Government’s Motivation for Recovery Package and Austerity Measures: Impact on Euro Adoption and Eurozone Entry

NETWORK MONITORING Is the government’s motivation for the recovery package and austerity measures the well-being of our residents, or are the declared savings to secure the government’s other goals as well? From what the prime minister has published, it follows that one such goal may be the adoption of the euro and entry into the eurozone. But this is contrary to what the ODS has promised so far, even though there are also growing voices for the adoption of a common European currency.

Photo:

Hans Štembera

Description: Euro currency

“We have prepared the recovery package in such a way that it will reduce the public deficit from today’s 3.5% of GDP to 2.4% in 2025 within a two-year period,” Prime Minister Petr Fiala (ODS) announced on his Twitter account, adding that these values they are very important for the future.

“This is an important message because if we manage to approve this package, then next year we will begin to fulfill at least one of the Maastricht criteria and have a deficit below 3% of GDP.”

We have prepared the recovery package in such a way that it will reduce the public deficit from today’s 3.5% of GDP to 2.4% in 2025 within a two-year horizon.

This is an important message because if we manage to approve this package, then next year we will start fulfilling at least one of the…

— Petr Fiala (@P_Fiala) July 14, 2023

Why is it so important for the prime minister, what are the Maastricht criteria and what does their fulfillment mean?

Let’s start by reminding ourselves what the Maastricht criteria are.

These are the conditions that are set for the member states of the European Union and for their entry into the third phase of the European Economic and Monetary Union and for the introduction of the common currency – the euro.

There are four in total, and EU member states that want to introduce the euro must comply with them:

– Price stability – the average annual inflation must not exceed by more than 1.5 percentage points the average annual inflation of the three member countries with the best inflation values.

– Stability of the exchange rate – at least two years before joining the monetary union, the candidate country should join ERM II and during this period there should be no devaluation.

– Convergence of long-term interest rates – the long-term nominal interest rate must not exceed by more than 2 pp the average of the three countries with the best results regarding price stability.

– Public finances – the share of national debt in GDP must not exceed 60%. And the share of the state budget deficit to GDP must be less than 3%.

Source: PL Archive

And it was this last criterion, i.e. the deficit of the state budget below 3 percent of GDP, that the prime minister mentioned in his status.

And that brings us to the other questions mentioned at the beginning of the article, which is why the values ​​mentioned by Fiala are so important and what it can mean for our future, or for the future of our currency.

The steps taken by Petr Fiala’s government, including the recovery of public finances, the austerity package and other measures, can be interpreted as preparation for the fulfillment of the aforementioned Maastricht criteria, i.e. the conditions for adopting the euro and joining the eurozone.

However, this is contrary to what the ODS has been proclaiming for a long time, and not even the government coalition is united in this. Moreover, according to all surveys, even the citizens of our country do not wish to adopt the euro.

Let’s also add that even economic experts cannot currently agree on whether such a step would be at all beneficial for the Czech Republic and its citizens and what its consequences would mean for the economy of our country and for the wallets of its inhabitants.

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author: MaA

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2023-07-14 10:29:00
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