Readiness of the Czech Republic to Join the Euro Area

Abstract

The Czech Republic has been a member of the European Union since 2004. As a Member State, it is obliged to join the euro area upon meeting all the Maastricht criteria. There is still no fixed date for adopting the single European currency. The Czech Republic is failing to meet some criteria. There are ongoing discussions about joining the euro among experts, bank representatives, politicians, entrepreneurs, representatives of the Czech Chamber of Commerce and various associations, economics students and the general public. The aim of this paper is to assess the ongoing fulfilment of the Maastricht convergence criteria in the Czech Republic and to identify the relationship between actual and perceived inflation. The paper reflects new aspects, which were generated by the recent development on financial markets during the last 2 years, including COVID-19 and Russian attack to Ukraine. Due to the fact, that not all statistics reflects recent development, some tables and charts are not reflecting this for hundred percent. The analyses carried out reveal that the only criterion that is currently met is the level of public debt (sustainability will be assessed at the time of application). Smooth adoption of the euro by the public is associated with an increased perception of inflation above actual inflation. This situation should be addressed by economic policy actors in preparation for joining the euro area. The importance of a government communication and explanation campaign was confirmed by countries in a similar position. Since February this year, Europe and the whole world have been facing a new geopolitical situation. There are voices calling for Europe to become stronger, more compact, perhaps move towards a federation, including a strengthening of the common currency’s position. Therefore, this is a highly topical issue. The final decision in the Czech Republic to start the process of adopting the euro and to set the date for joining the euro area rests with the Czech Government in cooperation with the Czech National Bank.