Many bookmans have discussed the issues related to Czech Republic’s entry to the EU. The Czech people expressed different sentiments sing economic benefits that they would derive by leting their state to go portion of the EU. Even after the entry of the Czech Republic to the EU. the Czech leaders did non accept euro as the official currency. although in the recent old ages a few leaders have showed their purpose to back up the usage of euro as the currency of their state.
One would anticipate that by following European currency. the Czech Republic would be able to accomplish noteworthy economic promotion when compared to its experiment with communism. In this paper. an effort will be made to discourse the procedure of Czech Republic’s accession to EU as a member state and impact of the usage of euro on the economic system of the Czech Republic. EU rank procedure
The procedure of Czech Republic’s accession to the EU had its modest beginnings every bit early as 1993 when European Council ( EC ) declared that Eastern European Communist states could use for EU rank and they would be accepted to EU merely when they demonstrated their purpose to back up EU political and economic construction by presenting necessary reforms in their states. In 1996. the Czech Republic applied for the rank of the EU along with other old communist governments.
The regulations the EU provinces that the states that wish to go members of the EU demand to turn out that they possess necessary makings such as ability to present drastic economic reforms suggested by the EU and so on. The application of the Czech Republic was reviewed by the commission appointed by the EU. ( Fuller et. Al. 2002. p. 408 ) In 1998. dialogue between the applier ( the Czech Republic ) and the EU began.
This is another noteworthy process before acknowledging any European state as the member of the EU. In the twelvemonth 1998. based on the reappraisal of the advancement achieved by the Czech Republic. it was decided to accept this state as the member of the EU around 2002. During this period. it was expected that the Czech Republic would present important political and economic reforms in order to affect the EU governments so that they would hold to integrate the Czech Republic into the EU.
( Fuller et. Al. 2002. p. 408 ) The above inside informations indicate that it is non easy for any European state to go the member of the EU since the applicant state needs to turn out its virtues over a period of clip by subjecting itself to the EU reappraisal. which ascertains the political and economic advancement achieved by the appliers. ( Fuller et. Al. 2002. p. 408 ) As a consequence of these developments. by 2004. Czech Republic succeeded in going the member of the EU.
The advancement achieved by the Czech Republic during the period 1996 to 2002 has been praised by many EU member states that expressed the belief that Czech Republic along with other Eastern European states would go of import members of the EU. ( Fuller et. Al. 2002. p. 408 ) Even before its accession to the EU. as a portion of the rank process as decided by the EU. the appliers such as the Czech Republic and Hungary signed trade understandings with the EU. This understanding showed that the EU was moderately satisfied with the advancement achieved by the applicant economic systems.
( EU marks. 2001 ) This understanding besides demonstrated that the member states were given an chance to go portion of the individual market economic system in order to bask the advantages of a individual market economic system and thereby understand the deductions of going member of the EU. ( EU marks. 2001 ) The trade treaties give an chance to the applicant states to bask the benefits of individual market economic system so that they are able to present necessary statute laws. Such trade treaties are normally signed among the member states of the EU. This shows that the EU took the first measure in integrating the applicant states in the EU.
The trade treaties are expected to take all hinderances to merchandise encouraging exchange of goods between the signer counties. The trade treaty covered trade worth 14 billion euros in the instance of the Czech Republic. which was given the freedom to avoid certifying and re-testing the merchandises before exporting them to the EU states. ( EU marks. 2001 ) As suggested by the EU. the Czech Republic has introduced significant political and economic reforms in order to accomplish the member position of the EU. These efforts have been of course praised by the EU referees who have been impressed by the accomplishment of the Czech Republic in the economic domain.
