The Integration Into The Eu And Adoption Of The Euro In Czech Republic

The Integration into the EU and Adoption of the Euro in Czech Republic

The growth of the European Union is now the most important topic for most of the European countries. Signing the Treaty of Nice in southern France on February 21 2001 started off the ratification process. This Treaty and the completion of the adoption process with ten candidates for membership in 2002 proved the historical magnitude and political value of the EU expansion. Together with nine other countries (Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia), the Czech Republic signed the Treaty of Association. After the ratification of the Treaty, the Czech Republic became a regular and ordinary member of the European Union in May 2004. All parliamentary parties support the accession to, and full integration into the EU in the Czech Republic. The membership of the EU has certain requirements that the Czech republic has to fulfill. Among these requirements are stable institutions that safeguard democracy, the rule of law, observance of human rights, and respect for and protection of minorities. . In order to join the EU the country joining must be building a functioning market economy able to withstand the competitive pressures from other economies within the Union. A joining country must have the ability to undertake the other obligations of the membership, including political, monetary and economic goals of the Union.

EFFECTS

There are, of course, both positive and negative effects of joining the EU and adopting the Euro. One way to calculate the prospective effects of the Czech Republic joining the EU is to examine other monitored economies after joining. Both exports and imports of all monitored economies have risen after their accession to the EU, which clearly shows the benefit of a single market without customs barriers. These particular statistics show positive results for Union members.

Table 1 - Exports of goods and services

Average y-o-y change at constant prices (%)

1974-1984 1985-1994 1995-2001 2002 *)

Austria 5.1 4.3 7.8 4.7

Finland 5.2 4.3 8.8 2.7

Greece 6.5 4.0 8.7 3.3

Ireland 8.9 9.6 16.0 3.3

Portugal 5.3 6.4 6.7 3.4

Spain 7.3 5.6 9.1 3.3

Sweden 3.5 3.9 7.5 2.5

*) Estimate Source: Economic Outlook, OECD, 2002

Table 2 - Imports of goods and services

Average y-o-y change at constant prices (%)

1974-1984 1985-1994 1995-2001 2002 *)

Austria 4.3 4.4 7.4 3.9

Finland 2.4 4.7 7.6 3,0

Greece 4.8 5.6 8.5 3.5

Ireland 5.2 7.2 15.0 2.4

Portugal 0.0 10.3 7.4 3.0

Spain 1.5 11.6 10,2 3,0

Sweden 1.3 3.9 6.6 1.4

*) Estimate Source: Economic Outlook, OECD, 2002

Employment

According to effect on other economies, unemployment rate after accession to the EU tends to unmistakably decrease. In the course of the 1990s unemployment in most of the countries roughly halved, getting below 5%. Only Finland and Spain report unemployment rates near 10%, although that number has been falling during the last 5 years.

Inflation

All countries that joined the European Union saw the trend of eventual decelerating growth of inflation rate. This is attributed not only to higher competition, but also to arrangements for entry to the Euro- zone, which in most of the countries pushed inflation rate below 3%. Although this is true one of the most significant negative effects of adopting the Euro would be the initial "inflationary jump" in prices.

This jump in prices would be accentuated due to the fact that the current price level in Czech republic is about 60% of the EU15 average price level. This price jump will decrease overtime as the price level gap narrows.

Other Effects

There are, of course, effects of joining the EU that are not related to economics or money. For example: the Czech Republic has had a ridiculous rise in truck traffic since joining the EU. "The number of trucks rose by just 7% from 2000 to 2002 but by 70% on certain roads, mainly after EU accession," said Viktor Meca; spokesman for Czech Transport Ministry. 13,500 trucks were registered in April 2004 on the Czech-German route, compared to around 70,000 on the same road per month at the end of the year.

The Future of Czech Integration into EU

It is becoming more apparent as the time grows nearer unrealistic that the Czech Republic will be on the euro by 2010 and there are a few reasons for this. Czech National Bank board member Michaela Erbenova told the daily Dnes "It is time from now on to talk seriously about a new strategy with regard to the euro." It is more important to examine the current situation and the best way to move forward at this point, as opposed to figuring out a new euro adoption date. New finance minister Vlastimil Tlusty recently ruled out the Czech Republic joining Exchange Rate Mechanism, ERMII, in 2007 which would allow the country to adopt the single currency by the 2010 target date set by the previous Social Democrat Government. Tlusty said it was premature to give a target date for adopting the euro before public finances were in order and economic reforms launched. One particular area of Czech government that needs to be looked at for reforms is the old-age pension system, which drains around 300 billion koruna (10.5 billion euros, 13.3 billion dollars) from the state budget every year.

The Effect of EU Reforms

The Czech Republic has bee cooperative with all the reforms required to join the EU and will continue to although maybe not as fast as was hoped. These reforms have been positive for the Czech Republic and the country is certainly advancing.

For a number of years the Czech Republic has developed many internal preparation activities, which are constantly intensified. Harmonization of legislation in many fields is one of the key elements of the domestic preparation and requires