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Should the Czech Republic join the Eurozone?

"Adopt or not to adopt the Euro, that is the question". This topic is frequently discussed in the Czech Republic, even more now, after recent legislative and presidential elections, where every candidate or party platform took position on its potential adoption. What would be the benefits and disadvantages of joining the Eurozone for the Czech Republic? Read the analysis of expert Mojmir Hampl - Vice-governor of the Czech National Bank (CNB), and Martin Blaha - International Relations and Political Science student.
Source: Flickr.com

The euro is an irrational choice for the Czech Republic

Mojmir Hampl | 2018. February 19. 00:45

The Czech Republic living without the euro has not paid any price - apart numerous debates and tension among the Czech population - for not opting in. Quite the opposite: not having the euro has proved to be an economic bonus and thus its rejection must be preserved.

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.


Refusing the euro is a loss of European future

Martin Blaha | 2018. February 19. 00:45

Adopting the Euro is a frequently discussed topic, even more so during the period of elections. Czechs went to the polls twice in the last 6 months - for the legislative and presidential elections. I strongly believe that the future of the Czech Republic should be intertwined with the acceptance of the Euro - having just one universal currency, at least in Europe, should be the goal we should strive to achieve.

First of all, the question should not be whether the Czech Republic should or should not accept the Euro as its currency. The Czech Republic has officially committed to joining the Euro area in 2003, by signing the Treaty of Accession and joining the European Union. The only thing that is preventing us from converting to Euro is the fact that we do not currently meet the Euro convergence criteria (also known as the Maastricht criteria). So, rather than asking if the Czech Republic should accept Euro as its currency, we should ask when will this adoption happen ? However, the majority of Czechs opposes this change, so I believe I should highlight some advantages that Euro will bestow upon the Czech Republic.

*A step forward in European integration

Let me start by saying that of course the Euro is not completely flawless. But for the purpose of this article, I'll highlight the positive aspects. When the Czech Republic will finally accept the Euro, it will greatly improve our position in the European market. The international transactions will be quicker and generally easier. For average citizens, comparing prices of items shall no longer involve googling the current value of the Czech crown and then using a calculator. Traveling to another country will also be much more relaxed when one will not have to exchange currency.

*An essential tool for prosperity

As a member of the Euro area, the Czech Republic will be able to co-decide and influence the monetary policy of the Euro area. As an example of positive outcomes tied to the acceptance of the Euro, let's take a look at the Slovak Republic. When they accepted the Euro, they easily overcame the economical crisis, their economy began to rise and the citizens did not get poorer as some said they would.

The Federal Republic of Germany is the biggest partner of the Czech Republic in the international market. It would make sense to use the same currency, as it would make every trade much easier and also cheaper. The exporters as well as importers could operate with much smaller expenditures, as they would not have to fear the change in the exchange rates. For the same reason, Czech investors could invest more easily all around the Euro area. Adopting the Euro will also help lowering interest rates - meaning that if you take a loan, you won't have to pay back as much money as you would with the Czech crown.

*Keep the promise…

All and all, I do believe that the Czech Republic should keep the promise they have made 15 years ago and do what they can to accept the Euro as their currency as soon as possible. Realistically though, the Czech Republic will not be joining the Euro area any time soon. However, it should be the goal they start working on immediately. The only huge barrier between the Euro and the Czech Republic is the public opinion about this currency, which is not in favour. I do believe that some politicians take an anti-Euro position to score free bonus points with the public, which has only made the aversion to Euro stronger. But that is a different subject, for a different time.

This article convinced me.

This article deliberately presents only one of the many existing points of views of this contorversial subject. Its content is not necessarily representative of its author's personal opinion. Please have a look at Duel Amical's philosophy.

This article convinced me.

This article deliberately presents only one of the many existing points of views of this contorversial subject. Its content is not necessarily representative of its author's personal opinion. Please have a look at Duel Amical's philosophy.

The state of votes


The euro is an irrational choice for the Czech Republic

Mojmir Hampl

Refusing the euro is a loss of European future

Martin Blaha


2018. 02. 20. 17:36
There are confusions on both sides. Firstly: "from 1999 to 2015, the average real GDP growth of EU countries out of the Eurozone was 2.48% - including Great Britain - while one of Eurozone members was only equal to 1.67%." Western countries which were in a large majority members of eurozone, except for the UK, had a lower growth of GDP as they are developed economies while the countries of EU without euro that adopted the free market, mostly from the Eastern and Central Europe, after '89 were rapidly advancing so definitely they had a higher growth as they have much more to catch up but it doesn't indicate the relation between euro and GDP growth. Secondly, "Slovak Republic. When they accepted the Euro, they easily overcame the economic crisis, their economy began to rise ..." This is very little true. Generally, the growth is stagnating on 3% and the deflation of euro is disadvantageous for investment. There is a lot that needs to be reformed on the current form of eurozone
2018. 02. 19. 22:37
The joining or indeed postponed joining (as the only alternative) of the Eurozone is a political rather than economic decision, especially for a country as small as ours. Now who do we side with? Whose shirts do we wear? (Not that our perpetual deferring would throw the EU into gruesome misery but since international politics is all about gestures, we might just as well...)
2018. 02. 19. 20:20
I do not think that euro is good thing and it is obvious Mr Blaha is much less informed and educated than Mr Hampel.

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