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Czechs need to close wage gap, should join euro: prime minister
May 25, 2017 / 2:43 PM / in 6 months

Czechs need to close wage gap, should join euro: prime minister

PRAGUE (Reuters) - The Czech Republic must narrow a wage gap with west European states and should strive to join the euro, Prime Minister Bohuslav Sobotka said, adding that the path to higher living standards would be the main issue in elections this year.

Czech Prime Minister Bohuslav Sobotka speaks to journalists at Prague Castle in Prague, Czech Republic May 4, 2017. REUTERS/David W Cerny

Sobotka has presided over a period of strong economic growth, low borrowing costs and rising wages, but his Social Democrat party faces a tough task to beat the rival ANO movement of former finance minister Andrej Babis in the parliamentary election, due in October.

“The main (election) topic is the level of people’s income, increase in wages,” Sobotka told the Reuters Central & East European Investment Summit.

“We have to get out of the level of an economy based on low wages to an economy based on production and services with high value-added (elements),” with more investment channeled into research and development.

Czech unemployment is the lowest in the EU, at 3.2 percent in March, according to Eurostat, but the average monthly wage in the fourth quarter of 2016 was still less than a third of Germany’s 3,984 euros, although buying power differences are smaller.

Sobotka said he would seek to boost wages in social services and universities in the 2018 budget, while this year’s central government budget deficit would end up meeting or beating the planned 60 billion crowns.

EURO GO-GO?

The strong fiscal position, low rates and low inflation mean the country could qualify for the euro but there is no plan in place to join.

The main parties are divided over membership, which 72 percent of Czechs oppose, according to a poll this week.

Sobotka said the next government should lead talks with unions and employers over conditions for euro adoption and also set an entry date, although that would be beyond the next parliamentary term ending in 2021.

“I would like us to set targets for economic convergence and then we should set a date for adoption,” Sobotka said. “We should have the ambition to belong among the most advanced European countries.”

The election will pit Sobotka against billionaire businessman Babis, who the prime minister forced out of government this month due to questions over his past tax dealings but who remains the country’s most popular politician.

Critics see Babis as a threat to democracy, citing his tight grip on his anti-establishment ANO party, his view that the state should be run like a company, and alleged conflicts between his business and media interests.

Sobotka said Babis’ “authoritarian tendencies” could take the country in the direction of Poland and Hungary, which EU partners have criticized for backsliding on democracy.

Babis says attacks against him are politically motivated and aimed to halt his drive against corruption in mainstream political parties.

The Czech proportional representation system means the election is likely to throw up a variety of options for the next government’s make-up.

editing by John Stonestreet

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