Commission Report (2002): Czech Republic

• Progress since the last Regular Report
• Overall assessment
• Conclusion

Chapter 11: Economic and Monetary Union

Progress since the last Regular Report

A detailed assessment of the various aspects of the Czech Republic`s economic policy has been given above, in the Chapter discussing the economic criteria (B-2). Therefore, the present section is limited to a discussion of those aspects of the Economic and Monetary Union Acquis -- as defined by Title VII of the EC Treaty and the other relevant texts -- which candidate countries should implement before accession, i.e. the prohibition of direct public sector financing by the central bank, the prohibition of privileged access of the public sector to financial institutions, and the independence of the national central bank. As to the process of liberalisation of capital movements, upon the completion of which compliance with the EMU acquis is conditional, this aspect has been covered above, in the section on Chapter 4 -- Free movement of capital.

Since the last Regular Report, the Czech Republic has made significant progress in the adoption of EMU-related acquis.

In March 2002, Parliament amended the Law on the Czech National Bank (CNB) with a view to aligning it fully with the acquis. The amendment entered into force on 1 May 2002. The Law confirmed the prohibition of direct public sector financing.

As regards the prohibition of privileged access of the public sector to financial institutions, the amendment has abolished the CNB`s right to set the minimum interest rates on deposits and the maximum interest rates on credit provided by or granted to banks.

As regards the independence of the national central bank, the amendment to the Act on the CNB has ensured compatibility with the acquis with changes in the area of financial, personal, and institutional independence. Additionally, an amendment to the Constitution of the Czech Republic has ensured that the primary objective of the central bank is defined as price stability.

Overall assessment

The Czech Republic will participate in EMU upon accession with the status of a country with a derogation under article 122 of the EC Treaty, and it will need to implement the necessary changes to its institutional and legal framework by the date of accession.

The developments since the last Regular Report have completed the process of legislative alignment with the EMU acquis.

As regards administrative capacity, the CNB functions effectively. The level of professionalism of its staff is high and turnover of staff is low. Both the CNB and the Ministry of Finance have good analytical capacities enabling them to conduct economic dialogue in an EU environment. However, improvements in administrative capacity are still required in the Ministry of Finance, in particular to prepare medium-term fiscal frameworks and statistics.

Conclusion

In its 1997 Opinion, the Commission concluded that the Czech Republic`s participation in the third stage of EMU as a non-participant in the Euro area should pose no problems in the medium term, while central bank legislation needed to be made compatible with EC rules.

Since the Opinion, progress was initially uneven, but major steps forward have been taken over the past year, and the Czech Republic has achieved a very high level of alignment with the EMU-related acquis.

Negotiations on this chapter have been provisionally closed. The Czech Republic has not requested any transitional arrangements in this area. The Czech Republic is generally meeting the commitments it has made in the accession negotiations in this domain.

In order to complete preparations for membership, the Czech Republic`s efforts now need to focus on reinforcing its administrative capacity, in particular to prepare medium-term fiscal frameworks and statistics.

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