Should the Czech Republic join the Eurozone?

The Czech crown or koruna, as we know it today in Czech Republic, has been successfully used since 1993 and holds a very unique status of stability in the Central and Eastern Europe environment. Unlike the Euro, whose adoption accounted for a fall in the average real GDP (Gross domestic product) in all Eurozone member countries, the crown doesn't represent a risk. Because in case of Euro, maybe more than ever, it is time for us to admit that we are not rich enough so that we could afford to repeat the mistakes of others. We are doing enough of them already.

"If it ain't broke, don't fix it."

The main reason why the Czechs should keep the koruna can be expressed neatly by the wise adage because the monetary policy in the Czech Republic is simply not in need of fixing. Since 1998, the Czech National Bank has been using an inflation targeting framework to steer its monetary policy with notable success. In the view of the CNB, inducing inflation expectations to hover near price stability is the best that monetary policies can achieve in order to nurture robust investment and support the sustainable growth of the economy. A welcome implication of low average inflation has been a trend of real appreciation - as implied by economic convergence to Western European peers - which has resulted, at least nominally, in an advantageous exchange rate.

Another fruit of the long-term price stability has been a low level of nominal interest rates. Thus, the domestic market has had no reason to demand loans in foreign currencies - a product which, in recent years, has caused so much trouble and public discontent in some other Visegrad countries.

Autonomous monetary policy is an advantage

In fact, developments in recent years have only reinforced the idea that autonomous monetary policy, if conducted properly, is an advantage. Just compare the Czech and the Slovak cases. In both economies, the relevant monetary policy authority has hit the lower boundary on nominal interest rates. However, the Czech authority (the Czech National Bank), unlike the Slovak one (the European Central Bank), was able to start using the Exchange rate between the local currency and the euro as a supplementary monetary policy tool in an effort to avoid deflation and to bring inflation back to the target.

Needless to say, the actual price developments have been dramatic whether due to domestic policy changes, such as indirect tax changes, or due to shocks coming from abroad, such as swings in the price of oil. But this is and always will be the case for any small open economy, regardless of who determines domestic monetary conditions.

Numbers speak louder than promises

To sum up, the CNB's monetary policy seems to have earned quite a lot of credibility. Indeed, a survey in April 2015 showed that almost 70% of Czechs are more or less against adopting the euro. To add on, recent results of both parliament and presidential elections proved that the euro serves as an infallible killer of Czech votes and support. This general feeling can also be documented by deeds; despite its geographical proximity to, and close trade links with, the euro area, the degree of spontaneous eurosisation within the Czech economy is low - in comparison with Poland and Hungary - and is not growing.

Even if expressing support to share currency with other European countries was, for decades, a demonstration of "good manners of upper class", today, any expression of its support is more of an act of bravery in such community. Moreover, in a period from 1999 to 2015, the average real GDP (Gross domestic product) growth of EU (European Union) countries out of the Eurozone was 2.48% - including Great Britain - while the one of Eurozone members was only equal to 1.67%. Regrettably, there is not a record of a single European country having accepted Euro as its nation currency, of an increase in GDP. One can thus summarize the Eurozone as so far having been a wealth destructor rather than a wealth generator. And there is no reasonable cause to believe the future will be any different.