By Sean Carney, Dow Jones Newswires
VIENNA (Dow Jones)--Any new Czech government is unlikely to put the adoption of the euro on its agenda because politicians will face challenges convincing the electorate that additional reforms are worth the pain, the deputy governor of the country's central bank said Wednesday.
"It comes down to the citizens; most are happy with the koruna and they have been used to low interest rates and low inflation for several years. It will be difficult to sell tough reforms," Miroslav Singer told Dow Jones Newsires in an interview held on the sidelines of a financial conference.
In May, the country will likely hold general elections to restore a political government to power. A caretaker government of technocrats has been running the government since March of 2009 when the right-leaning Civic Democrat party, or ODS, led government lost a confidence vote.
The next government will be in an difficult position from day one because the country's fiscal debt in 2009 was its highest ever, and the next prime minister will be faced with a virtual obligation to enact budgetary belt tightening.
The caretaker government has prepared a road map to reduce the fiscal deficit, which was around 5% of gross domestic product in 2009, by one percentage point annually, largely through freezes on wages in the public sector, scaling back some entitlements and raising taxes.
Aiming for euro adoption would mean even stricter fiscal discipline and even more drastic spending cuts would be needed.
"If public opinion is against more reforms, it logically follows that the politicians will be in a difficult position to persuade" their voters that a change to the euro is in their best interests, Singer said.
The Czechs have had several informal euro adoption target dates over the last decade, but generally failed to meet all requirements to move into the European Exchange Rate Mechanism, or ERM II, the antechamber to euro adoption, for the necessary two-year stay.
Yet early during the 2006-2009 term of the ODS, the combination of a booming economy and limited state expenditure enabled the country to briefly fulfill terms to qualify for ERM II.
Then came the credit crunch and the recession, shooting the fiscal deficit through the roof and bringing euro hopes to a screeching halt.
Singer said that for Czechs to seriously consider adopting Europe's common currency, they'd have to halt generous public spending programs that are popular with voters.
Central bank Web site: www.cnb.cz
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