For illustration. revenue enhancement reforms of the Czech Republic have brought it near to the EU criterions although a few EU functionaries criticized the velocity of Czech revenue enhancement reforms. ( Czech reforms. 1999 ) Impressed by the revenue enhancement reforms introduced by the Czech Republic. the German leaders have assured their support to the accession of the Czech Republic to the EU. The Czech Republic has introduced reforms in the signifier of investing inducements. revenue enhancement depreciation. and duty-free zones and zero-rates custom responsibilities. subsidy for occupation creative activity and preparation. decrease of corporate and personal income revenue enhancement rates and so on.
( Czech reforms. 1999 ) By presenting the above mentioned reforms. the Czech Republic has demonstrated its purpose to pull foreign investing peculiarly from assorted European states. The investors are given revenue enhancement inducements so that they are tempted to increase their investing in the Czech Republic. The Czech Republic has been able to accomplish European criterions through assorted revenue enhancement reforms. ( Czech reforms. 1999 ) Finally. in the twelvemonth 2004 after finishing all processs. the Czech Republic was accepted by the EU as its member. ( Yilmaz. 2005. p. 74 ) Introduction of euro
After subjecting its rank application to the EU. the Czech Republic has been able to demo its ability to go portion of the European market economic system. In malice of going member of the EU. the Czech Republic did non utilize euro as its currency and alternatively the Czech Republic continued to utilize its ain currency. This showed that the Czech Republic followed a cautious attack towards the euro. the currency of the EU. Recently. the Czech Republic showed its purpose to utilize euro as the individual currency. There are assorted advantages of disadvantages of the Czech Republic accepting euro as its currency.
( Smidkova. 2004. p. 302 ) After going the member of the EU. an of import undertaking of the Czech Republic is to go the member of the Monitory European Union ( EMU ) . In order to accomplish this. the new member state is required to travel through a few of import trials to demo its economic strength and ability to carry through assorted economic standards designed by EMU. After fall ining the EU. the member states are expected to carry through assorted standards such as ‘Maastricht criteria’ which analyze the indexs of new member countries’ economic strength.
The analysis of such informations has revealed that the Czech Republic was able to carry through Maastricht standards. Significantly. the Czech Republic has been able to command rising prices and involvement rates. of import standards to let a new member state to utilize euro as its currency. The present Czech currency has been considered as a stable currency compared to the euro. This has demonstrated the strength of the Czech economic system. ( Smidkova. 2004. p. 302 ) In malice of this. the Czech Republic needs greater readiness so that the Czech Republic would be able to do usage of euro for its fiscal minutess.
The fact that the Czech Republic has been following a cautious attack is proved by the “Czech Euro Area Accession Strategy” . which showed that the Czech Republic was non yet prepared to accept euro. ( Smidkova. 2004. p. 302 ) The slow attack is besides suggested by the fact that it has been decided that merely in the twelvemonth 2010 Czech Republic would be able to utilize euro as its currency. ( Smidkova. 2004. p. 302 ) A few ‘indicators’ suggest that the Czech Republic has non yet reached a phase wherein it is able to absorb external economic dazes in malice of the fact that it is a portion of EMU.
The fiscal construction of the new member states is different from those of other EU member states. This shows that the Czech Republic may non be able to stomach external long term dazes. There is a demand to present farther reforms in the economic system before presenting euro as the individual currency in the Czech Republic. There is a demand to give more importance to the function of recognition and ‘market capitalization’ in the Czech Republic in order to pull more investing so that the economic system of this state would be able to defy long term economic fluctuations.
( Smidkova. 2004. p. 303 ) Attitude of the Czech authorities towards euro is revealed by the papers called ‘Czech Euro strategy’ which was approved by the authorities in 2003. This papers is of import because it reveals the fact that the Czech authorities has realized the virtues and demerits of accepting euro by replacing its old currency. An obvious advantage of euro is that it reduces dealing and exchange costs as in the euro domain the authorities is able to salvage on exchange costs. ( Smidkova. 2004. P.
