Skeptical Czechs may be pushed to change tone on euro

When Czech President Milos Zeman said last week his country could join the euro by 2018, he met with little more than a shrug from the country's other political leaders who have shied away from setting a date.

Yet his strongly pro-European views - he made a show of hoisting the European Union's flag for the first time at Prague Castle when he took office last month - may be a first sign that one of the EU's most reluctant members will change its tune.

Zeman replaced the strongly euro skeptic Vaclav Klaus, who had long campaigned against the single currency, and also predicted some of the troubles it has encountered.

The change is likely to gather speed next May. Opinion polls show the centre-left Social Democrats are poised to supplant their centre-right opponents who have governed for two terms with a policy that has resisted deeper EU integration.

"I believe the Czech Republic could join the euro zone within five years," Zeman said in a German newspaper interview.

The former leftist prime minister, 68, is known for speaking his mind without consulting other political leaders or without laying out concrete plans how to proceed.

He himself cannot officially do much about the country's euro policy. It is up to the cabinet to decide the approach to its economic agenda, including on European affairs.

The current cabinet has refused to set any target dates for euro entry, and the question has been off agenda given the euro zone crisis and the remaking of the currency union's design, and Prime Minister Petr Necas reminded Zeman of his place.

"I would like to point out that it is the government that is responsible for economic policy and not the president, however these opinions are legitimate and interesting," he said.

But the Social Democrats, who hold a 30 percentage point lead over Necas's centre-right Civic Democrats in opinion polls, have a more accommodating approach. Zeman was setting a tone.


Their leader and the likely next prime minister Bohuslav Sobotka served as finance minister in a 2003 cabinet that set 2009-2010 as a non-binding target date to adopt the euro, a date that was later abandoned.

The party has back-pedalled on its euro-enthusiasm as the euro zone's weaker members collapsed under a pile of debt in the past years, but is still keeping euro entry on the table.

"I am convinced that the government that will be formed after next year's election should set the euro entry date," Sobotka said on Thursday.

He told Reuters 2020 could be a date to look at, the first time he mentioned a date since the euro zone crisis began.

Baltic minnow Estonia joined in 2011 and Latvia is on track to adopt the euro next year. In Poland, the region's largest economy, Prime Minister Donald Tusk has said he wants to join "as soon as possible" and has recently signaled he could back a vote on the issue that could complicate accession.

The Czechs could meet the conditions to join - on debt and interest rates, among other things -- if it wanted. But it has never been in a hurry, with economists saying the right time would be when its economic level gets closer to main trading partners, such as Germany.

The country of 10.5 million has been served well by the crown's floating exchange rate, which has acted as an adjustment tool throughout the global economic crisis.

Having reached all-time high of below 23 per euro in the boom era in mid-2008, the crown fell to 29.7 the following year, giving breathing room to exporters hit by the global crisis.

It has weakened again in the past months to 25.9 as the country remains in recession and the central bank threatens to use the crown to ease monetary policy.


While lacking outright authority to decide on the euro, Zeman can help push his agenda indirectly.

The first way is through public opinion. It was Klaus, after all, who used his office to reinforce skepticism even before the euro crisis hit. An opinion poll last year showed three quarters of Czechs oppose the single currency.

Zeman will also have some influence eventually on the make-up of the central bank, which has an advising role in deciding government policy, and thus can have a say in determining when the economic conditions are right to join.

Klaus named all seven members on the central bank's current policy board, which is one of the most trusted institutions in the country and whose members all say Czechs should not hurry to meet their EU obligation to swap their crowns for the euro.

No revolution is expected soon. The first member to leave will be Eva Zamrazilova, whose term expires in 2014. The rest of the board has mandates until 2016-2018.

Given Zeman's past behavior, however, he will not shy away from overhauling the bank with people closer to his way of thinking. He has already mentioned a trade union economist and a former Social Democrat finance minister as possible candidates.

(Additional reporting by Jana Mlcochova. Editing by Jeremy Gaunt.)