MORE COMPANIES IN CZECHIA ARE PUSHING FOR THE EURO
In recent years, the number of managers in the Czechia who are in favour of adopting the euro has continued to grow. The adoption of the single European currency is seen as a strategy to strengthen the economic stability of companies by reducing operating costs, in particular those related to exchange rate fluctuations and economic uncertainties resulting from the use of the Czech crown. Although many companies support the adoption of the euro, the Czech authorities are divided on the timing, with some calling for a strengthening of public finances before taking a decision. This context raises questions about how the Czechia can meet the necessary criteria to enter the euro area, establishing a balance between its domestic economic policies and European needs.
Why is the euro so well supported?
The choice to remain in the Czech crown resulted in high volatility, increasing the difficulty of planning medium- to long-term projects and leading to high exchange rate costs, without taking into account the risk of fluctuations in the latter.
The adoption of the common currency of the European Union would also promote a greater economic stability of prices, which would be in line with those of the European area, the elimination of natural barriers arising from a exchange rate that impose themselves in the import and export processes of countries.
The Czech authorities propose conflicting solutions
Prime Minister Petr Fiala said last year that the country would have to strengthen its public finances before it could consider adopting the euro as its official currency: This was confirmed in the words of Finance Minister Zbyněk Stanjura, who confirmed that any decision on the euro should be based purely on policy choices based on public sector support.
Despite this, Labour Minister Marian Jurečka says that the Czechia will meet the Maastricht criteria within the next decade.
The Maastricht criteria: where does the Czechia stand?
Any candidate or existing EU country must meet certain criteria before it can adopt the single currency within its borders: maintain a controlled inflation (that is, adequate price stability), contain the public deficit, present a sustainable public debt, maintain adequate exchange rate stability between its currency and the euro, and present stable long-term interest rates.
The current situation of the Czechia can be assessed with regard to the data presented for the year 2024: as regards inflation, a reduction is expected that can meet the parameters required by the EU, through the adoption of restrictive monetary policies. The government deficit will be reduced through the use of recovery packages that will support economic recovery. The public debt, as of 2024, was below the threshold required for the adoption of the single currency and for long-term interest rate stability. The sore point is the maintenance of the exchange rate: the country does not yet participate in the European Exchange Mechanism (ERM II), a fundamental requirement for assessing the stability of the exchange rate. The ERM is a system created to stabilize exchange rates between the currencies of the member countries of the European Union and to prevent excessive fluctuations. It was set up to promote economic stability and convergence between EU countries that had not, or have not yet, adopted the euro.
In 2024, the Czechia showed progress towards meeting the Maastricht criteria, particularly with regard to the price stability, government deficit and long-term interest rates. However, non-participation in ERM II indicates that not all criteria are yet fully met.
In conclusion, the adoption of the euro in the Czech Republic remains a contentious issue, with companies increasingly favourable to the economic benefits that would flow from it, such as price stability and lower exchange costs. However, government institutions remain cautious, stressing the need to strengthen public finances before taking this step.
Sources: www.expats.cz