304 ) This would besides ensue in increased investing in the Czech Republic since other euro-based economic systems are encouraged to put in the Czech Republic. In add-on to this. due to ‘transparency in prices’ . the Czech Republic is able to vie with other economic systems. This increases the competitory ability of the Czech concern endeavors. ( Smidkova. 2004. p. 304 ) Despite the advantages. one can besides place assorted disadvantages of accepting euro as the currency of Czech Republic. For illustration. by presenting euro ‘financial stability’ of the Czech Republic can be endangered.
Therefore. one needs to stress cautious attack towards the debut of euro in the instance of the Czech Republic although this attack is different from many other European states that have decided to present euro in their states at the earliest available chance. ( Smidkova. 2004. p. 304 ) The Czech leaders believe that their economic system does non possess all the minimal demands to accept euro as the currency. It is estimated that merely by 2009-10. the Czech Republic would be able to carry through the necessary conditions to go portion of the euro government.
Greater importance. during this period. will be given to command rising prices and accomplish better fiscal stableness. It has been decided to present ERM II ( European Exchange Rate Mechanism ) merely a few old ages before the accession to the euro government. ( Smidkova. 2004. p. 304 ) The Czech Ministry of Finance and the Czech National Bank will be responsible to supervise the conditions of the economic system to do it eligible to go portion of the euro government. ( Smidkova. 2004. p. 304 ) The inside informations show that compared to other new entrants to the EU. the Czech Republic has been following a cautious attack.
The Czech leaders want to accomplish greater control over rising prices. monetary values. and achieve enhanced fiscal stableness so that external economic force per unit areas would non impact the Czech economic system in the long tally. In this sense. the Czech Republic has taken a right determination by non viing with other new EU members to accept euro as their currency. Obviously. the Czech leaders have realized the deductions of being portion of the euro government. It is of import to decently measure the pros and cons of the Czech Republic accepting the euro currency.
This implies that it will take several old ages for the Czech Republic to guarantee itself that it has eventually achieved all the conditions for its entry to the euro government. ( Smidkova. 2004. p. 304 ) Many new member states of the EU decided to go portion of the euro government because such a determination would give them rank of elect nine of European states so that they would be able to take part in the pecuniary policy determination taking procedure. It is besides argued that by take parting in the euro government. the states could significantly heighten their fiscal strength. ( Smidkova. 2004. p. 304 )
Most of the states lacked the fiscal strength necessary for them to better their competitory ability. necessary to last in an unfastened market economic system. On the other manus. before fall ining the EU. the Czech Republic had already achieved limited advancement necessary for the strength of its economic system. Therefore. unlike other states that had non achieved significant economic advancement. the Czech Republic did non believe it necessary to accelerate the procedure of accepting euro as its currency. One can understand the grounds for the cautious attack adopted by the Czech Republic towards the euro after it successfully became the member of the EU.
Controling rising prices is non chief end of the Czech Republic because already this end has been achieved. Therefore. with a long term perspective the Czech Republic has refused to follow euro as its main currency. ( Smidkova. 2004. p. 304 ) It is besides argued that the Czech Republic is non prepared to profit from the ‘real convergence process’ . which implies that there is demand for farther reforms in the Czech economic system in order to accomplish the aims of heightening its economic strength with the aid of the euro. ( Smidkova. 2004. p. 304 )
The determination of the new members to accept the euro government will make jobs for the EU because it needs to provide to the demands of those economic systems that have reached different phases of advancement. Therefore. by accepting all the states to the euro zone. the European Central Bank ( ECB ) will make unneeded argument with mention to involvement rates. While some states may demand reduced involvement rates. some other states would wish to keep the same rate. thereby demoing differences in the economic advancement of assorted EU members.
( Dedek. 2004 ) Therefore. due to peculiar economic jobs. different EU members may anticipate different involvement rates and other pecuniary policies. In order to avoid this. the EU besides encouraged member states to make a peculiar economic advancement. before using for the euro zone rank. This implies that the EU rank does non automatically let the members to obtain entry to the euro zone. They need to turn out that they possess the economic strength to pull off euro as their main currency.
