Czech Minister of European Affairs Martin Dvorak's appointment of economist Petr Zahradnik as envoy for adopting the euro currency has provoked another dispute inside the centre-right cabinet over the timetable for joining the eurozone.

Prime Minister Petr Fiala (ODS party) has called a five-party coalition summit in response to the Mayors Party politician's move. “Based on the request of one of the coalition parties in response to the one-sided step of Minister Dvorak, the prime minister called the coalition’s ‘bargaining and litigating’ meeting”, cabinet spokesperson Lucie Jesatkova told media on February 5.

Dvorak, a member of the centrist Mayors Party, wants the government to take a decision to join the European Exchange Rate Mechanism (ERM II), a precondition for eventual membership, but the ODS, the largest party in the coalition, has long opposed membership for ideological reasons.

An analysis prepared for the ODS-run finance ministry last November said the risks of joining the eurzone were low but still did not recommend joining, provoking a cabinet row.

Czechia committed to adopting the euro as part of its EU accession conditions in May 2004, but several successive cabinets have not made any concrete steps towards it yet despite calls from pro-adoption economists and industrialists. Countries need to spend two years proving their currency stability inside the ERM II, meaning that, if a decision to join were made this year, a future government would actually take Czechia into the eurozone.

Dvorak said Zahradnik’s role should be to communicate euro-related policies towards the public, including the question of joining the ERM II.

Discussion over the euro has up to now been dominated by rightwing and populist parties, who oppose joining because it would arguably diminish Czech sovereignty and there is a risk the country would have to pay for the budget profligacy of eurozone members such as Greece. 

Supporters point to the Czech economy's close ties with the bloc – especially Germany, the destination of a third of Czech exports – arguing that membership would cut transaction and borrowing costs and remove currency risks. The Czech economy has already largely converged – GDP per capita on a purchasing power basis was already 90% of the EU average in 2022. Some supporters also argue that eurozone membership would cement the country's position in the West at a time when populists in the region are looking east.

However, the eurosceptic wing inside Fiala’s neoliberal ODS opposes euro adoption, as have several of the country's central bankers in the recent past, arguing that the country needs the flexibility of its own monetary policy or that it needs to converge further with the richer Western Europe or more structural reforms.  Because of the ODS' resistance, the coalition cabinet did not commit to adopting the euro.

The calling of the five-party coalition summit  is the first time this format of addressing disagreements inside the coalition will meet. The format is also designed to address issues not sufficiently addressed by the cabinet programme.

The chairman and two vice-chairmen from each party will attend the ‘bargaining’ part of the meeting while the ‘litigating’ part will take place in the coalition council format, which includes party chairmen and vice-chairmen, the chairmen of parliamentary fractions and the top manager or secretary from each party.  

Jesatkova stated that the meeting will discuss “competencies and the need to maintain a common coalition stance in key political themes”.

This year the euro issue has returned to the top of the agenda after several high-profile economists and public figures  called on the cabinet to address it. In particular, President Petr Pavel said during his New Year's speech that “it is about time that after years, we begin to make concrete steps which will lead us to fulfilment of this obligation”.

According to a recent survey conducted by the Association of Small and Medium-Sized businesses and Entrepreneurs (ASMP), a slight majority of its members are in favour of euro adoption – 39% of 600 members are in favour of adoption as soon as possible when Czechia fulfils the Maastricht criteria, 12% are in favour but later, and 39% are against euro adoption.

Some 80% of Czech  exports go to the EU and many large exporters, such as VW-owned carmaker Skoda Auto, already take advantage of the ability to do their accounts and file tax returns in euros.

On the other hand, 68% of Czechs think euro adoption won’t be advantageous, a Median poll from January shows.

The former vice governor of the Czech National Bank, Oldrich Dedek, said in an  interview for Czech Radio last week that the “the public is in [a] negative mood towards [the] euro” and under the “Eurosceptic rhetoric” of both oppositional and ruling political parties.

A majority of Czech economists are still not in favour of joining the eurozone, Pavel Sobisek, chief economist of UniCredit's Czech subsidiary told bne IntelliNews last month, though he himself supports joining as soon as practicable. "I can't see a reason why we should not be a part of the eurozone," he said.

"The key obstacle is the opinion of the general public, which is still influenced by [former ODS premier and president] Vaclav Klaus," he added.

Sobisek also expained the reluctance of the central bank board as caused by its own institutional interests. "Carps never get rid of their own pond," he commented. "But if there is a clear political task to join the eurozone, the central bank would do its best."