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The luxury of waiting for the euro

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Shadow finance minister Bohuslav Sobotka just admitted what everyone has known for months: We can forget about joining the eurozone by 2014. It doesn’t matter if we want the euro or not; we simply will not be able to have it.

We can hardly hope to bring down the public finance deficit to under 3% of the GDP, a prerequisite for adopting the euro. This delay gives us the luxury to take time and carefully observe the currency as it undergoes a tough test. We now have the opportunity to make a better decision than we could have before the economic crisis hit. Extreme situations always do the best job of revealing strengths and weaknesses.

With the euro, it’s still hard to tell whether it’s easier to float through the crisis on the big steamship of common currency (which is the conviction of Alexandr Vondra), or on the small boat of national currency (something Miroslav Singer would prefer).

When the Hungarian economy hit extreme lows at the beginning of this year, investors wrote off all of central Europe. The crown began to tumble along with the forint and the złoty. It appeared that the only area to be spared was Slovakia, which already adopted the euro. But the Slovaks are now experiencing the deepest recession in the region. Bratislava announced a 5.2% economic decline, while Prague had “only” a 3.4% decline and the written-off Budapest reported a 4.7% decline. These results reflect the steep declines and rises of the forint and the crown. Thanks to this flexibility, we are now better off than the Slovaks.

It is difficult, of course, to make any long-term predictions based on these numbers. The decline of the Slovak economy wasn’t caused by the euro, but rather by the fact that the country is even more reliant on car production than the Czech Republic is, and the beginning of this year was critical in that respect. But the euro does not function as a safety net for Slovaks. The weakened Czech and Hungarian currencies, by contrast, helped exporters in those countries.

The numbers also reveal an interesting trend: Latvia has had the worst time (an 18.6% decline), followed by Estonia (-15.6%) and Lithuania (-10.9%). All the Baltic countries have their currencies tied to the euro, and many companies and households have credit loans in euros.

The crisis has above all shown that the Irish, the Greeks and the Italians are jeopardising the stability of the euro, thanks to their enormous debts, and are now on the verge of bankruptcy.

Of course, for exporters, which drive the Czech economy, a stable currency is important at times of economic uncertainty. But eurosceptics and euroenthusiasts should now step back from making rash judgments and carefully observe how the euro behaves.

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