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Euro intro unlikely by 2012

PM Topolánek says earlier target dates would be 'irresponsible'

By Michael Heitmann
Staff Writer, The Prague Post
November 21st, 2007 issue

In a televised debate with his Slovak counterpart, Robert Fico, Nov. 18, Prime Minister Mirek Topolánek (Civic Democrats) said it would be “irresponsible” for the Czech Republic to adopt the euro by 2012.
The debate marked the first time Topolánek has spoken on his government’s ambivalent stance on the euro, and follows intense media speculation in preceding months on what date the country could settle on as a target for adoption.
Before a decision on euro adoption can be made, further reforms of the pension and healthcare systems must go through Parliament to put the country on solid financial footing, Topolánek said.
In stark contrast to Topolánek’s hesitant stance, Fico confirmed that his country expects to adopt the euro Jan. 1, 2009.
The Czech procrastination, combined with the more ambitious euro programs of some of its neighbors, has raised fears that the Czech Republic could become an island within a surrounding euro zone, in much the same way Switzerland clings to its franc.
Topolánek’s announcement puts the final nail in the coffin of the original 2010 target date, and raises the possibility that the euro could be delayed until 2013 or later.
As protracted as euro introduction may become, it cannot be postponed indefinitely. The new member states, including the Czech Republic, signed a binding agreement to adopt the common currency when joining the European Union in 2004.
Most financial authorities in the country, including the Czech National Bank (ČNB), have warned against rushing into the euro, as it could increase inflation, said Green Party spokeswoman Eva Rolečková.
However, the adoption target will ultimately be decided by political leaders and not bankers.
“The political representation of the country will decide on the date of euro adoption,” said ČNB spokesman Pavel Zubek.
Delaying euro introduction may be necessary, analysts said.
“We have to first see the results of the reforms before we talk about what’s next,” said Raiffeisenbank analyst Aleš Michl. “We’re not tackling these reforms because of EU officials; they are in the interest of all citizens of this country.”
Michl prefers the government reach a balanced budget and introduce the euro by 2014, rather than entering the euro zone “a few years earlier” with a public deficit of 2.9 percent gross domestic product. As long as the country doesn’t miss the target date of 2020, it’s not at risk of becoming a financial island, he said.
Economic Chamber President Jaromír Drábek is less upbeat about the government’s procrastination.
“In our view, this careful stance might be interpreted by surrounding countries as a sign of incertitude and low confidence in the capabilities of the economy,” he said.

Michael Heitmann can be reached at mheitmann@praguepost.com


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