Time to shoulder the euro

Despite the pressure on the single currency and the current financial storm, one Czech journalist says it’s time for the Czech Republic to adopt the euro. A surprising proposal, perhaps, but one that she says is based on rational facts.

Published on 8 August 2011 at 15:22

At first glance, it would be a very foolish idea, with the euro in turmoil and confusion reigning over the future shape of the eurozone, to stand up and say that we want to join the club of the common European currency. Especially in the Czech Republic, where the crown is relatively stable and has been getting steadily stronger for a long time. Yet now the right moment to do just that has come along. Both sides would do well out of the deal.

At the emergency summit of the eurozone two weeks back, the foundations were laid for the further integration of its seventeen countries. Those who are allergic to the word ‘integration’ can substitute for it the phrase 'rules of the game'. That game is changing, whether it’s the form of a rescue fund for the eurozone states, future European bonds issued by the European Central Bank, or supervisory institutions (some form of a European ministry of finance). A comprehensible summary here may be that the eurozone countries are becoming much larger 'shareholders' in economic success or failure, and as such will have greater interest in safeguarding their interests through common institutions.

The first swallows of the spring awakening have arrived: in exchange for massive aid, Greece must submit, in great detail, to the economic tutelage of the IMF or the EU. The Irish have also opened the door to discussions on a common EU-wide tax base for companies, and possibly even to corporate tax rates – something that until now they have blocked in the EU.

Normally, this would be of no concern to the Czech Republic, were it not, in the words of the Czech Prime Minister, “vitally dependent” on the eurozone. Change to the consolidated tax base of companies, which would be valid across Europe, is something that affects the Czech Republic. What’s at issue is how firms, whether parent companies or subsidiaries, will be able to write off their investments, and in which state they will file their returns. For a country with a number of “subsidiary” companies, this is a significant matter. We have an obvious interest in taking a seat at the table where it will be hashed out.

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Trusted diplomatic sources say that German politicians have begun to pass notes to Poland and the Czech Republic, suggesting that they ensure for themselves a place at the table by declaring that they will take on the euro in the foreseeable future. The Germans aren’t doing it out of any affection for Donald Tusk or Petr Necas, or from heartfelt concern for Polish and Czech economic interests in the EU. Their arguments are more in the line of self-preservation.

Firstly, signing up for the euro will strengthen market confidence in the common currency in these tumultuous times. Secondly, if the two largest economies in eastern Europe – which are, what’s more, open and disciplined economies compared to others – join the euro club, the move will counterbalance French pressure to rewrite the new rules for the eurozone to suit French interests. And thirdly, it would make German investments into Poland and the Czech Republic easier. In addition, both Poland and the Czech Republic will want a more integrated eurozone to be closer to a more prudent and disciplined Germany than to a spendthrift and erratic France.

The proposal to join the euro is not so shocking when one recalls the persistent pleas from Czech exporters to join the euro, to help stem losses from currency conversion and because of the possibilities a single currency holds out for simplifying long-term planning.

Signing up to the euro, however, does not mean that the Czechs will arrive in the club tomorrow. The shortest time between “we want to” and “we’re going to” is at least three years, but more realistically it's five or more.

This period would let the Czech government negotiate terms of access to a common currency, for example the rate of currency conversion, or possible participation in the rescue package for indebted countries. Above all, however, we would be counted a partner during the drafting of new rules for the eurozone. Our influence on the new rules would be vastly different from what it is now – from where we stand, formally, entirely outside the euro area.

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