Cabinet Approves Finance Ministry Report Against Euro Adoption Deadline

Prague, Dec 22 (CTK) – The cabinet approved a report of the Finance Ministry and the Czech National Bank (CNB) today according to which it should not set any euro adoption deadlines for the time being, the government press department has said.


The material assessing the fulfilment of the Maastricht convergence criteria and a degree of economic alignment of the Czech Republic with the euro area has been discussed by the cabinet every year.


The cabinet of Andrej Babis (ANO movement) said in its policy statement it would not be making any efforts to join the euro area.


“The Czech Republic’s preparedness to adopt the euro has improved compared to previous years although some shortcomings persist especially from a point of view of incomplete real convergence,” the document said.


In decision-making on timing of an eurozone entry, its costs need to be taken into account, the report said. The costs were unknown at a time the Czech Republic joined the EU. The estimated financial costs would include a capital investment of less than Kc50bn in the European Stability Mechanism within four years and a transfer of payments from banks with a seat in the Czech Republic to the Single Resolution Fund amounting to Kc8.2-19.7bn, said the report.


The Czech Republic pledged to take steps to get ready for joining the euro area as soon as possible.


Should the Czech Republic fail to meet the convergence criteria that would have no direct consequences for it now, the exception being the criterion of public finance sustainability.


So far the Czech Republic has fulfilled the criteria of the price stability and long-term interest rates without any problems. When it comes to inflation, it ranks among countries with a higher inflation rate this year.


The country has had no problem with its debt whose level cannot exceed 60 percent of gross domestic product (GDP), according to the EU criteria.


The Finance Ministry expects the debt level to drop to 34.7 percent of GDP this year.


The country will also meet the public finance sustainability criterion this year, as the ministry envisages a public finance surplus of 1.1 percent of GDP. The ratio is expected to rise to 1.7 percent of GDP in 2020. Last year’s public finances showed a surplus of 0.7 percent of GDP, which was one of the best figures in the EU. The EU requires that the public finance gap be below 3 percent of GDP.


Fulfilment of the criterion of the exchange rate stability will be assessed after the Czech currency joins the ERM-II mechanism and the central parity of the crown and the euro is set. A country must participate in the mechanism without severe tensions for at least two years before it can qualify to adopt the euro.


“To sum it up, we may say that, in a medium-term framework, all the Maastricht criteria should be fulfilled, except (the country’s) participation in the exchange rate mechanism,” the report said.