Raise the level of wages
As Radio Prague reminds us, the last country to join the eurozone was Lithuania at the beginning of 2015. Currently, the single European currency is in circulation in 19 European Union states and six other countries. Nevertheless, according to Czech National Bank Governor Jiří Rusnok, although the Czech Republic is "in general terms" ready to adopt the euro, it is first necessary to align the level of wages with more developed European countries.
"This means that the relative level of prices and wages must rise. This can happen either through an increase in inflation, and, in all likelihood, wage increases would go hand in hand with this measure. Or, – and perhaps this is a more favorable channel for the economy, and more typical for the Czech economy – through an appreciation of the currency," comments analyst Jan Bureš of Patria Finance on the statement by the Czech National Bank governor.
According to Jiří Rusnok, the achievement of the eurozone level, at least in terms of wage growth, is currently progressing well: "While wages in Western Europe are hardly increasing, in the Czech Republic they are growing by 5%. At the same time, the difference in economic growth is not that great. If this continues for three, four, five years, we will also approach the wage level of the eurozone. Now is the ideal period to take advantage of this, which is happening," emphasized Jiří Rusnok in an interview with ČTK.
"I consider this a very important message. The Czech National Bank is a highly respected institution, and its governor is a respected economist. When such a body states that we are economically ready to join the eurozone, it is a clear signal to politicians that now everything really depends only on them," comments Radek Špicar, Vice President of the Confederation of Industry and Transport of the Czech Republic, a supporter of adopting the euro.
Rational analysis is necessary
Nevertheless, not everyone is optimistic about the fact that the time for adopting the euro has come.
"First, we need to analyze the situation in the southern and northern wings of the eurozone, and only then will it be desirable for the Czech Republic to consider joining the single European currency system. But at the moment, I am of the opinion that the euro is an unfinished project, both from an institutional point of view and in a number of other aspects, and it would be rather burdensome for the Czech Republic to join it," believes analyst Lukáš Kovanda of Cyrrus.
According to the Czech National Bank governor, adopting the euro will also require a reform of the state budget. By joining the single European currency zone, the Czech Republic loses its own monetary policy, which, among other things, helps regulate the impact of the economic cycle. "In such a situation, it is good for the instruments of economic policy to be more flexible. It would be good to have more room to stimulate the economy through the state budget. However, this is difficult to do when 70% of the budget goes to mandatory or quasi-mandatory expenditures," emphasized Jiří Rusnok.
How does Finance Minister Ivan Pilný react to the statements of the CNB governor? "I am not surprised by the governor's statement that we meet all the criteria for adopting the euro," says the minister. "We have been meeting them for a long time and certainly better than some countries in the eurozone. On the other hand, look at the difficult situation, which has been further exacerbated by the Brexit negotiations. The issue with Greece has not been resolved, and Italy has already appeared on the horizon. Besides being a political issue, it would be unwise to adopt the euro at the moment, and we will definitely leave this question for the next government."
Pre-election games
The statements of Jiří Rusnok become even more interesting in light of how various political parties are using the issue of adopting the single European currency ahead of the new election campaign. For example, Jan Skopeček, an economic expert from the opposition Civic Democratic Party, is an opponent of adopting the euro.
"The main reason is the loss of our own monetary policy, which we could no longer adapt to the individual conditions of the Czech Republic," says Jan Skopeček. "The second argument is that the eurozone has changed significantly over its existence. A few years ago, it was impossible to imagine that the entire zone would help those countries that pursue irrational economic activities. Today, that is a reality."
When presenting the new election program of the Social Democratic Party, observers noted that it lacks a commitment to transition the Czech Republic to the euro. Current Foreign Minister and election leader of the Social Democratic Party, Lubomír Zaorálek, indicated in this regard that "first, effective mechanisms must be created within the eurozone, primarily to prevent a financial crisis."
According to the macroeconomic forecast of the Ministry of Finance, the Czech Republic is currently at about 60% of the price level of countries where the euro is in circulation. Twenty years ago, this level was about 35%.