2024-03-04 08:19:13
In 20 years of membership in the European Union, the Czech Republic has met the economic criteria for the introduction of a common European currency six times. So far, the last time it happened was in 2018, it is not excluded that it will happen again this year. This follows from analyzes by the Ministry of Finance and the Czech National Bank. However, the country will still not fulfill the condition of membership in the ERM II exchange rate mechanism.
The Czech Republic committed itself to the introduction of the euro in the EU accession treaty, but no date has been set for such a step. To join the Eurozone, it is necessary to meet the so-called Maastricht criteria. Inflation must be no more than 1.5 percentage points above the average inflation of the three eurozone countries with the lowest price growth. The long-term interest rate must not be more than two percentage points above the average of the three eurozone countries with the lowest inflation. The public finance criterion sets the maximum level of public finance deficit at three percent of gross domestic product (GDP) and the maximum level of indebtedness at 60 percent of GDP. The last criterion is exchange rate stability, which requires a two-year membership in ERM II.
In the past, the Czech Republic had problems in particular with meeting the criteria of price stability and public finance deficit. Inflation was higher than the set value ten times during its membership in the EU, and the deficit exceeded three percent of GDP nine times.
In contrast, the country met the interest rate criterion every time, with the exception of 2022. The Czech Republic does not even have a problem with the maximum level of indebtedness, which has increased from 30.4 percent of GDP to 44.7 percent of GDP during its membership in the EU, but it still remains significantly below the set limit of 60 percent of GDP.
This year, according to the latest analysis by the Ministry of Finance and the CNB, the Czech Republic could meet the economic criteria again. The analysis assumes that harmonized annual inflation in the Czech Republic will be 3.5 percent, the average of the three eurozone countries with the lowest inflation will be two percent. The public finance deficit should decrease to 2.2 percent of GDP from 3.6 percent of GDP in 2023. Interest rates on government bonds, as well as overall indebtedness, should no longer be a problem.
However, the Czech Republic will no longer meet the ERM II membership criteria, even though the exchange rate of the koruna against the euro has been relatively stable for a long time and is in the range that ERM II membership requires from the participating countries. The government decided in February that it would not yet set a date for entering the system, as well as a date for the introduction of the euro. He wants to return to the debate in the first quarter of next year. Representatives of the Ministry of Finance and the CNB warn that membership in ERM II without a clear date for the introduction of the euro could be disadvantageous for the Czech Republic.
In addition to meeting the Maastricht criteria, the Ministry of Finance and the CNB also evaluate the level of alignment of the Czech economy with the eurozone. The latest analysis draws attention to persistent differences in price and wage levels between the Czech Republic and the eurozone, which could lead to inflationary pressures if the euro is adopted. The big difference in the structure of the economy is also a risk, when the Czech Republic has a significantly higher share of industry.
Together with the Czech Republic, nine other countries joined the EU, seven of which introduced the euro. The first was Slovenia in 2007, the last so far in 2015 was Lithuania. Croatia, which joined the EU in 2013, joined the eurozone last year. Currently, 20 of the 27 EU countries are members of the eurozone.