The Czech government is evaluating whether the country is ready to adopt the euro, following an assessment prepared by the National Economic Council of the Government (NERV).

This unpublished analysis, obtained by the Czech media outlet E15, explores the potential benefits, drawbacks, and risks of transitioning to the European currency.

However, economists have not yet endorsed entry into the European Exchange Rate Mechanism (ERM II)—a necessary precursor to adopting the euro. The decision will likely be left to the next administration.

A Strategic Review of Readiness

In February, Prime Minister Petr Fiala’s cabinet reviewed a report from the Ministry of Finance and the Czech National Bank assessing the fulfillment of the Maastricht criteria and the Czech Republic’s economic alignment with the eurozone. Subsequently, NERV was tasked with delivering a detailed analysis tailored to the country’s specific economic conditions.

Economist Mojmír Hampl, a member of NERV and one of the report’s authors, said to E15: “This wasn’t about whether to adopt the euro, but whether we should enter the ‘anteroom’—ERM II. The consensus was that the government must first set a concrete adoption date. You don’t enter the anteroom without intending to step into the living room.”

No Immediate Steps Expected

Despite receiving the analysis earlier this year, the government does not plan to act on its recommendations before the next election cycle.

According to Ministry of Finance spokesperson Petr Habáň, “The current government’s task is to ensure the Czech Republic is as prepared as possible for a serious political debate on euro adoption at the end of its term. The final decision should rest with the government formed after the next elections.”

Finance Minister Zbyněk Stanjura emphasized the priority of stabilizing public finances to create a path toward euro adoption. Although progress has been made, challenges remain.

Meeting the Maastricht Criteria: Progress and Challenges

While the Czech Republic fulfills some Maastricht criteria, others remain unmet. For instance:

• Long-term interest rates align with the eurozone’s requirements.
• Price stability, however, remains a hurdle. May’s inflation rate of 6.5% exceeded the threshold but is gradually decreasing.

Hampl and Stanjura agree that the Czech Republic is close to meeting these standards.

The primary barrier is the absence of ERM II membership. “Joining ERM II should be part of a credible political strategy, ensuring the transition to the eurozone is as swift as possible,” Habáň stated.

Public Opinion: A Key Challenge

The government must address the significant public skepticism toward the euro. Surveys conducted in early summer reveal that only 20% of Czechs currently support the switch. However, trends indicate gradual growth in public approval.

Economists urge the government to focus on targeted communication, especially with low-income households.

These groups are likely to feel the most immediate impact of euro adoption and often have lower financial literacy, making them more susceptible to misconceptions about the currency change.

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Allocations from the EU’s proposed recovery fund should be based on the downturn in countries’ growth due to the coronavirus crisis and not on the basis of their past economic performance, according to Czech PM Andrej Babis.

“We will see the impact of the pandemic next year and this impact will be mainly in GDP. So this should be the most, the biggest criteria,” he said on Friday on arrival for a summit of European Union leaders in Brussels to discuss a joint recovery plan.

The Czech Republic “was one of the best on unemployment, one of the best-concerning debt to GDP and also we have growth – and it is not possible to penalize successful countries because they were successful,” Reuters quoted him as saying. “Money should be distributed correctly and fairly,” the PM added.

“The approval of the agreement and the EU budget for the next period is positive news for the domestic economy, as the total amount of money allocated to the Czech Republic will be higher than proposed in the original plan,” said ING Bank’s chief economist Jakub Seidler.

According to Deloitte’s chief economist for the Czech Republic, David Marek, the adoption of the recovery fund, albeit in a compromised form, is essential for the Czech Republic.

“For the Czech economy, it is fundamental that thanks to this fund, the recovery of European economies can be faster and more sustainable,” he said.

After almost five days of often tense negotiations, EU leaders reached a “historic” deal on the bloc’s long-term budget and coronavirus recovery package to the tune of €750 billion to rebuild EU economies.

The deal earmarks huge sums for providing funds to businesses to rebound hurt by the economic collapse caused by the COVID-19 pandemic, roll out new measures to reform economies over the long haul, and invest to help protect against “future crises”.

The European Commission will borrow the money on financial markets and distribute just under half of it — €390 billion — as grants to the hardest-hit members of the bloc, with the rest, provided as loans.

 

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European Union will reopen the borders to citizens of 14 countries starting from July 1: the list includes Australia, Canada, South Korea, Japan, New Zealand, Rwanda, Thailand, Uruguay, Algeria, Morocco, Tunisia, Georgia, Montenegro, and Serbia.

Travelers from China would be approved to enter, but under the condition that Beijing would do the same for Europeans.

The document is yet to be formally agreed by the Council of the European Union next week.

Some EU countries have requested a delay in the decision for further examination, meaning the decision may be revised. The list is not entirely binding, border management remains a matter of national decision.

“There are still ongoing consultations, which will continue until Monday,” an EU source said.

“There is no visibility on where this will go, but the presidency still hopes to put this matter to a vote on Monday,” the source added.

Brussels is following a principle of a joint agreement by EU countries based on criteria such as “health status, ability to apply containment measures during travel and reciprocity considerations”.

For now, countries like the United States, Russia, and Brazil are left out, where the epidemiological situation does not offer security for fear of new outbreaks.