The elections in Czechia will also be a referendum on the euro

The upcoming elections to the Czech Parliament can also be seen as a referendum on the euro. This decision should also take into account that the Czech Republic is doing better with the koruna than 70 percent of the countries that use the euro. The eurozone therefore no longer represents a European elite for the country.

If the parties of the current government [Spolu coalition (ODS – TOP 09 – KDÚ-ČSL) and STAN, editor's note] are successful in the elections, it cannot be ruled out that steps will be taken to introduce the euro in the next few years, so that it could be introduced as a means of payment in around 2030. If, on the other hand, the parties of the current opposition are successful, the euro will not be introduced in Czechia before the mid-2030s – and perhaps not even then.

A look across the border urges caution. At present, the euro does not necessarily offer the Czech Republic enough advantages to offset the associated costs and risks. Therefore, a more cautious, even negative attitude toward the introduction of the euro may currently be wiser from an economic point of view than the opposite position.

A look at France, which is currently sinking into debt, shows, for example, that the euro can weaken industry and public administration and fatally worsen public finances, while a look at Croatia signals that the euro significantly accelerates the loss of purchasing power of the population's savings.

Example No. 1: France

Let's start with France. Throughout modern history, the eurozone's second-largest economy had the best possible credit rating, i.e., its creditworthiness – its rating was “A+”, or AAA.

But then it introduced the euro. Because in the 1990s, it made a fateful “deal” with Germany. It agreed to reunification in exchange for receiving the ‘German’ currency, i.e., the euro. However, this is too rigid, too strong, in short, too “German” for France. The French, however, do not have the German production organization and work discipline. As a result, deindustrialization is gradually taking place, especially in the north of the country, which has a negative impact on tax revenues for the state treasury.

At the same time, thanks to the euro, France pays “German” interest rates on its debts. The cost of servicing these debts is lower than it would be with the franc, all other things being equal. At first glance, this is an advantage of the euro. At the same time, however, it means that Paris is delaying the painful but necessary reforms of public administration for even longer.

The favorable loans at “German” interest rates weaken Paris' motivation to do its homework, which it has been putting off for so long that it is now in danger of failing. If France had stuck with the franc, it would now have a stronger industry, a reformed public administration, and healthier public finances. And perhaps it would still have a AAA rating.

Example No. 2: Croatia

The introduction of the euro in January 2023 significantly accelerated the loss of real savings of the Croatian population due to inflation. When Croatians were still paying with the kuna, they had exactly the same inflation on average between 2014 and 2022 as the eurozone as a whole. The difference between inflation in Croatia and inflation in the eurozone averaged zero.

However, since they started paying with the euro, Croatians have experienced inflation that is 2.4 percentage points higher than the eurozone average. And, unlike in previous years, this high inflation has, of course, been included in the inflation figures for the eurozone as a whole since 2023, causing them to rise even further.

The main reason for the relatively strong growth in consumer prices in Croatia is that, following the introduction of the euro, Zagreb can no longer curb inflation in its own country by independently setting its key interest rate. This is because, with the introduction of the euro, the Croatians have handed over their monetary policy to Germany. For joining the eurozone, the Croatian population is therefore already paying for the third year in a row with a significantly faster loss of purchasing power of their savings than was the case in the days of the kuna.

Czechia and rating

Both Croatia and France have a worse rating than Czechia from the rating agency Fitch Ratings. When this agency recently downgraded France's rating, the proportion of eurozone countries with a worse rating than Czechia rose to a historic high. This stands at up to 70 percent, and for the first time in history, more than two-thirds of eurozone countries have a worse rating than Czechia.

According to Fitch, only six countries in the eurozone currently have a better rating. These are Germany, the Netherlands, Luxembourg, Finland, Austria, and Ireland. However, the last three countries mentioned only have a one-notch higher rating, which means that they fall into the same “two category” as the Czech Republic. Three countries in the eurozone have a higher rating – the “three category.”

All other eurozone countries, including France and Croatia, as mentioned above, but also Belgium, Estonia, Slovenia, and Spain, for example, not only have a worse rating than the Czech Republic, but also a rating in the lower category (“A” and worse). It should be remembered that at the beginning of March 2008, all countries in the eurozone at that time had a better rating than the Czech Republic. After around 17 years, this figure has fallen to just 30 percent.

The deterioration in public finances across the eurozone over the last two decades, coupled with a relative improvement in the Czech Republic's position, should serve as a warning to the Czech public, as a significant proportion of political representatives are failing to sound the alarm.

The Czech public currently gains nothing from the euro that would outweigh the risks associated with it. From the Czech Republic's perspective, the eurozone is no longer an elite club, as was the case when it joined the EU in 2004. With some exaggeration, it can be said that today the Czech Republic is the elite for the eurozone.