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Problems of Nominal and Real Convergence in the Czech Republic before Euro Adoption
KAČENOVÁ, Petra
Czech Republic is one of the former countries of so called Eastern Bloc who decided to return {\clqq}back to Europe`` after the communist regime collapsed. The first step was taken May 1, 2004, when the country joined the European Union. The next step that expects the country after it meets the Maastricht convergence criteria is the adoption of the Single European Currency, euro. In order to meet the requirements of the European Union, Czech Republic must meet the convergence criterion of price stability, the criterion of long-term interest rates, the criterion of annual government deficit, the criterion of government debt and the criterion of exchange rate stability. Since the country joined the European Union, the criterion of price stability was not met in the years 2007 and 2008 only. Czech Republic meets the criterion of interest rates safely. The same applies to the criterion of the government debt. The criterion of government deficit is still being met, with a short exception in 2005. The criterion of exchange rate stability cannot be evaluated because the Czech Republic has not joined the ERM II system yet. The Gross Domestic Product keeps growing every year in the Czech Republic, however, not enough to reach the GDP growth rate in the old EU countries. On the contrary, the unemployment rate in CR is comparable with the EU. The exact date for Euro adoption will be set by the Government of the Czech Republic after the above mentioned critera are met. Introducing the Single European Currency in the Czech Republic may cause certain changes. For example as far as inflation is concerned, euro adoption itself will not cause any rise in price level, but unfortunately we cannot avoid a price increase. When looking at the business sector, it can be stated that probably the size of a business or firm will play an important role, and especially its specialization. Purchasing power of the population should not change substantially after the euro adoption. First of all, the stability and height of the exchange rate of CZK against euro will be important. Economic growth depends on the productivity of factors of production and on the unemployment rate. Since the Czech economy is open towards eurozone countries, I assume that the productivity of factors of production will grow and thus also the economic growth in the CR. Introduction of euro should have only negligible influence on the tax sector. With respect to the gathered values of indicators relevant for the a.m. criteria I assume that the Czech Republic will be ready to adopt euro, with some minor exceptions. Adopting the single European currency in the Czech Republic will be apparently a benefit. However, the most important aspect will be the right timing of euro adoption and the economic development in the neighboring countries, or more precisely in the eurozone countries.
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