Strong crown sees Czech companies adopt Euro instead.

03-07-2008

The Czech Republic’s official road to adopting the Euro is a long and winding one. While politicians argue over the pros and cons of embracing the pan-European currency, it seems that Czech businesses, motivated by an increasingly strong crown have already made up their minds. Battling against an increasingly strong crown, many companies that export beyond the country’s borders are instead choosing to do their business in Euros. The reasoning is simple – countries importing Czech goods, are assured a better deal with a weaker currency like the Euro. Dominik Jun spoke to economist Tomáš Sedláček about this issue and began by asking him why the switch made sense to Czech businesses:

“Because the crown is gaining in value, so for Czech companies to sell their products in crowns, it is much more difficult because they keep their prices constant yet the value of the crown goes down, so the demand for their products in much more assured if they stick to the Euro.”

So, is the fact that all these Czech companies are using the Euro, is that likely to increase the momentum for the Czech Republic to actually officially adopt the Euro as its currency?

“Well, I certainly do hope so, because eighty percent of Czech GDP – eighty percent of all that we produce, ends up being exported abroad. And of course, the majority of those exports end up in the Euro-using countries. SO I believe that that is or should be a sufficient pressure for the government to at least announce a planned date for Euro adoption and I think that it is somewhat irresponsible of a government not to even hint at a strategic vision of our country. I think that it is a duty of a leader or leaders of any country to be able to provide some kind of a strategic outlook so that the companies could actually adjust to it.”

And is it fair to say that most Czech companies want the country to adopt the Euro?

I would say that every exporting company would want to have the Euro. It is in their interest. The only price that we will pay economically for adopting the Euro is slightly increased inflation in the magnitude of a couple of percentage points. And the good news is that with inflation, you cannot have speculation, like you can have for or against a currency, so inflation seems to be a better way of approaching the western price levels, than through a strengthening of the crown.”

Photo: European CommissionPhoto: European Commission And what is the current political state of play as to the adoption of the Euro? How realistic is it looking, and what is the timetable – or is there even one?

“Well, there has been a very straightforward strategy that was put together in the year 2004, just before we entered the European Union. And the government, together with the National Bank agreed to the date of 2010. Unfortunately, after the 2006 elections, this was completely dismantled and as of today, we have no clue and no indication as to when the government wants to adopt the Euro. It won’t even indicate a tendency to do so. It has all been left to speculation and mine is that it will happen sometime around 2013-2014, hopefully.”

03-07-2008