Unfinished convergence hampers Czechia's early euro adoption--CNB | info.cz

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Unfinished convergence hampers Czechia's early euro adoption--CNB

Unfinished convergence hampers Czechia's early euro adoption--CNB

The still unfinished process of real economic convergence of the Czech Republic towards the euro area poses a barrier to the country's early euro adoption, according to the Czech National Bank's (CNB) alignment analysis.

"Although this process has resumed in all key indicators in recent years, the distance of the Czech Republic from the euro area average remains significant in most indicators," the analysis writes.

Other risky factors include misalignment of the Czech and euro area financial cycles and public finance sustainability, as population is ageing and mandatory budget expenditures are growing, the analysis says.

On the other hand, the Czech Republic's close trade and ownership links with the euro area countries have long been among the strongest arguments in favour of euro adoption, according to the analysis.

"The elimination of exchange rate risk and transaction cost savings upon euro adoption would be greatly beneficial to Czech exports and imports," the analysis says.

The Czech economy has long been characterised by gradually rising use of the euro by non-financial companies, the document adds.

There are still differences in the structure of the Czech economy in comparison with that of the euro area, consisting chiefly in an above-average share of industry in gross domestic product (GDP), according to the analysis.

It is still necessary to assess properly the functioning of the new institutions and regulations created in the past years in response to the economic and financial crisis, as they have fundamentally changed the form of the euro area and thus also the content of the euro adoption obligation assumed by the Czech Republic on acceding to the EU, the analysis says.

The CNB's analysis of the degree of the Czech Republic's alignment with the euro area assesses both the preparedness of the Czech economy to join the euro area and the economic and institutional situation of the euro area itself. It does not, however, examine the advantages and disadvantages of euro adoption, nor does it formulate any recommendations regarding this step.

The analysis serves as a basis for the government's and the CNB's joint document on the fulfilment of the Maastricht convergence criteria and its degree of economic alignment with the euro area.

When approving the document last year, the government decided to debate the next assessment in 2020. Until last year, it had been discussing it annually.

In December 2018, the government expressed its agreement with the CNB's and the Finance Ministry's recommendation that the cabinet should not set the target date of euro adoption for the time being.

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