Thursday, May 26, 2005

Czech Republic Having Second Thoughts

I missed this at the time, but apparently officials responsible for monetary policy in the Czech Republic are begining to have second thoughts about joining the euro.

"Czech central bank policy maker Robert Holman said the government should abandon plans to adopt the euro by 2010 because joining the single currency may stifle growth, the first central banker in the country to call for a delay.

``I would not rush with euro adoption because it represents significant risks for us,'' said Holman, 51, who joined the bank's board on Feb. 13, in a May 18 interview in Prague. ``The euro zone economy has been growing very slowly in the past five years, and among other factors, it could have been caused by having the common currency.''"

Indeed an adoption of the euro by the Czech republic would not be necessary on the grounds which have convinced most South European participants to enter: cheaper interest rates. The Czech Republic's benchmark interest rate currently stands at 1.75%, compared with the 2% in the eurozone. The only clear gain would be in transaction costs: 80% of Czech foreign trade is in euros. Add to this the fact that Sweden and Denmark have not evidently suffered by staying out, and the Czechs must be asking themselves whether the price of losing your own monetary policy is really worth it.

According to Viktor Kotlan, chief economist at Prague-based Ceska Sporitelna AS: "Unlike some new EU members, the Czechs have stable inflation, stable inflation expectations and their central bank has great confidence.''"

What more do you want?

Actually these 'euro' concerns are not the only thing which the Czechs are debating at the present time. There is still no decision on whether they will hold a referendum on the Constitution Treaty: still this time next week that may already have become irrelevant.