Spontaneous euroisation of the Czech economy undermines Eurosceptic prejudices

Spontaneous euroisation of the Czech economy undermines Eurosceptic prejudices
The Czech central bank has long opposed adoption of the euro, which would reduce its power and independence. / bne IntelliNews
By Albin Sybera January 9, 2023

In 2022 Czech companies increasingly resorted to the euro in their business transactions, with the largest Czech company Skoda Auto switching its books to use the euro as of January 2023. The popularity of the euro was also on the rise among ordinary Czechs last year, Eurobarometer showed.

Investment banker Ondrej Jonas told a Czech Radio debate last week that pragmatically speaking Czechia already is a dual system in which many companies and residents operate in euros.

“Here you have part of the population which has dual [bank] accounts in [the Czech] koruna and in the euro. Transition to the euro is occurring naturally,” argued Jonas.

The difference between inflation in the eurozone of 9.2% and the national one of 16.2%, as well as the difference in interest rates between the ECB's 2% and the Czech National Bank's 7%, has reinforced the argument of the euro supporters that the country should adopt the euro because the export-oriented Czech economy is so dependent on the euro currency.

The current advantage of the eurzone is also shown by bond yields, though the margin compared to eurzone countries such as Slovakia and Slovenia is less pronounced:

“I think it is much smarter to try and influence the functioning of the eurozone at least a little bit than laugh at what others are doing wrong without taking part in it,” Radek Spicar, the vice president of the Confederation of Industry of the Czech Republic,  told Seznam Zpravy recently.

Under its treaty of accession when it joined the EU in 2004, Czechia has to adopt the euro but no timeframe is given. Up until now there has never been a committed majority in parliament for long enough to approve accession.

In August, civic platform “Euro v Cesku” [Euro in Czechia] surveyed parliamentarians from across the political parties, showing that only those from the neoliberal ODS, the far-right and anti-EU SPD and the populist ANO party are against euro adoption.

ODS is the only party against the euro adoption inside the five-party center-right ruling coalition. ODS is also the strongest party in the coalition and, together with the opposition parties, can block euro adoption in parliament.   The governing coalition agreed in its programme at the end of 2021 not to pursue euro adoption in its four-year term.

Czechia’s long-delayed euro currency adoption has been fuelled by Eurosceptic currents in Czech politics which have for long been voiced by ODS. However, its current leader,  Prime Minister Petr Fiala, has signalled the ODS's shift towards a milder form of Euroscepticism. This was also a strategic move that contrasted ODS with the populist ANO of billionaire Andrej Babis and helped the ODS-led SPOLU bloc of centre-right parties win the election in October 2021.

Fiala has so far been able to attract voters who are worried that having someone like Babis in power may sway Czechia in the direction of semi-authoritarian Hungary. At the same time, he has been keeping the more staunchly Eurosceptic wing of ODS, represented by its MEP Jan Zahradil or the party’s chief economist Jan Skopecek, at bay by not criticising ODS’ partners from the European radical rightwing ECR bloc such as Poland's PiS or Italy's Brothers of Italy. Zahradil is a onetime ally of the ODS's founder and former prime minister and president Vaclav Klaus, who has since left the party and has turned into a supporter of the far-right SPD.   

Minister for European Affairs Mikulas Bek (Mayors party) told Czech Radio in an interview that “even the ODS is undergoing some development of their point of view” when reviewing the recently ended Czech presidency, which included Czechia presiding over Croatia’s euro adoption.

“I am not the only one who is standing on the barricade backing the euro,” the former environmental minister and ODS party member Pavel Drobil was quoted as saying by Seznam Zpravy recently. “It may well happen that politicians will wake up one day and realise that even though the official currency is the koruna the economy is running on a different currency,” Drobil added.

Bek thinks that Fiala’s cabinet will not be the one adopting the euro despite Czechia increasingly “becoming an island” inside the eurozone. This cabinet may “reach a compromise” on a timetable or something such as “entry to the [pre-member] ERM II”, inching Czechia “closer to euro adoption”, Bek hinted. Bulgaria is already in the ERM II.

Supporters of the euro point out that in the end arguments in favour of the koruna come down to nationalist nostalgia, tacitly fed by what Jonas called “ideological prejudice”.

Some supporters also think euro adoption is vital in anchoring Czechia in the EU and blocking far-right and populist parties who might otherwise try to pull the country out of the euro and into Russia's orbit.

Nevertheless, opponents can point to the fact that, in the current economic environment, Czechia does not meet the formal criteria for euro adoption. 

Former Czech National Bank (CNB) governor Miroslav Singer, currently the chief economist at Generali CEE Holding, told Czech Radio  that the Czech currency also serves as a monetary buffer during turbulent times, enabling more independent steering of the country’s economy.  The CNB is currently intervening to prop up the koruna as a way of driving inflation down, after previously being among the first countries in the EU to raise interest rates in the summer of 2021 at a time when the ECB was still keeping rates at virtually zero.



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