The Government has approved the joint recommendation of the Ministry of Finance of the Czech Republic and the Czech National Bank not to set a target date for adopting the euro yet.
The decision is based on information contained in this year’s “Assessment of the Fulfilment of the Maastricht Convergence Criteria and the Degree of Economic Alignment of the Czech Republic with the Euro Area”. The joint document of the Ministry of Finance and the CNB maps out the Czech Republic’s economic preparedness for adopting the euro, which has been assessed regularly since the Czech Republic joined the European Union in 2004.
This year’s document states that the Czech Republic will this year most probably fulfil only one of the Maastricht convergence criteria – the criterion on long-term interest rates – in the unprecedented conditions of the COVID-19 pandemic and the related global economic downturn. The criterion on the government financial position and the criterion on price stability will not be fulfilled. The last criterion, assessing participation in the exchange rate mechanism, cannot be formally fulfilled, as the Czech Republic does not participate in the relevant exchange rate mechanism.
The preparedness of the Czech Republic itself to adopt the euro still has its weak points. The Government considers the unfinished process of real economic convergence of the Czech economy, where the gaps in most key indicators – the price and wage levels in particular – remain significant, to be an obstacle to joining the monetary union. The Czech economy also continues to differ substantially in structure from the euro area, a factor which would complicate the implementation of the single monetary policy. Given population ageing, the issue of long-term sustainability of public finances, whose stabilising effect should partly make up for the loss of monetary policy autonomy after euro adoption, is also not fully resolved. By contrast, the high degree of openness of the Czech economy and its close trade and ownership links with the euro area have long spoken in favour of adopting the euro. The relatively stable exchange rate of the koruna against the euro even during this year’s deep economic decline, the renewed alignment of the Czech and euro area financial markets, and the resilient banking sector in the Czech Republic can also be assessed as positive.
The institutions and rules of the euro area have changed over recent years, and discussions on deepening European integration are still ongoing. The Czech Republic’s future potential financial and non-financial commitments relating to euro area entry thus cannot be reliably estimated at the moment.
Given the aforementioned facts, the Czech Government has arrived at a clear conclusion that it will not set a date for the Czech Republic’s entry to the euro area, as sufficient progress has not been made in creating the right conditions for euro adoption.