Jan Cienski (ft.com 3.6.2008)
The Czech Republic sees no pressing need to adopt the euro because its economy is doing well despite the turmoil unleashed by the global credit crunch, the country's central bank governor said.
In my opinion, the Czech economy is in very good shape," Zdenek Tuma told the Financial Times.
As compared to other members of the eurozone, it could easily be a member of the club. On the other hand, looking at the good performance and the high credibility of monetary policy, I could say we could stay outside for some time and it would not hurt the Czech economy.
The centre-right government of Mirek Topolanek, the prime minister, has not set a date for joining the single currency. Mr Tuma said that the economy would comply with the Maastricht criteria for eurozone membership by the first quarter of next year, and that if the government were inclined to do so it could set an entry date from 2012 to 2014.
Yet there is little pressure to drop the Czech Republic's monetary independence and follow neighbouring Slovakia, which is likely to adopt the euro next year.
The Czech Republic grew at 6.5 per cent last year, part of a broader sign of the economic health of the European Union's newer members from central Europe. Slovakia's economy grew at 8.7 per cent in the first quarter and Poland clocked in an unexpected 6.1 per cent.
The growth comes from consumer spending, inflows of funding from the EU and continued interest from foreign investors. But there are warning signs: business confidence is wilting, labour costs are rising swiftly and inflation is becoming a problem throughout the region.
One reason for the Czech economy's resilience is that local banks, mostly foreign-owned, have not been hit by the subprime crisis because they did not invest in the US securities, instead focusing on the Czech market.
Mr Tuma expected growth in 2008 to slow to 4.6 per cent, mostly because of a decline in real income due to higher-than-expected inflation. Prices are rising at an annual rate of 6.8 per cent, higher than in Slovakia and Poland. The Czech Republic will notice it if western Europe slows, but no one is predicting a severe slump.
The Czech economy has been growing steadily for a couple of years and it is in good shape to cope with the potential turmoil of an economic slowdown, which is generally expected, said Mr Tuma. Inflation was ex-pected to fall in 2009, thanks partly to interest rate rises by the central bank - the benchmark rate is now 3.75 per cent - but more because of a steady increase in the value of the koruna.
The Czech currency has risen by 12 per cent against the euro in the past year and by 27 per cent against the slumping dollar. That had made the bank's task easier, admitted Mr Tuma: A significant part of the job of tightening monetary policy has been done by exchange-rate appreciation.
While the soaring koruna is helping damp price rises, it is hurting exporters. Pegas Nonwovens, a companythat makes synthetic textiles for hygiene products, said it was being squeezed because about 90 per cent of its exports were denominated in euros; most of its costs, including salaries, rising at a 25 per cent annual rate, are in korunas.
In what Mr Tuma called "a warning signal that exchange rate appreciation is starting to bite," the country's current account fell to a Kc600m ($37m, €24m, L19m) deficit in March, surprising analysts who had expected a Kc8.3bn surplus