Czech national bank may adopt euro in 2007

In a statement released 27 December the CNB said, "Economic and political measures must be implemented in such a way as not to rule out the possibility of joining the eurozone sometime around 2007."

The Draft Accession Strategy document comes as the Finance Ministry prepares to release four-year public spending proposals aimed at reducing the public budget deficit, which reached 5.7 percent of gross domestic product (GDP) in 2002 and which could reach 6.6 percent in 2003 under current spending plans.

Finance Minister Bohuslav Sobotka has submitted two separate plans to the Cabinet: a "soft version" calling for a 3.7 percent deficit in 2006; and a "hard version" calling for a 4.9 percent deficit.

Under the Maastricht criteria for euro entry, a country's deficit must be no higher than 3 percent of GDP.

Vladimir Pikora, an analyst at Volksbank, said the CNB statement was an attempt to influence the debate within the government over which strategy the state should follow. "The central bank wants the government to be stronger in its reforms," he said. "The government says the first possible date for adopting the euro would be 2008, and the central bank thinks this is too late."

The CNB position is at odds with recent statements from Prime Minister Vladimir Spidla, who has said that adoption of the euro is most realistic between 2009 and 2011. Spidla is said by many observers to be ideologically opposed to the more radical ministry plan, believing that cuts in social expenditure would be politically costly.

Many economists, however, have said that a failure to join the euro in 2007 could cause of a loss of confidence in the country on the capital markets and among the foreign business community. Pikora said governments in Poland, Hungary and Slovakia are aiming to join the eurozone between 2006 and 2008.

In an interview with the Czech News Agency, Eva Novakova, a spokesperson for the Finance Ministry, described the CNB statement as a helpful contribution to the debate.

It remains unclear, however, whether any of the six countries scheduled to join the European Union in May 2004 will be asked to join the eurozone as early as 2007. Jean-Claude Trichet, governor of the Banque de France and a member of the governing council of the European Central Bank, said recently that he did not expect any new euro members in 2007.