Czechs Deceived Themselves That Koruna Was Better Than Euro

The adaptation to the Euro is still an issue in the V4 countries especially in the context of election debate

Luboš Palata
10 October 2017

It was the night when, sixteen years after the break-up of Czechoslovakia, the tables were turned. One of the main reasons the common state of the Czechs and the Slovaks fell apart on January 1, 1993, was that the Czechs, particularly their then political leader, Prime Minister Václav Klaus, lost patience with the Slovaks and decided that the more developed half of the federation would set out on the road to the European Union and NATO on its own. Yet on this night, a few minutes after midnight on January 1, 2009, I headed for a cash machine to withdraw my first euros – not in Prague but in the Slovak capital, Bratislava.

Not only was Slovakia the second new EU member state to proudly embrace the common European currency, but this happened not under the leadership of Mikuláš Dzurinda, who had defeated his authoritarian predecessor, Vladimír Mečiar, but under that of the post-communist Robert Fico. And to add insult to injury, the exchange rate was the best available at the time: 30 Slovak korunas (plus some change) to the euro.

Since they adopted the euro the Slovaks have been steadily catching up with the Czechs. The economic crisis, which supposedly left the Czechs at an “advantage” through their retaining of the koruna, as opposed to the Slovaks, who were allegedly stuck with the “expensive” euro, hit both countries in exactly the same way. However, the Czechs took two years longer to recover than the Slovaks: due to the Czech National Bank’s decision to artificially devalue the crown against the euro in 2014, by over 10 percent to 27 korunas to the euro, the Czechs became a further 10 percent poorer than the Slovaks. Nor did they experience greater economic growth by comparison with the neighboring Slovakia.

When, after three years, the Czech National Bank stopped its interventions that in the spring of 2017 were costing the country hundreds of billions korunas a month, this barely registered on the exchange rate of 27 korunas to the euro. At the same time, Slovak wages paid in euros have almost caught up with Czech wages in korunas for the first time in the nearly 25 years since the break-up of the federation, and Prague is now the only Czech region with wage levels ahead of those in Bratislava. And the Czech Republic, which is desperately short of labor due to unemployment being at a record low, can no longer rely on migrant Slovak workers for whom it simply is no longer worth traveling to the neighboring country for work.

Damage Inflicted by Klaus and Successive ODS Governments

One might imagine that the example of Slovakia, which the Czechs still regard as their closest foreign kin state, would at the very least have made the Czechs debate whether we have not left it too late to adopt the euro, and whether there is anything to be gained by keeping the koruna instead of the euro, quite apart from the fact that we have voluntarily started to drift to the EU’s political margins, with all the consequences this entails.

Nevertheless, and rather surprisingly to the outside observers, no such debate is taking place. Only now and then does one hear the representatives of Czech industry voicing the view that by introducing the euro the Czech Republic might, at the very least, save on huge exchange costs wasted in the country‘s export-heavy economy due to the conversion of the koruna to the euro and vice versa.

However, their calls have fallen on deaf ears among Czech politicians: since public support for the adoption of the euro has been hovering around 20 to 30 percent, leaders of most of the parliamentary parties have openly stated that even if they wanted the euro, they would not swim against the tide.

In fact, they have only themselves to blame for this low level of support. For over 10 years the main driver of the resistance against the euro was none other than the country’s President, Václav Klaus, who never missed an opportunity to lambast and slander the euro. Although the powers of the Czech head of state are quite limited, the president still enjoys the position of an uncrowned monarch among his people and exerts a decisive influence on public opinion.

A dozen years ago the proportion of supporters and opponents of the euro was exactly the opposite of what it is now, and it was Klaus’s influence that proved decisive in turning the Czechs against the common currency. The work of Klaus was continued by governments dominated by the Civic Democratic Party (ODS) under the Euroskeptic Prime Ministers Mirek Topolánek and Petr Nečas, and concluded by the current Finance Minister and Deputy Prime Minister Andrej Babiš, the rising star in the Czech political firmament since 2013.

Klaus also made use of the authority that the constitution affords the president to appoint the management of the Czech National Bank, which he filled, without exception, with hardline opponents to the euro. Even today, nearly five years after Klaus left office, this key institution still persistsin opposing the introduction of the common currency because it is still partly run by the same people.

Although Klaus’s successor Miloš Zeman has declared himself to be a supporter of the euro and has sympathies for European integration, his avowals have been completely overshadowed by the alcohol-fueled pro-Russian and anti-constitutional shenanigans of this certainly the most ignominious of Czech presidents since the fall of communism. For that matter, over the past year, Zeman has been reported as saying that the Czech Republic should not adopt the euro as long as the Greeks are using the currency.

Babiš, Instead of Klaus and Greece, as the Last Argument

The alleged “risk” that the relatively debt-free Czech Republic would have to share the burden of repaying the debts of countries such as Greece, Italy, or France, is currently the last-ditch argument of the opponents of the euro, such as Babiš, Zeman, or the opposition ODS in its “post-Klaus” phase. It also involves a large dollop of Czech arrogance which sees Prague as belonging to the Northern, “German” part of Europe that is unburdened by debt.

Czech politicians and many ordinary Czechs look down on countries like France, Italy, and Spain, let alone Greece, in spite of the fact that the Czechs can still only dream of a standard of living comparable to that of the French, Italians, or even Greeks.

Although Klaus and the Czech Euroskeptics in and around the ODS have suffered a dramatic decline in influence following the tragicomic fall of their last government under Petr Nečas in 2013, their baton has been valiantly taken over by the ANO party leader Andrej Babiš, who seems to be heading for a clear victory in this year’s parliamentary elections, despite the political turbulence of recent weeks. And although in the European Parliament his ANO movement is formally a member of the euro-federalist liberal faction, Babiš himself has publicly expressed support for Brexit and has treated EU’s institutions with a contempt that is more typical of Marine Le Pen or Austria’s Freedom Party than Angela Merkel or Emmanuel Macron.

The Czech Republic would, therefore, be likely to adopt the euro or take proactive steps to joining the EU core around France and Germany only if ANO were not the dominant force in a future Czech government or if it were not a part of it at all, and if the new cabinet after the election were formed by pro-European and pro-Western forces, such as the right-of-center TOP 09 of the former Foreign Minister Karel Schwarzenberg, the Social Democrats, and the People’s Party.

A further crucial condition would be the defeat or the voluntary stepping down of President Miloš Zeman in the presidential election scheduled for early 2018, and the victory of one of the openly pro-Western candidates, for example the former Chairman of the Czech Academy of Science, Jiří Drahoš.

Even if this happens and even though the Czech Republic is economically ready for the euro, there is still a very long road ahead. For over the past 15 years, the Czech politicians have inflicted great damage by distorting the way Czechs view not only the euro but the EU as a whole. The damage has been so great, we might almost be grateful that the Czech Republic is still in the EU. Maybe we Czechs will wake up in a few years’ time, when we start traveling to Slovakia for better wages paid in euros.

The article was first published in ASPEN Review 03/2017.

Luboš Palata is a reporter and commentator at the daily MF DNES