March 11, 2014 / 6:22 PM / in 5 years

Czech Finance Minister open to euro adoption, but consolidation a priority

BRUSSELS (Reuters) - The Czech Republic should consider adopting the euro currency, but its priority is to stabilize the budget and reduce its fiscal deficit, the new Czech Finance Minister Andrej Babis said on Tuesday in an interview with Reuters.

Andrej Babis, leader of the ANO movement, smiles during a news conference at the party's election headquarters after the country's parliamentary election in Prague October 26, 2013. REUTERS/David W Cerny

Even though his comments did not set anything approaching a path to the single currency, that he is considering it at all is a departure from the line of the administration that was replaced by the center-left cabinet of Bohuslav Sobotka in January.

In espousing a less eurosceptic view, he also suggested the Czechs should forge closer ties with Germany, rather than Britain, which lies outside the currency bloc and is trying to reframe its relationship with the European Union.

“Euro adoption is not a priority for me. We see other priorities: to stabilize the budget, keep the deficit down and cut it eventually, to save, to increase transparency,” said Babis, one of the richest businessmen in the Czech Republic worth some $2 billion according to Forbes magazine.

Nonetheless, Babis added: “It would be good to have a conference about the euro adoption ... and assess what are the benefits and disadvantages.”

The European Commission has forecast the Czech Republic’s budget deficit at 2.8 percent of GDP this year, up from 2.7 percent in 2013, still below the EU’s official limit of 3 percent of the gross domestic product.

Czech public debt, although relatively low at 46.1 percent of GDP in 2013, is also on an upward path, based on the European Commission’s latest winter forecasts.

The Czech Republic, which joined the European Union with nine other, mostly eastern European, countries in 2004, is obliged through its EU membership to adopt the euro because, unlike Britain and Denmark, it does not have an opt-out.

But there is no time frame in which it, or any other EU country, must switch to the euro. It can only happen when an EU country meets all the criteria and applies for euro membership.

Several previous Czech governments and President Vaclav Klaus who left office in 2013 had marked reservations about adopting the single currency, now shared among 18 countries.

Babis also signaled that the Czech Republic, long in the eurosceptic camp with Britain, was now keener for closer ties with euro zone leader Germany, which is also Prague’s biggest trading partner.

The Czech Republic and Britain were the only two EU countries that would not sign in 2012 a fiscal treaty that obliged governments to keep their books in balance or surplus.

Babis said the Czech Republic was ready to sign the Fiscal Compact treaty now.

“I think that we should look for an ally from among our neighbors and I think that the most natural ally is Germany and not Britain,” he said.

Sobotka, who told Reuters in a separate interview on Tuesday he was cautious about pace of the country’s recovery, has said in the past his country could join the euro zone in 2020.

Reporting by Martin Santa and Jan Strupczewski; Editing by Alison Williams

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