Czech government sets target of agreeing euro adoption process by 2020

By bne IntelliNews April 28, 2015

bne IntelliNews -

 

The Czech government wants to make a decision on starting the euro adoption process by 2020, according to a new EU policy concept approved on April 27.

The document defines the principles of Czech policy in the EU and sets out five priorities. One of them is preparing the country for entering the Eurozone. "It will be a guideline for Czech representatives' positions on the EU level," Prime Minister Bohuslav Sobotka said.

Sobotka and Czech President Milos Zeman have in recent months reignited the debate over joining the single currency. However, powerful Finance Minister Andrej Babis, leader of coalition partner Ano, has been much more cautious, as has the Czech central bank.

Babis has refused to talk about a possible date for the country’s Eurozone entry. In an interview with the FT, published on April 27, Babis said 2018 is the earliest possible date to formulate a plan to join the single currency. He reiterated his opposition to early euro adoption, citing the high costs of entry, the negative impact on exporters if the country enters at a strong exchange rate, and the threat of a Greek default.

“I am not for it,” said Babis, in the interview, which was conducted before the government meeting. “[The] euro is not really for the time being. We can discuss it, what is negative, what is positive, but [an adoption plan] will definitely not happen during this government.”

The finance minister pushed further, expounding his opposition to quick euro adoption, and the problems in the Eurozone in general, in words that reflect the wide opposition amongst the population. “The president and my prime minister want this, but I am just watching what is going on," Babis added. "What will happen in the Eurozone when Greece collapses? Greece is bankrupt. Everybody knows. The question is where will be the default? On the IMF? On the ECB? On the people? On other banks?”

The country, which is required to join the Eurozone, meets all the criteria for joining except for the need to enter the preparatory system, known as ERM II, two years beforehand. The coalition government has already agreed not to make a decision on starting the euro adoption process during its term, which ends in 2018. 

The government decision does not change this picture. At the earliest the coalition could agree to enter the ERMII in 2018, if and when it was re-elected, enabling the country to join the Eurozone in 2020. Zeman and Sobotka have suggested 2020 as the date for the switchover, while Babis remains non-committal.

While major Czech companies believe Eurozone membership would be beneficial for business, opposition among regular Czechs is high. As many as 85% are opposed to joining the single currency, a survey by Ipsos showed on April 21.

That level of opposition has stayed broadly the same over the past two years. Czechs’ biggest fears are that they will have to pay for Eurozone casualties such as Greece, or that prices will rise significantly following the currency switch.

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