PRAGUE (Reuters) – The Czech government will evaluate the merits of joining the ERM II exchange rate mechanism, a currency flotation band that aspiring countries must spend two years in before joining the euro zone, ruling parties’ leaders agreed late on Tuesday.
Leaders of the centre-right Czech ruling coalition agreed to seek expert panel advice by October on the possibility of joining the so-called “euro waiting room”, after pressure from pro-euro parties in the coalition, mainly the centrist STAN party.
It will also request an analysis of legislative implications, Prime Minister Petr Fiala said.
“The government will decide on further action on the basis of these analyses and economic results of 2024,” Fiala said on social media platform X.
The Czech Republic has not set any euro entry date, and the debate on ERM II may not result in any prompt action.
Euro entry is a contentious issue for the largest party in the ruling coalition, Fiala’s centre-right Civic Democrats, who have been cool on euro adoption and have an outright anti-euro wing. The government does not plan to set a euro entry date before an election in late 2025.
The ERM II is a band allowing fluctuations of +/- 15% around a central parity rate against the euro. Participation prior to euro entry is meant as a test that candidates can keep currencies relatively stable and avoid competitive devaluations prior to euro adoption.
Czech governments and the central bank have previously argued that joining the ERM II before setting a euro adoption date, or staying in the system more than the minimum of two years, posed unnecessary risks by exposing the exchange rate to potential speculative attacks to test the boundaries.
The STAN party hailed the government’s decision as a victory moving the euro adoption debate forward.
“We moved forward in the euro issue and have clear deadlines and tasks,” STAN chief Vit Rakusan said on X.
The coalition agreement followed a row sparked by STAN’s Europe Minister Martin Dvorak who appointed his own euro adoption envoy this week without consulting government partners. The envoy’s post was promptly cancelled as part of the coalition agreement on Tuesday.
(Reporting by Jan Lopatka; editing by Christina Fincher)
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