Monday, 23 October 2017

Euro adoption may protect Czechs from wrong decisions

ČTK |
11 October 2017

Prague, Oct 10 (CTK) - The economic arguments for and against the euro adoption are misleading, but it is true that the single currency means a connection with one big group that may protect Czechs from their own wrong decisions, Julie Hrstkova writes in Hospodarske noviny (HN) financial paper on Tuesday.

Not the euro alone, but myths about it are the real problem, she says.

Hrstkova admits that it would be a political suicide to try to attract voters by promising them the introduction of the single European currency in the country where mere 20 percent support this, which Czech parties realise well. Only the opposition right-wing TOP 09 clearly promotes the euro adoption, while the stances of the others vary from an absolute rejection to a cautious approach.

On the other hand, presidential candidates, such as former Science Academy (AV) president Jiri Drahos and lyricist and businessman Michal Horacek share rather pro-euro stances, Hrstkova adds.

However, no one expressed the warning that when the Czech Republic decides it is suitable for it to adopt the euro, the euro zone may not want it as its member, Hrstkova says.

There are naturally many comprehensible arguments against the euro. It is actually impossible to defend the single currency at the time when the Czech economy is growing the fastest of the whole Europe, the Czech Republic has the lowest unemployment, its industry is in full swing and the inflation, though slightly rising, remains within standard limits.

The policy of the central bank (CNB), which helped achieve the boom by weakening the Czech crown, seems to be better than the import of fiscal decisions by the European Central Bank controlling the whole euro zone, Hrstkova points out.

On the contrary, it is very hard to calculate the euro benefits, she says, citing the example of the neighbouring Slovakia.

Unlike the Czech Republic, Slovakia adopted the euro in 2009, estimating that its GDP would rise by 0.67 percent a year, along with direct foreign investments and foreign trade. However, immediately afterwards a deep economic crisis erupted and all such calculations turned into pure theories, Hrstkova says.

The same is true today. The benefits of the euro introduction is based on the current condition of the economy, which in such a small country as the Czech Republic is to a high extent dependent of its business partners' development, Hrstkova writes.

She says the idea that the Czech Republic will still be prosperous thanks to its crown despite problems in the euro zone and that its exports can easily focus on other, non-European markets is wrong. In fact, the share of Czech exports outside the EU is decreasing with the European economy recovering from the crisis and the demand rising, Hrstkova says.

On the other hand, emotional pro-euro arguments are much more cogent than the economic ones, such as the effort to remain in the fastest stream of European integration.

Unlike the Baltic countries whose decision to adopt the euro was largely motivated by the fears of its strong neighbour, there is no similar threat perceived in the Czech Republic. Czechs enjoy their strong independence, the feeling that they are deciding on their economic and financial fate independently of foreign institutions and regulators, Hrstkova writes.

It is apparent that this is just an illusion, but no one wants to put it straight, she says.

"Yes, the Czech Republic can be calmly living on the European periphery with its currency that can be regularly adapted to the needs of the industry or possibly government politicians and keep complaining about low salaries, weak productivity and the lack of smart people. Or it may become a proud part of the euro zone in the same way as it once decided to enter the European Union without calculating whether this would bring 0.5 percent here and there. It was clear only that to be inside is better than to be outside," Hrstkova concludes.

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