euro adoption is the right way to proceed. When many of the key eurozone countries say that Stability and Growth Pact does not need to be of fundamental importance for them, I am hesitating very much about the date of our eurozone entry,” Finance Minister Miroslav Kalousek said Saturday. He wants to put off the decision on the euro adoption date by one year.
However, companies that generate a significant part of their revenues on foreign markets, still insist that the single European currency be introduced promptly. “It has nothing to do with the current crisis. The strong crown causes that we continue to lose money on trading with eurozone countries,” said Jaroslav Černý, spokesman for Škoda Auto.
The blame for the situation lies with the poorly coordinated actions of European politicians. “If some states have decided to resolve their problems at the expense of others, then a question arises whether there is any reason for the single currency,” Confederation of Industry president Jaroslav Míl said Sunday in reaction to the unilateral promises by Germany and Italy to provide guarantees on bank deposits.
Kalousek’s stance was backed by Czech National Bank governor Zdeněk Tůma. “Because of the instability on global financial markets, the government will need some time out, which could be several months,” Tůma said on Czech Television Sunday.
Businesses demand early euro adoption
Delaying the euro adoption is absolutely unacceptable for Czech companies exporting goods and services. Regardless of the current financial crisis. “If the crown strengthened gradually to the euro, it would be much easier to cope with the situation. But what is happening now – the sudden increase in its value – is having a very unpleasant impact on exporters, including us,” Škoda Holding spokeswoman Radka Pistoriusová said. As a result, the company is losing competitiveness and its customers, she added.
Pavel Hlinka, who represents the interests of Czech hotels and restaurants, says, “The offers for foreigners are prepared roughly six months beforehand. But the exchange rate of the domestic currency against the euro makes the process like fortune-telling, which causes problems to hotel owners.” Besides that, the strong currency reduces the purchasing power of foreigners, causing significant losses to hotels and stores, he added.
ČSOB chief economist Tomáš Sedláček is an advocate of the single currency as well because it would provide small economies with a greater degree of certainty that they withstand the current financial crisis. He pointed out Iceland, a state that has gone bankrupt. In the instant that investors decided to withdraw their resources from the country, the euro would have been able to support the local economy to a much greater extent than the country’s own currency, Sedláček said. “Theoretically, our country with its crown could experience the same problems. Theoretically,” he added.
The Czech Republic was considering joining the eurozone after 2012. A fixed date has not been set yet, mainly because of the stance of the ruling Civic Democrats (ODS) who did not hurry to adopt the euro. Only the strengthening pressure from producers and exporters has recently provoked a more intensive debate on the necessity of a fixed date for the euro. The opposition Social Democrats (ČSSD) have been promoting early euro adoption. Martin Bursík of the coalition Green Party is more reserved, saying a single currency would bring more certainty for businesses.
Finance Minister Miroslav Kalousek was to meet European Central Bank head Jean-Claude Trichet last weekend. “I want to ask how the European Central Bank perceives the risks for the future stability of the euro, in view of the fact that many countries are ready to violate the Stability Pact,” Kalousek said before the meeting. A question then arises as to the purpose of early euro adoption, he added.
