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CNB warns on Slow Pace of Reforms ahead of Euro Adoption

The Czech National Bank (CNB) has warned that the slow pace of reforms could delay plans to adopt the common European currency.

Speaking at a seminar in Prague, CNB reps suggested that the CR would be ready to join the euro zone by 2010, but that delays in reforms necessary to meet that target could the economy.

According to CNB board member Michaela Erbenova, a number of key reforms have not even been launched yet. The government’s approach to fiscal reform has been too slow, she adds, saying that it has only been carried out on the revenue side to date, and not on spending, which threatens sustainability over the long run.

In Erbenova’s view, the tax increase has helped shore up public finances in terms of deficits. Provided economic growth remains robust, the government should be able to bring the deficit down to 3 % of GDP, a level necessary to adopt the euro.

The Czech Republic should not have a problem meeting other criteria necessary for adopting the euro, says Erbenova, pointing to the low public debt and the CNB’s supervision of interest rates and the currency.

Still, Erbenova believes the government should not base its decision on joining the euro zone on meeting the so-called Maastricht criteria alone. The CNB insists that the government undertake reforms to the pension and health care systems as well as on the labor market. Pension reform should be launched soon, as it may affect the public finance budget in the initial stages, in turn affecting the ability to comply with requirements for euro adoption.

The CNB and the Trade and Industry Ministry have drafted an analysis for the Cabinet on euro adoption which shows that the Czech economy has considerable lengths to go before it is harmonized with euro zone countries.

(Interfax 12.xi.04)

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