Government not to set euro adoption date for now
The assessment covers three areas. The first assesses compliance with the nominal (Maastricht) convergence criteria, which are a necessary but not sufficient condition for joining the euro area. These criteria set fiscal and monetary reference values, compliance with which is meant to reduce the risks and costs associated with the absence of an independent monetary policy. Successful compliance with the relevant criteria should also mitigate risks to stability and prevent the emergence of imbalances in the monetary union. In 2024, the Czech Republic fulfilled the interest rate convergence criterion and the government financial position criterion. However, it did not meet the criterion on price stability, due to a low reference value and persisting elevated growth of service prices in the domestic economy. The Czech Republic is formally non-compliant with the exchange rate fluctuation criterion, as it is not part of the ERM II exchange rate mechanism.
The second area assesses the Czech Republic’s economic preparedness for adopting the euro. A key element of these indicators is an assessment of the Czech Republic’s economic alignment with the euro area and the ability of the Czech economy to absorb any negative economic shocks through other mechanisms after losing its monetary policy independence. The Czech Republic has made no substantial progress in this area since the last assessment in 2023. There are still many obstacles on the path to the single European currency. One of them is the unfinished process of economic convergence of the Czech economy, especially as regards the price and wage levels, which remain well below the euro area average. The relatively low structural similarity between the Czech economy and the euro area could also create problems under the single monetary policy. Unresolved domestic structural issues related to the current economic model and future challenges to public finances (population ageing, infrastructure investment, etc.) pose a significant risk. Planned large-scale projects (the construction of high-speed railways and new nuclear units) will place a significant financial burden on public budgets. Addressing the current challenges of economic transformation and long-term public finance sustainability should therefore be prioritised before making a decision on joining the monetary union.
On the other hand, the high degree of openness of the Czech economy and its close trade and ownership links with the euro area are key positive factors. Some labour market indicators, especially the low long-term unemployment rate and the banking sector’s resilience to negative shocks, are also favourable.
The final area of assessment concerns the euro area itself. The economic heterogeneity of the euro area is high. This was further highlighted by the energy crisis and its impacts on Member States’ economies. Economic alignment of euro area countries is essential to the smooth functioning of the monetary union. The fiscal positions of most euro area countries are also a negative factor.
The institutions and rules of the euro area have changed over recent years, and discussions on further deepening integration are still ongoing. The future potential financial and non-financial commitments relating to the Czech Republic’s euro area entry thus cannot be reliably estimated at the moment.