Hard Choices

Vaclav Klaus on the Czechs' Lessons for the Euro Zone


Vaclav Klaus on the Czechs' Lessons for the Euro Zone

Illustration by Jimmy Turrell

We are junior members in the European Union, but we’re not part of the euro zone currency system. Our central bank, together with our government, opposes fiscal union. We entered the EU when many things were a given. When you want to join the local golf club, you can’t say, “Well, I’m ready to enter your club on condition you change the rules.” Joining the monetary system was one of the conditions that we accepted with some reluctance. Monetary union is an extreme case of a fixed exchange-rate regime. To start one is easy, when all the parameters more or less fit together. But then economies grow differently, and the real issue is to maintain the arrangement. Milton Friedman said the euro would not survive the first real crisis. That’s been proved to be a reality.

I have a unique position being the last minister of finance of a dissolving monetary union. When we dissolved Czechoslovakia into the Czech Republic and Slovakia, we prepared 25 intergovernmental agreements. Our idea was to keep an open free-trade area and a single currency. When we divided the country on Jan. 1, 1993, and we still had the Czechoslovak crown, we discovered it was impossible without politics and fiscal union. Slovaks put their money in the Czech Republic, where the economy was stronger. This is not a criticism of Slovakia, or a criticism of their behavior. It’s just criticism of entering the monetary union. After several weeks, we had an overnight meeting in Prague with the prime minister, the governor of the Central Bank, and the ministers of finance of the Czech Republic and Slovakia. We more or less accepted that it wasn’t working. At 4 a.m. we made a decision that it would be technically possible to create two currencies.

We announced it and did it. For most Czechs, it was a nonevent. It’s not true, what all the politicians are saying about the disaster in exiting the euro. You have to do it in a prearranged, organized way.

I refuse to be called a euro skeptic. The European integration process is an experiment. I differentiate European integration from European unification. I have no objections to the opening up and liberalizing of Europe. But that doesn’t mean everyone is the same. — As told to Diane Brady


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