Bloomberg News

Euro Can Bear Fewer Members as Czech Leader Calls Greeks Victims

September 26, 2012

Czech President Vaclav Klaus

Vaclav Klaus, the Czech Republic's president. Photographer: Peter Foley/Bloomberg

The exit of one or more member states from the euro won’t destroy the monetary union or the project of European integration, Czech President Vaclav Klaus said.

And a Greek departure from the currency would be a “victory” for that country, which has been a victim of the monetary system, Klaus said yesterday in an interview at Bloomberg’s headquarters in New York.

The Czech Republic, which pledged to adopt the euro as part of its agreement to join the European Union in 2004, is under no official deadline to do so and the question of joining the common currency is a “non-issue” in the country, said Klaus, whose second term as president expires in March.

“I don’t think the euro as a currency disappears,” Klaus, 71, said. “The issue is whether all of the 17 countries and potentially a few others should be or will be in this system or not.”

European Central Bank President Mario Draghi said July 26 he would do “whatever it takes” to save the 17-nation euro zone. That challenged the view of skeptics including Kenneth Rogoff, an economics professor at Harvard University in Cambridge, Massachusetts, who said the same month he expected Greece to leave the common currency after undergoing the largest ever sovereign-debt restructuring.

Klaus, who as Czech prime minister oversaw the Jan. 1, 1993 split of what was then Czechoslovakia and the subsequent adoption of separate Czech and Slovak currencies, said the euro- zone system is punishing some countries that would be better off pulling out.

Greece ‘a Victim’

“Greece is a victim of the monetary union,” he said. “It would be much better for them not to be in the straightjacket. It would be a victory for them.”

Klaus, an economist who studied in the U.S. and Italy and worked at the Czechoslovak central bank under communism, served as finance minister and then prime minister following the 1989 Velvet Revolution that ended the communist regime. He has been president since February 2003, when he replaced his political rival, Vaclav Havel.

The president is in New York to attend the United Nations General Assembly and promote his new book, “Europe: The Shattering of Illusions.”

He called himself a “euro-realist,” saying he supports European integration while not embracing the shift towards “unification, centralization, harmonization, standardization” of the whole continent, including the single currency.

“We accepted with some reluctance the prepared conditions for our entry” into the EU, Klaus said. “We were aware of the fact that joining the euro system was one of the conditions. But we are quite happy with the fact that there was no timing.

No One ‘Pushing’

“So perhaps in the year 2074 we can join the European Monetary Union as well,” he said. “No one is pushing us.”

The Czech koruna was the world’s best performer against the euro in the decade ended December 2010, advancing 40 percent. Investor confidence in the Czech economy is reflected in the nation’s 10-year local-currency debt, which yields 2.4 percent, compared with 4.8 percent for similar-maturity Polish bonds and 7.2 percent for Hungary’s.

Regional apprehension about the euro has grown with Europe’s debt crisis. While euro-zone nations purchase more than half of the exports of eastern European nations, seven of the 10 former communist countries to join the EU since 2004 have yet to adopt the currency.

Poland, which three years ago shelved plans to join in 2013, deems the euro “completely unattractive,” Prime Minister Donald Tusk said in July. Hungary won’t adopt the currency before 2018, Premier Viktor Orban said in March. Bulgaria has indefinitely delayed plans to scrap the lev, Prime Minister Boyko Borisov told the Wall Street Journal in a Sept. 4 interview.

Economy Contracted

The European debt crisis is taking a toll on the Czech Republic, whose economy contracted in the first two quarters of 2012 amid weaker demand in the euro region, its main market for Skoda cars, television monitors and other Czech-made goods. Exports account for about 75 percent of Czech GDP.

The koruna has increased about 2 percent against the euro this year, compared with 10 percent for the Hungarian forint and 8 percent for the Polish zloty.

Klaus touted his experience in dissolving Czechoslovakia into separate Czech and Slovak nations and abandoning initial plans to maintain a common currency when Slovak officials said they wanted to devalue after the separation. The split of the Czechoslovak currency was a non-event because the Czech government was prepared, he said.

Managed Departure

“It’s technically possible,” to manage the departure from a common currency, Klaus said. “It’s not true what all the politicians are saying about disastrous consequences. You have to do it in an organized way. You can’t allow an anarchy situation.”

Rogoff, a former International Monetary Fund chief economist, told Tom Keene on “Bloomberg Surveillance” July 27 that he expected Greece to “ultimately” leave the euro and that “the real question is what is going to happen to the broader euro.”

Chances of a breakup of the monetary union by the end of 2013 fell to 47.1 percent yesterday from more than 60 percent in late July, according to Dublin-based Intrade.com data, after Draghi gave details earlier this month of a plan announced in August to buy debt of members including Spain and Italy.

As he approaches the end of his term, Klaus said his most important legacy is his role as Czechoslovak finance minister after the fall of communism, when he helped open up the economy, set a new exchange rate and create new political and social systems.

“That moment was the change,” Klaus said. “Everything else is really making small marginal changes, for the better or worse.”

To contact the reporters on this story: Laura Zelenko in New York at lzelenko@bloomberg.net

To contact the editors responsible for this story: John Fraher at jfraher@bloomberg,net


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