For two years exporters have watched profits increase as European Union accession made possible new trade opportunities with their Western neighbors.

But now exporteres are struggling in a fight with a mysterious opponent — the Czech currency.

The continuing ascent of the crown has exporters worried because a strong currency makes Czech goods less competitive in foreign markets and cuts into their revenues.

The automotive industry is particularly sensitive to currency fluctuations because the vast majority of its production is exported, and any threat to the automotive industry represents a threat to the entire economy.

That's because car exports are behind the country's booming trade economy, which helped push gross dometic product growth to nearly 5 percent last year.

"The pace at which the crown is strengthening brings major losses to Škoda Auto and to the entire economy," said Vratislav Kulhánek, chairman of the supervisory board at Škoda Auto, the largest exporter in this country.

The crown has already increased 3 percent against the euro in the first three months of 2006, following 4 percent growth last year. In early February the crown reached 28.22 Kč against the single European currency, a new all-time high from which it barely came down all month.

Exporters have watched this development and the reluctance of the Czech National Bank (ČNB) to intervene against it, either verbally or through an interest rate cut, with concern.

"The situation is getting unbearable," said Jiří Grund, chairman of the Association of Exporters (AE), which represents 50 major exporters. "Should this continue, many companies will be forced to lay off workers and some could even face collapse."

If the crown continues to strengthen at its current rate, exporters will see revenues fall by as much as 20 billion Kč ($846 million) by the year's end, Grund predicted. Exporters made 1.87 trillion Kč in revenue last year.

"The strong crown increases costs unpredictably, and it has a negative impact on our business," said Petr Sedláček, public relations manager for the Czech subsidiary of international engineering group Siemens.

Wake-up call for the ČNB

While the ČNB has resisted taking direct action against the crown, exporters are actively pursuing their agenda. The AE has formed a crisis committee, and many exporters are beginning to pay local subcontractors in euros instead of crowns, which offsets the losses they're sustaining.

"We've agreed with some of our subcontractors to start clearing payments in euros to avoid losses resulting from developments in the exchange rate," said Jan Horák, business director of Linet, a manufacturer of hospital beds.

The AE launched its committee Feb. 27 in an effort to lobby the ČNB to take immediate action against the crown.

"We will consider anything to bring more attention to the issue, be it through joining rallies or directly talking to particular officials," Grund said.

The committee scored its first success by getting ČNB Governor Zdeněk Tůma to agree to a meeting in mid-March, prior to the bank board's gathering to discuss interest rates. Cutting interest rates is a tool central banks use to weaken currencies, and the AE is no doubt hoping the ČNB will use it.

"We know the central bank agrees with us that the crown is too strong, but they have been [reluctant] to do anything about that," Grund said.

The bank verbally intervened against the crown in early February, managing to push it down tens of hellers, but surprised many economists by not lowering rates at its monthly session Feb. 23.

At the time, Tůma said only one person on the six-member governing board voted for an interest rate cut, by a quarter of a percentage point. Tůma also conceded then that the strong crown was hurting exporters, but insisted the board had not seen "strong enough risks to make a cut."

Not everyone is so sure an interest-rate cut would have much effect on the crown. Citibank analyst Miroslav Plojhar said the crown's strong position has nothing to do with interest rates.

Plojhar said the crown is strengthening because the economy is growing fast and foreign investment is high. This is despite the fact that interest rates are lower here than in most of Europe.

AE's secretary, Petr Liška, insisted, however, that the ČNB is at least partially to blame for the crown.

"[Currency] speculators don't take verbal interventions seriously unless they are followed by practical measures," he said.

Deal with it

While Tůma has agreed to meet with representatives from the AE, Prime Minister Jiří Paroubek appears to have turned a deaf ear to the concerns of exporters.

During a Feb. 28 ceremony celebrating the country's graduation from the World Bank's beneficiary nations, Paroubek said the Cabinet expects the crown to grow as much as 3 percent a year until 2013.

"Exporters should deal with that," he said.

Only two weeks earlier, Paroubek shocked the central bank and currency traders by saying the crown should trade at 25 Kč against the euro in 2010, when the country is set to join the euro zone. The crown increased 20 hellers that day as a result of Paroubek's statement.

It came at exactly the time when the ČNB had been working to weaken the currency, however, prompting many analysts to call Paroubek's prediction counterproductive.

Although exporters are pressuring the central bank to take action against the crown, analysts are predicting the Czech currency will continue to strengthen this year.

"Economic growth along with the influx in foreign investment" will push the crown higher, said Patrik Rožumberský, an analyst at Živnostenská banka.