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UPDATE 2-Czechs, Poles cooler to euro as they watch debt crisis
June 16, 2010 / 2:34 PM / 7 years ago

UPDATE 2-Czechs, Poles cooler to euro as they watch debt crisis

* New Czech govt will not set euro target

* Parties say euro zone must find fix to debt

* Public support for euro in Poland, Czech Rep falls

(Adds Poland, quote, analyst, background)

By Robert Mueller

PRAGUE, June 16 (Reuters) - Parties building a new Czech goverment agreed on Wednesday there was no point in aiming for euro adoption until the euro zone itself deals with its debt crisis and a survey showed Poles have also cooled on euro entry.

The two developments showed how central Europeans are rethinking their view of deeper integration towards the euro at a time when it is being tested by the worst crisis since its foundation in 1999, and weaker euro zone members struggle with much higher debt loads than the central European countries.

Czech centre-right politicians building a coalition cabinet after an election two weeks ago have long had a cautious view of the timing of euro adoption.

On Wednesday, they agreed their cabinet would not set any euro entry target until euro zone countries themselves meet the Maastricht criteria on budget deficits that they demand from those aiming to join the single currency.

“We agreed not to state the euro entry date for now,” said Viktor Paggio, coalition negotiator for the centrist Public Affairs party.

“The condition for setting such date in the future is that the Maastricht criteria are observed in the euro zone itself,” he told Reuters.

The former communist central and east European countries have committed themselves to adopting the euro at some point, when they meet conditions that include a budget deficit of below 3 percent of gross domestic product and public debt of less than 60 percent.

They have had to give up earlier set adoption dates due to lack of fiscal consolidation at home. The Czechs have largely been cautious about the timing, saying more convergence in wealth and prices was necessary to win benefits form euro entry.

The financial crisis has blown up any chances they would be ready to join any time soon, but has also brought a new aspect: doubts about the euro zone itself.

Pavel Drobil, senior officer for the biggest right-wing Civic Democrat party that will lead the next government, said euro stability was a precondition for the Czechs’ entry.

“If we should leave the firm stable crown, the euro should also be firm and stable, which can be ensured by meeting the rules,” said Drobil, who is on his party’s coalition negotiating team for business matters.

Out of 16 euro zone countries, only Luxembourg and Finland had deficits below the 3 percent level last year.

The Czechs originally set but then later dropped a euro entry target date of 2010. A Reuters poll showed economists expect Poland to adopt the single currnecy in 2015 and the Czech Republic in 2016, but politicians have mentioned even later dates.

Czech policymakers have said that the euro zone itself would likely have little appetite for expansion any time soon, and Estonia’s entry in 2011 would be the last for a number of years.

EURO LOSING GLITTER

Opinion polls in the Czech Republic and Poland have showed fewer people are keen on the euro than before the Greek debt crisis, partly because contributing to aid would be unpopular in countries that are poorer than the Greeks.

In Poland, nearly half of the population now opposes euro adoption although the centrist government remains committed to adopting the unit as soon as possible. [ID:nLDE65F1A7]

The number of Czechs against adopting the euro has jumped by almost half since February. [ID:nLDE65E092]

Capital Economics’ Neil Sharing said the Czech stance on the euro did not surprise him.

“We would be very surprised if the Czech Republic ever joined the euro zone,” he said.

“It’s the dawning realisation that actually being a member of a single currency and being a member of economic monetary union required extreme discipline by policymakers and it removes a number of safety valves that can help the economy get out of trouble or respond to external shocks.”

Additional reporting by Roman Gazdik, writing by Jana Mlcochova; editing by Patrick Graham, John Stonestreet

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