Is an Enlargement of the Eurozone still Desirable and Possible?

Projev byl přednesen na debatě Ludwig von Mises Institute dne 22.6.2010 v Bruselu.

Madame president, ladies and gentlemen, distinguished guests,

let me thank you for your invitation to a debate on the enlargement of the Eurozone. The title "Is an enargement of the Eurozone still desirable and possible" attracted me and made me formulate a few quite provocative remarks.

Having said that, I suppose the problem of the European common currency is an enormously interesting and important issue which will undoubtfully influence economic prosperity and social stability on the whole European continent.

I have decided to divide my speech into three parts.

First, I want to explain why the entrance into the Eurozone by the Czech Republic is not a hot issue in the domestic political agenda.

Second, I would like to stress the fact that a possible enlargement of the EMU is not a hot issue even for the Eurozone itself.

Third and finally, I will try to offer a brief description of a further possible development inside the EMU and a lesson for the Czech Republic.

Entering the EMU is not a significant part of the domestic political agenda

To put it bluntly, according to a recent public opinion poll, almost 34% of Czech voters who had been questioned, do not want to accept the euro and want to keep the Czech crown. The number of those who want to join the euro has been decreasing.

It is an important signal in a country which had been longing for its return the family of west European countries. It is not a trivial argument and it is being frequently repeated in political debates.

That is why I take this signal as a result of considerable and serious public mood.

More importantly, there is hardly a serious political, economic and public debate on pros and cons of adopting the euro. Such a debate must be a dominant prerequisite to a political decision. Without a fully-fledged, fundamental and non-biased debate it would be difficult to make a decision that will allow the transfer of a significant part of national sovereignty outside national borders.

Like almost all members of the Eurozone the Czech Republic does not meet the Maastricht criteria for the adoption of the euro. Meeting these criteria implies the necessity to carry out reforms of national social and health systems, reform the expenditure side of national budget and keep taxes as low as possible.

Enlargement of the Eurozone is not desirable for the EMU itself

The common currency is a political project. It was created for political purposes as a symbol of a European political integration. The Founding fathers even admitted that they had not taken into account economic principles and gave way to their political dreams.

Robert Mundell´s criteria of an optimal currency area have never been met. By and large, the euro has been a successful project for ten years because it has never been put under a serious economic pressure.

During the last decade of global economic growth there were few moments that may have endangered this wrong political project.

Needless to add, a parallel process of pushing forward so called "ever closer union" has been far from Misesian "human action" and has been a textbook example of an artificial "human design".

Ongoing problems of the eurozone are incorporated in its foundations: without strict fiscal harmonisations the euro can hardly work properly. But, fiscal harmonisation is impossible without a political union.

Czech contemplations on entering the Eurozone must primarily give answers on a question overarching the whole debate: do we really want to give up national sovereignty in strategic fields such as social policy, economic policy or taxes to Brussels?

The ongoing development inside the EMU is crystal clear evidence of my words.

The intention to create so called European economic governance, or in French translation "government" is just a first step to a political union. There will not be just the common currency; there will be a common harmonised balance sheet, further harmonisations of tax jurisdictions and fiscal policies.

This process will finally result into the "Europe of regions" - a dream of all europhiles.

What are our Czech interests and what we should keep in mind

Honestly said, the EMU is far from further enlargement. Estonia will be the last new member country for quite a long period. EMU members will have to find a viable way to mitigate and tame their problems with public finances.

I am almost sure, the eurozone will change. I would even expect a creation of a double-speed eurozone.

The pressure towards the establishing of a political union with the features of a federation will increase and be much faster.

"Less harmful competition but more fruitful harmonization" will become an official slogan.

In this atmosphere I would strongly recommend to the Czech Republic to keep the Czech crown as long as possible. We should keep a careful eye on visible and even hidden processes inside the EMU.

We must reform our public finances. Not because we should be fulfilling the Maastricht criteria but for ourselves. For sound development of Czech society.

We should stay as flexible as possible. In a global, fast changing world, it would be an enormously important advantage. Being a member of a political giant that will hardly be able to control its remote parts will not be advantageous.

And, we should not forget Ludwig von Mises legendary quote: "common sense is always enough to oppose all false intellectual phrases promising a better future".

Thank you for your attention.