PRAGUE — Vaclav Klaus, the departing president of the Czech Republic, has equated the European Union to the former Soviet bloc, blamed the euro for the Greek crisis and called the single currency a mistake. He has even refused to hang the Union’s gold-starred flag at the Prague Castle, the seat of the Czech president.
So when Mr. Klaus, a Thatcher-loving economist who became a potent spokesman for continental Europhobes, steps down next week to make way for Milos Zeman as president, euro enthusiasts here will rejoice. Mr. Zeman has not only promised to hang the Union’s flag at the castle but has also suggested a referendum on whether to join the euro zone and suggested 2017 as the earliest possible date for entry.
But the celebrating could be premature. While the presidency, a largely ceremonial post, has the power to influence the debate, the Czech Republic remains deeply polarized between a business community clamoring to get into the euro club and skeptics who associate the currency with the economic pain buffeting Europe’s southern tier.
More than 80 percent of Czechs are against entering the euro zone, according to the latest Eurobarometer poll, making the Czechs the strongest opponents among the seven former Soviet bloc members in the European Union that have yet to join. Deeply resistant to embracing the euro’s one-size-fits-all monetary policy and loath to bail out cash-poor countries like Greece, many policy makers here insist that the Czech Republic is a striking example of why life outside the euro is simply better.
“Being inside the euro is not a sign of the quality of a country’s economy — the crisis has proved that,” Mojmir Hampl, 37, vice governor of the Czech National Bank, said in an interview. “The average Czech household says, ‘Thank God we don’t have to pay for these profligate Greeks.”’
Such sentiments are not limited to the Czech Republic, and enthusiasm for the euro is diminishing in most of those former Soviet-bloc countries, according to the Eurobarometer poll. The European Commission, which commissions the poll, noted that 54 percent of people in these countries, which include Poland, Hungary and Romania, think the euro will have negative consequences for their countries. Even in Latvia, which wants to adopt the euro by next year, 68 percent of people believe that joining would constitute losing part of their national identity.
Here in the Czech Republic, pushed and pulled between East and West over the centuries, the national sense of self has also played an important part in stoking ambivalence. Petr Pithart, a lawyer and former prime minister, argued that the antipathy toward the euro was a byproduct of a deep-seated mistrust of the West in the Czech soul, planted in 1938, when France and Britain yielded to Nazi pressure and allowed Germany to annex part of Czechoslovakia. “Those wounds have not completely healed,” he said. “Klaus knew how to exploit this very well.”
Yet Mr. Hampl, an appointee of Mr. Klaus whose current term at the Czech National Bank ends in 2018, said the main reason for resisting the euro came down to hard-headed economics. Mr. Hampl argued that an independent monetary policy had allowed the central bank to cut interest rates in August 2008 after the crisis first hit hard, thereby helping to cushion the country against the worst effects of the downturn.
Moreover, he estimated that being outside the euro zone — and not contributing to the European Union’s bailout fund — had saved the country roughly €280 billion, or about $370 billion, in potential liabilities over a three-year period. “Knowing that we haven’t been saddled with that debt has helped me to sleep at night,” he said.
Yet the Czech Republic has hardly been immune from the European debt crisis, and some economists counter that in a country where 80 percent of exports go the euro zone countries, the economy is inextricably linked to the fate of the euro, even if the Czechs use the koruna instead.
Indeed, the country has slumped into a modest recession since 2011, weighed down by weak demand for Czech products like cars and Bohemian crystal. Consumption at home has also been lackluster as the center-right coalition government has instituted tough austerity measures, including raising sales taxes and slashing spending. Unemployment of about 7.5 percent in December was a far cry from the roughly 25 percent in Spain or Greece, but it has hit especially hard in the poorer parts of the country.
Against that backdrop, euro entry remains a hard sell for officials like Tomas Zidek, the deputy finance minister, who said in an interview that the European Union and the euro were now vastly different propositions than what the Czechs had signed up for when they joined the Union in 2004. The current efforts to shore up the monetary union by integrating banking and fiscal measures, he added, were as ill-advised in an economically diverse bloc as trying to call a Czech pilsner a German beer.
Mr. Zidek acknowledged that the Finance Ministry was under pressure to join the euro from Czech companies that face huge transaction costs because the country is outside the zone. “Companies complain all the time,” he said. “Our exports are hit by the lack of exchange rate stability.”
Skoda, the Czech automobile company that is owned by Volkswagen, said it supported the Czech Republic’s joining the euro, “the faster, the better,” because the company exports 60 percent of its cars to countries in the European Union and does the bulk of its business in euros. Michal Kadera, a senior manager at Skoda, said that production planning for cars took at least two years and that sudden fluctuations in the koruna against the euro made planning much more difficult and expensive.
Tomas Sedlacek, an economist who has advised President Vaclav Havel, said that not being in the euro zone was costing Czech companies billions of korunas a year in hedging costs associated with the fluctuation of the koruna against the euro. An independent monetary policy was no panacea, he added, pointing to Hungary, which has held on to its currency, the forint, and had sought a bailout before Greece.
“Those Czechs like Klaus,” he said, “who think having the koruna has saved us from the crisis, are living in a dream world.”
Hana de Goeij contributed reporting.
Czechs Split Deeply Over Joining the Euro
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Czechs Split Deeply Over Joining the Euro
