Czechia still not ready to adopt the euro

The Finance Ministry and Czech National Bank said the country will not meet the required targets in the near future. Staff

Written by Staff Published on 07.12.2022 11:00:00 (updated on 07.12.2022) Reading time: 3 minutes

The Czech government should not yet set a date for adopting the euro, according to a document submitted to the cabinet by the Finance Ministry and the Czech National Bank (ČNB). The Czech Republic will not meet any of the Maastricht criteria for joining the eurozone this year or next.

When the Czech Republic joined the European Union in 2004, one of the conditions was that it would adopt the euro. No firm deadline was set at that time, and there is no penalty for delays. It is up to each country to decide when it will join, and then embark on the process of meeting the euro convergence criteria, known as the Maastricht criteria.

"Although the specific date of entry is entirely up to each member state, it should ideally be based on its level of readiness. The analysis in this document shows that the Czech Republic is very unlikely to meet the benchmarks of any of the Maastricht criteria in 2022 or 2023," the Finance Ministry said, according to ČTK.

Four elements of the Maastricht criteria

  • Price stability: The country's inflation rate must not exceed by more than 1.5 percentage points the average inflation rate of the three eurozone countries with the lowest price growth.
  • Long-term interest rate: The long-term interest rate be no more than 2 percentage points above the average of the three eurozone countries with the lowest inflation.
  • Public finance: The budget deficit can’t exceed 3 percent of GDP and the debt ratio can’t be higher than 60 percent of GDP.
  • Exchange rate stability: The country must spend two years in the revised European Exchange Rate Mechanism (ERM II).

Several countries that joined the EU at the same time as the Czech Republic adopted the euro fairly quickly. Slovenia joined in 2007, while Cyprus and Malta followed in 2008, and Slovakia in 2009; all of them are now part of the eurozone. The Baltic nations all joined the EU between 2011 and 2015. Croatia, which joined the EU in 2013, plans to adopt the euro on Jan. 1, 2023.

On the other hand, Sweden joined the EU in 1995 and has not yet made any moves to adopt the euro.

In the material for the government, the Finance Ministry and the ČNB recommend that, given the current failure to meet the criteria, the Czech Republic should not set a deadline for the introduction of the euro and also not seek to join ERM II for the time being.

The government’s program statement does not make a commitment to set a deadline for adopting the euro by the end of its term in 2025. However, the document commits the cabinet to meeting the Maastricht criteria as soon as possible.

The issue has divided politicians and experts. The TOP 09 party, which is part of the government coalition, in July urged adopting the euro as soon as possible to boost the economy. Michal Skořepa, an economic analyst at Česká spořitelna, in June said that the Czech Republic’s independence from the eurozone may be a bonus in retaining foreign investor confidence.  

An analysis in 2021 by the ČNB pointed out the pros and cons of euro adoption for the Czech Republic. It said a big benefit would come from the country’s strong trade links with other EU countries. Risks include the economic differences between the Czech Republic and the EU as a whole such as the unusually high proportion of industry in Czech national GDP.

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