Therefore. in this context besides. the Czech leaders have taken a wise determination of non fall ining the euro zone instantly after fall ining the EU. ( Smidkova. 2004. p. 306 ) The Czech Republic can bask the advantages of utilizing a individual currency by come ining the euro zone. This shows that there are assorted advantages to be reaped by the Czech Republic by fall ining the euro zone. It has been suggested that the Czech Republic needs to fall in the euro zone at the earliest in order to quickly accomplish its economic ends. ( Dedek. 2004 )
Based on the survey of economic theoretical account called ‘theory of optimal currency areas’ ( OCA ) . bookmans have suggested that debut of euro in the Czech Republic would non assist the Czech economic system due to the evident differences between assorted EU member states. It is suggested that in order to profit from the euro currency. there is a demand for the Czech Republic to accomplish economic para with other member states. ( Dedek. 2004. p. 48 ) The theory that euro currency would non assist the Czech economic system has been criticized due to the assorted obvious advantages of utilizing euro as the currency.
For illustration. the usage of euro would heighten concern relationship between the Czech Republic and other EU states. Since these states use individual currency it will be easier for them to keep affable concern relationship with each other. ( Dedek. 2004. pp. 48-49 ) This implies that after Czech Republic becomes a member of the euro zone. this state is traveling to profit due to increased concern minutess. Use of euro will pull enhanced foreign direct investing lending to the phenomenal economic growing of the Czech Republic.
Undoubtedly. economic growing fuelled by foreign investing will bring forth big Numberss of occupations thereby work outing the unemployment job being faced by the Czech young person. This translates to noteworthy difference between pre-euro Czech Republic and post-euro Czech Republic. In the banking sector. the Czech Republic will derive as it can profit from the pecuniary policies determined by the ECB. ( Dedek. 2004. pp. 48-49 ) The Czech Republic can salvage on currency exchange costs and dealing costs since all the states would be covering with a individual currency.
By utilizing a individual currency. the Czech Republic would be able to give greater importance to service and industries and thereby accomplish greater economic advancement as reflected in the GDP. ( Dedek. 2004. pp. 48-49 ) Based on this analysis. it has been suggested that “These are difficult primary facts suggesting at many things about the Czech economic system and its ability to profit from the common currency. ” ( Dedek. 2004. p. 49 ) This statement enunciates the fact that the Czech Republic would profit from the debut of euro as the individual currency. There is no uncertainty that concern endeavors would profit by the debut of individual currency.
Before the debut of individual currency. a few European enterprisers preferred non to put in the Czech Republic based on the statement that Czech currency was volatile and that investing in this part was hazardous venture. ( Dedek. 2004. p. 49 ) With the debut of euro as the currency. this drawback will be erased taking to greater economic relationship between Czech business communities and European business communities. This would lend to increased industrial production and export of Czech goods to assorted European states. ( Dedek. 2004. p. 49 )
Monetary brotherhood compared to a ‘fixed exchange rate regime’ and ‘floating exchange rate regime’ has its ain advantages. ( Dedek. 2004. p. 51 ) The OCA theoretical account. which has advocated the usage of alternate exchange rate governments. has non decently understood the nature of working of the market economic system. ( Dedek. 2004. p. 51 ) Therefore. OCA criterions are outdated and there is a demand to present alterations to the OCA theoretical account in order to use this theory in the instance of the economic systems such as the Czech Republic. Therefore. based on the OCA theoretical account. one can non propose that euro currency credence by the Czech Republic would non profit this economic system.
There are groundss to province that there are many other advantages of the euro currency and therefore the European states should go on utilizing euro as their individual currency. The Czech Republic has already experimented with the fixed exchange government and hence there is no point in re-implementing this pecuniary theoretical account based on OCA theory. ( Dedek. 2004. p. 51 ) It has been suggested that “More and more writers list as a benefit the alone map of the common currency as a protection against globalisation hazards. and its defensive potency against riotous capital flows.
