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17 June, 2024
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Will Czech Republic embrace the euro?

Czech Republic faces crucial decision


Despite being part of the European Union for nearly two decades, the Czech Republic remains staunchly opposed to adopting the euro as its official currency. This Euroscepticism is driven by a combination of public sentiment and a desire to maintain control over interest rates, despite significant pressure from the business sector.

As it stands, the Czech Republic is one of the most Eurosceptic nations in Europe. The government has shown no inclination to embrace the euro, reflecting the prevailing public sentiment that resists the transition. Furthermore, the central bank aims to retain authority over interest rates, complicating the path toward Eurozone integration.

Recent data from the Czech central bank reveals a significant shift in the country's financial landscape. For the first time, approximately half of all open business loans granted by Czech banks are denominated in foreign currency, with the euro being the most prominent choice. This percentage rises even further when considering loans from foreign banks. Additionally, approximately 20% of trade between Czech companies is conducted in euros. A growing number of exporters opt to pay their local suppliers in euros rather than Czech crowns, a trend reported by Bloomberg.

"The koruna is now a 'part-time' currency due to the widespread euro adoption among major companies that drive our economy," noted Thomas Kolar, Chief Executive of Linet Group, a company specializing in high-tech hospital equipment. "While there seems to be no compelling reason to resist adopting the euro, politicians remain hesitant to even initiate discussions, let alone explain the benefits to the public."

Linet Group, with an impressive annual turnover of €360 million, relies heavily on exports to 150 countries. Kolar's decision to switch from the koruna to the euro for transactions was driven by the need to mitigate losses stemming from exchange rate fluctuations.

In contrast to the Czech Republic, neighboring countries have taken more proactive steps towards euro adoption. Since the European Union's eastward expansion in 2004, countries like Slovenia, Slovakia, Estonia, Latvia, Lithuania, and Croatia have successfully integrated the euro into their economies. Bulgaria, too, is committed to making the transition. However, the Czech Republic, along with Hungary and Poland, continues to delay the replacement of their national currencies with the common euro.

Surprisingly, the Czech Republic boasts favorable economic indicators that align with the Maastricht criteria for euro adoption. With one of the lowest debt-to-GDP ratios in Europe and a promising economic trajectory that satisfies inflation and budget deficit requirements, it should be well positioned to embrace the euro.

This nation of 11 million people has managed to excel in various aspects of post-communist transformation. A thriving automotive industry, in particular, has driven Czech living standards beyond those of countries like Spain and Greece, as evident in GDP per capita figures, as reported by Bloomberg.

Despite these promising economic prospects, the Czech Republic stands out for its deep-rooted Euroscepticism. Polls among EU member states that are yet to adopt the euro reveal the lowest level of support among Czech citizens. The gap between business interests and political hesitancy sets the stage for a complex and ongoing debate, shaping the nation's future relationship with the European common currency.

Cyprus  |  euro  |  koruna  |  money  |  economy  |  EU

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