By Gordon Fairclough and Leos Rousek (The Wall Street Journal Europe 9.7.2010, p. 6)
The new Czech central bank governor said uncertainty surrounding the euro zone in the wake of the Greek debt crisis is so great that there is no point considering adopting the common currency for now and expressed serious reservations about possible new Europe-wide regulations.
Miroslav Singer, a former vice governor of the Czech National Bank who was named to the top job last week, also said Czech interest rates are likely to stay at their current low levels "longer than people generally think." But he said further cuts were unlikely unless the economy slowed sharply.
"I feel very comfortable with the current level of rates," Mr. Singer said in an interview on Thursday with The Wall Street Journal. In May, the bank's rate-setting board cut the benchmark two-week repurchase agreement rate by 0.25 point to a record low of 0.75%.
The Czech economy is slowly recovering after a severe downturn last year, when recession-hit Western European consumers bought fewer Czech-made cars, auto parts, electronics and other exports. Gross domestic product shrank 4.3% in 2009, but grew 1.1% in the first quarter of this year from the year-earlier period.
The governor said government-debt problems in Greece and other euro-zone members and the group's subsequent bailout efforts showed that changes are likely needed in the currency bloc's institutions as well as the requirements it sets for new members.
"I don't even have a clue how long it will take to solve the problems of the euro zone," Mr. Singer said. And until that happens, he said, "there are simply too many hypotheticals for me to speculate" on whether joining would help the Czech economy.
The Czech Republic, the Baltic states of Estonia, Latvia and Lithuania, plus Poland, Hungary, Romania and Bulgaria are all required as a condition of their membership in the European Union to pursue the adoption of the euro, although there is no deadline.
The Czech Republic hasn't laid out a time frame for adopting the euro. The country would still need to substantially reduce its government budget gap in order to qualify under the euro zone's current rules.
"At the moment it is really difficult to be a euro-zone enthusiast and rush to adopt the euro," said Radomir Jac, chief economist at Prague-based PPF Generali Asset Management. "This is the deepest crisis in the euro zone's 10½-year existence."
The euro zone requires governments to have budget deficits smaller than 3% of GDP. The Czech Republic's budget deficit this year is projected to equal about 5.3% of GDP. The head of the new governing coalition has said he will aim to cut that significantly by next year.
Mr. Singer said he worries that the EU's approach to financial regulation is wrong. "We do not agree this crisis has been caused by a lack of international regulation," he said. The blame belongs to national regulators, such as those in the U.S. and U.K., which failed to adequately police their financial sectors, he said.
He was especially opposed to proposals to levy a tax on banks across the EU. The move, aimed in part at limiting the growth of the banking sector, would be inappropriate for the Czech Republic which, he said, would benefit from more and larger financial institutions.