” ( Dedek. 2004. p. 58 ) This statement has demonstrated that the Czech Republic would be able to better its competitory ability compared to other states by presenting euro as its individual currency. ( Dedek. 2004 ) Present province of the economic system The Czech Republic has maintained near economic ties with Germany. which has ever endeavored to back up the efforts of the Czech leaders to present reforms necessary to do it eligible for the EU rank. In add-on to political contact. the Czech Republic has maintained economic relationship with Germany and many other European states.
Compared to other new EU members. the Czech Republic has been able to bask competitory advantage in labour-intensive industrial sector. thereby ruling the market that needs the labour-intensive merchandises. ( Yilmaz. 2005 ) This has allowed the Czech Republic to better its economic resources vis-a-vis other new members of the EU. which have been fighting to give competition to other states. With mention to capital intensive sector. it is found that Czech Republic has been able to asseverate its superior competitory ability compared to other new members such as Turkey. Hungary. and Bulgaria. . ( Yilmaz. 2005. P.
78 ) At the same clip. the Czech Republic has been depending on the EU in order to obtain research-based trade goods. These inside informations show that the Czech Republic has been sing comparative advantages and disadvantages. Whereas in a few sectors. the Czech Republic has proved its competitory ability. in some other sectors it is yet to accomplish comparative advantage. This shows that the Czech Republic although has achieved a few ends. there are many other economic ends that need to be achieved. There is a demand to understand the failings and get the better of them along with farther beef uping the strong points.
( Yilmaz. 2005. pp. 78-79 ) The Czech Republic. although has comparative advantage in capital intensive and labour intensive goods. it is losing its land in natural material-based merchandises. This indicates that Czech Republic’s interaction with the EU will ache its agricultural sector as drift will be given to beef up the service and industrial sectors compared to the agricultural sector. ( Yilmaz. 2005. pp. 78-79 ) It is interesting to observe that “… the Czech Republic is the lone state of the six campaigners …that has completed the first phase of export permutation and export variegation procedure successfully” ( p. 85 )
This statement shows that the Czech Republic. before 2002. has been able to accomplish significant economic advancement and in the hereafter it is expected to further better its economic record by presenting assorted reforms suggested by the EU analysts. Already. the paper has mentioned that the Czech Republic introduced assorted revenue enhancement and investing inducement reforms that have resulted in the big influx of foreign capital into the state. thereby helping the economic advancement of the state. By presenting farther economic reforms. it is possible to accomplish long term economic ends.
( Yilmaz. 2005 ) The Czech Republic has been able to pull investing from several foreign states that were impressed by liberalisation plans introduced by the station Communist government that concentrated on developing a market economic system. an of import status to go portion of the EU. In 2005. for illustration. the state received foreign direct investing of $ 11. 7 billion. ( Background note. 2007 ) Apart from pulling the foreign investing demoing the fiscal stableness of the state. the Czech Republic has been able to maintain rising prices rate under control as rising prices in 2006 was around 2.
6 per centum which can be considered as acceptable compared to assorted other economic systems of Europe. Significant economic advancement has surely impressed international fiscal establishments which have given good credits to the Czech Republic demoing that in the hereafter this state is expected to accomplish greater highs. ( Background note. 2007 ) Conclusion The Czech Republic has strived to go a prime economic system of Europe by implementing revenue enhancement and investment-related reforms. Apparently impressed by these reforms and economic advancement. the EU has awarded its rank to the Czech Republic.
The Czech Republic has non yet accepted euro as its currency since it needs to accomplish farther economic advancement. exhibiting that the state has been following a cautious attack every bit far as euro is concerned. By presenting euro in 2010. the state is expected to bask the advantages of being member of the elect ‘European club’ . At present the Czech Republic has been accomplishing enviable economic paces and in the hereafter the state is expected to make better by commanding rising prices and keeping comparative competitory advantage compared to other European economic systems. Mentions ( 2007 ) .
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