CNB publishes Alignment Analyses 2025
The Czech National Bank has published the Analyses of the Czech Republic's Current Economic Alignment with the Euro Area (pdf, 1.8 MB), a document that provides a comprehensive view of the Czech economy from the perspective of the country's long-term obligation to adopt the single European currency. Every year, the document independently evaluates the domestic economy's degree of alignment with the euro area as well as drawing attention to potential economic risks of the Czech Republic joining the euro area. In addition, it examines developments in the euro area, especially the economic alignment of its Member States and also selected institutional issues. This analytical document written by CNB experts evaluates the usual range of macroeconomic topics. It does not contain recommendations on adopting the euro or an assessment of the overall advantages and disadvantages of this step. The decision on setting the target date for euro area entry falls to the government of the Czech Republic.
CZECH REPUBLIC
The analyses of the Czech economy evaluate the Czech Republic's degree of economic alignment with the euro area, which will determine how well the euro area's single monetary policy would suit the Czech economy. They also examine the effectiveness of adjustment mechanisms, which would play a key role in absorbing the impacts of potential asymmetric shocks on the Czech economy after the loss of its own monetary policy and exchange rate flexibility. Based on the result of this year's analyses, the characteristics of the Czech economy as regards euro area entry can be divided into the following three groups:
1. Indicators suggesting a relatively low level of risk associated with potential euro adoption in the area analysed
This group has long included the Czech economy's trade and ownership links with the euro area, which continue to foster alignment between the Czech and euro area business cycles. This remains high but may only be a temporary phenomenon due to the similar impacts of strong global economic shocks in recent years. Strong trade links with the euro area also affect the financing of domestic companies, about one-half of which is conducted in euro. This share did not increase further this year due to a falling interest rate differential. The koruna and the euro remain aligned against the dollar. Inflation persistence, which is at similar levels in the Czech Republic as in the euro area, would not pose a risk in the event of euro adoption either. Within the adjustment mechanisms of the Czech economy, positive factors include the long-term unemployment rate, which remains among the lowest in the EU, and the economic activity rate, which is broadly comparable to that of euro area countries - except for female labour market participation, which remains relatively low in the Czech Republic. The situation in the Czech banking sector also remains favourable and its resilience to potential negative shocks remains high.
2. Indicators with a neutral message
This category still includes the assessment of real economic convergence of the Czech Republic towards the euro area, which has almost stalled since 2020. We can also include the alignment of the Czech and euro area financial cycles, the alignment of financial markets and interest rate spreads between Czech and euro area market rates. The volatility of the koruna's exchange rate against the euro decreased slightly over the past year. However, it could pose a problem if the Czech Republic joined ERM II. Most indicators of monetary policy transmission similarity between the Czech Republic and the euro area remain neutral. The Czech Republic differs from the euro area average in some of the indicators, but this cannot be considered a fundamental barrier to euro adoption. The euroisation of the Czech economy, excluding loans to non-financial corporations, remains relatively low, and the transition to the euro may thus result in higher costs than in other countries. The assessment of Czech general government debt-to-GDP, which remains well below the 60% threshold of the Maastricht criterion, is also neutral. Neutral labour market indicators include labour taxation and the share of part-time jobs in employment, which, however, remains relatively low despite a slight increase. According to an indicator published by the International Institute for Management Development, the competitiveness of the Czech economy remains solid.
3. Indicators suggesting economic risks associated with potential euro adoption in the area analysed
These indicators include the unfinished process of economic convergence of the Czech Republic towards the euro area as regards the price and wage levels. Their lag behind the euro area average remains significant and increased slightly in 2024. The relatively low structural similarity between the Czech economy and the euro area, consisting mainly in an above-average share of industry in domestic GDP, which has remained unchanged in recent years, could pose a risk of asymmetric effects of economic shocks in the event of euro adoption. Problems also persist as regards the adjustment mechanisms of the Czech economy. They include the continuing public finance imbalance and limited room for the countercyclical effect of fiscal policy due to a high ratio of mandatory and quasi-mandatory expenditures to state budget revenues. There is also a risk linked to public finance sustainability, but the pension reform adopted at the end of 2024 should gradually foster an improvement. Low labour mobility poses a risk in the labour market, as reflected in a low willingness of employees to change jobs or relocate for work.
EURO AREA
The euro area economy has stabilised after a series of crises. GDP in the euro area returned to moderate growth in 2024, which continues this year. However, differences in economic performance and living standards are still visible across Member States. Real convergence continues among newer euro area Member States, while the founding members record lacklustre growth. Inflation in the euro area returned to the ECB's inflation target. However, there are also differences in inflation across the Member States.
Fiscal discipline in euro area countries has improved slightly, but structural weaknesses in the fiscal domain persist and their public finance situation continues to be unsatisfactory. High general government debt remains a fundamental problem, with higher levels still being recorded especially in the southern euro area countries and in France and Belgium.
2025 was the first year of implementation of the European Commission's priorities in the EU and the euro area under the new College of Commissioners. These priorities include, for example, enhancing the EU's competitiveness, reducing the regulatory burden and simplifying legislation. In terms of developments in the euro area, the most significant event was the approval to expand the euro area to include Bulgaria as of 1 January 2026. There has been no significant progress this year in the deepening of the Economic and Monetary Union and euro area integration. Owing to persisting fundamental differences of opinion between the Member States, there was essentially no strategic discussion on the future direction of the banking union, especially as regards risk-sharing.
It should be noted that not all of the fundamental obligations that may arise for the Czech Republic from adopting the euro are currently known. This is due to the unfinished nature of some key projects that will significantly affect the functioning of the euro area (such as the banking union) and some persistent problems within the Economic and Monetary Union, including the high debt levels of several Member States. Any decision regarding the timing of joining the monetary union is thus still accompanied by major uncertainties.
INFOGRAPHICS
The Alignment Analyses are based on the valid Czech Republic's Euro-area Accession Strategy and its 2007 update. In preparing this document, the CNB fulfils its obligation to regularly assess the Czech Republic's progress in laying the groundwork for euro adoption. The analyses contained in the publication focus on the traditional range of macroeconomic topics without any ambition to assess all issues relevant to the Czech Republic's entry to the euro area. This document does not analyse in detail the impacts of joining the banking union, including the transfer of powers in the area of prudential supervision and resolution of credit institutions to the supranational level and the related economic and financial impacts, the costs linked with ESM membership and other - for example legal and political - aspects of joining the euro area. The consequences of changes to the process of ERM II entry, which is a pre-condition for euro area entry, are not assessed either.
The Alignment Analyses prepared by the CNB are the basis for the report Assessment of the Fulfilment of the Maastricht Convergence Criteria and the Degree of Economic Alignment of the Czech Republic with the Euro Area, which is jointly prepared by the Ministry of Finance of the Czech Republic and the CNB. In line with the Czech Republic's Euro-area Accession Strategy, this report assesses progress in laying the groundwork for euro adoption. The updated joint document is to be submitted to the Government of the Czech Republic by the end of March 2026.