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Central European Weekly

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The Czech koruna fights back

Mon, Sep 15 2008, 12:10 GMT
by KBC Market Research Desk

KBC Bank


Czech Republic

The Czech koruna fights back

Hungary

Former coalition party Free Democrats quickly rejected the idea of early elections

Poland

Euro in 2011? We don’t think so…but the clock has started ticking...

Slovakia

Inflation hits a two-year high

The Week Ahead

Polish macro figures in focus

Overview

Poland’s euro decision to raise pressure on countries in the region?

Polish politics has stirred up Central European markets again – this time in a positive way – as the Polish PM surprised markets with the view that the country was going to introduce the euro as soon as possible; even within the unrealistically set deadline of 2011.

Naturally, the acceleration of Poland’s accession to the Eurozone may also influence other Central European countries. If the largest country of the region were about to join the eurozone soon, it would step up the psychological pressure on the elected representatives of the Czech Republic and Hungary for their economies to adopt the euro soon, as well. The public as well as businesses in those countries may not like the fact that they remain ‘noneuro’ islands inside Europe, as this involves relatively higher transaction costs for both these groups. In addition, the Czech Republic and Hungary would run the risk of Slovakia and Poland gaining a comparative advantage in attracting direct investments, by having introduced the euro earlier.

Could the setting of the official deadline for the euro introduction in Poland change anything about the Czech and Hungarian euro-strategies anytime soon?

As far as the Czech Republic is concerned, we are somewhat sceptical as the country lacks a political consensus for a quick decision to set a binding deadline for euro introduction. Hungary’s position is somewhat different. The country has the political will to introduce the euro, but its economic fundamentals are not up to it at the moment. Hungary will be able to comply with the Maastricht criteria, with the exception of public debt, in late 2009.

Published on  Mon, Sep 15 2008, 12:16 GMT


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This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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