By joining the EU, the Czechia has committed itself to directing economic policy towards the adoption of a common currency. But this commitment may not be valid at all. Just good for us. The euro is no win and not at all for a small open and catching-up economy, says Ondřej Müller in his article
The eurozone as we know it today is one big absurd. In order to enter it, you must meet certain conditions, the "Maastricht criteria". It was the countries preparing the eurozone that set these conditions from their point of view and only according to their interests. That no Member State is able to meet these conditions of its own is another matter. For the Czechia, however, meeting the Maastricht criteria should not be an indicator of readiness and, above all, the benefits of adopting the euro. The Czech Republic needs its own criteria that would clearly determine when and under what conditions entry will be advantageous for us, not for the euro area, or at least bearable.
Examples of such criteria:
- Is monetary union an area of rapid growth, stability, low unemployment and sound public finances?
- Does the eurozone allow us not only trade interconnection, but also the movement of labor and services?
- Is the Czech Republic ready to adopt the euro? (difference in economic level, price level, labor productivity)
- Are we ready to fix the Crown exchange rate for 2 years? (risks of large losses with growth potential)
- What will be the future of the eurozone? Is it moving towards tax, budgetary and political union? Do we want to participate in it at all?
Another and probably even greater absurdity are changes in the rules "during the game". When the Czech Republic joined the EU in 2004 and committed itself to adopting the euro, the rules made it clear that each country is responsible for its debts and the other members are not tied to fiscal aid.
You know how it turned out. Rescuers even have to borrow to help.
Another very important rule is that The European Central Bank will not buy the bonds of member countries, is bypassed again. The ECB does not buy bonds directly, but pours euros into commercial banks, which then force them to buy. Only one thing follows from this: the Czech Republic has committed itself to entering a completely different eurozone, where different rules applied than now. Logically, no one can demand that we fulfill our obligation.
Pros and cons
So far, little has been said about the introduction of the euro. I'm asking, What has the positive euro brought to member countries? No matter how hard I look, none of the ideas and hopes placed in the euro have come true. The promised acceleration of economic growth now sounds like scifi. The euro would certainly make it easier for us to trade with eurozone countries, reduce transaction costs and the risks associated with sudden exchange rate changes. On the contrary, all that against are quite considerable, not speculative but factual and easily traceable through examples.
Protection against the financial crisis
Thanks to the existence of their own currency and sufficient liquidity, a certain separation of Czech banks from their foreign mothers prevented turbulence and the spillover of the financial crisis into the Czech banking sector. The government did not have to pour billions into the financial market, as it did in other countries.
The Czechia is such a Central European tiger that it is catching up with Western developed countries. Despite above-average economic growth(before the economic crisis) fortunately, we did not encounter any higher inflation. Why? Thanks to our crown. In practice, GDP growth also means an increase in the price level, which in the Czech Republic is at 70% of the EU average. The rise in prices then occurs in two pillars: one is the already mentioned unpopular inflation, which each of us feels very negative. But we must not forget the second, much more pleasant pillar for us - strengthening the crown: even though the croissant still costs CZK 1, it is really more expensive, because it has CZK 1 thanks to the strengthening course higher fair value.
By removing this pillar, or by removing our currency, then there will be only one left to catch up with the price level of developed countries. inflation, which will increase dramatically. That is why it is very important, if we should have a desire for the euro, to time its adoption for a time when the price level in the Czech Republic is approaching considerably. (mainly thanks to the crown) euro area average. And when the growth potential of the currency is exhausted so that we can change our savings at the most advantageous exchange rate for us.
With the adoption of the euro, not only would inflation rise, but so-called would increase wage contagion (wage differences would become more transparent) and people in the Czech Republic would start forcing higher wages. It would then be a great challenge to achieve such a large increase in labor productivity. This would jeopardize our competitiveness.
Cheap money and debt
Yes, I am talking about Greece, Spain, Italy and Portugal. These countries joined the monetary union with lower economic levels and lower price levels. They purposefully met the Maastricht criteria, then their inflation began to skyrocket. Although living standards were rising here, the price level was rising even faster. No match could be found between wages and productivity work, in addition, a bubble emerged in the real estate market and the problem was born. The euro has thus undoubtedly contributed to the huge indebtedness of these countries.
The "black passenger" problem - the "free-rider" problem
Monetary union unites a heterogeneous group of countries. Countries with a consistent fiscal policy, on the one hand, and countries which, due to costly social systems, are unable to maintain fiscal discipline and use the common currency to pursue a wasteful policy on behalf of others.
The time for the euro will not come by meeting the Maastricht criteria, but ours, the Czech ones. It turns out that monetary union in this form can no longer work because it does not bring anything positive to its members.
The crucial question then remains: qou vadis, monetary union? If we are ever to pursue the euro in the future, do we also want to participate in the tax, budgetary or political union, as possible new forms of this union?
The article was originally published on author's blog.