Czech National Bank Recommends to Delay Adoption of Euro

czech adoption euro currency

The Ministry of Finance and the Czech National Bank will recommend to the government not to set a date for the adoption of the euro.

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”.

It is the same advice the two institutions gave the government in the past years.

The government of PM Andrej Babis (ANO) had indicated that it was not planning to adopt the euro currency during the current mandate.

This year’s document states that the Czech Republic will this year most probably fulfill 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 Czech Republic will not meet the criterion of sustainability of public finances due to the public finance deficit. It should exceed six percent of GDP. The reason is the effects of the pandemic and the related increase in this year’s budget deficit to 500 billion CZK.

Moreover, the country report one of the highest inflation rates in the EU and a budget deficit of around 6% of GDP (three percentage points higher than EU requirements).

Among the other conditions for joining the euro area, a country has to participate in the Exchange Rate Mechanism (ERM II) for at least two years, without strong deviations from the ERM II central rate and without devaluing its currency’s bilateral central rate against the euro in the same period.

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.

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