UPDATE 2-Czechs set no binding euro target date, eye 2012

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By Marek Petrus

PRAGUE, March 12 (Reuters) - The Czech government said on Monday it will focus on cleaning up debt-ridden public budgets before setting a binding target for euro adoption, though it has an eye on euro zone entry in five years' time.

Finance Minister Miroslav Kalousek said the right-of-centre government was aiming to get the economy ready to enter Europe's single currency zone in 2012 in its updated euro adoption road map but added it would review the strategy later this year.

A sharp widening in the fiscal deficit fed by fast social spending growth forced the country late last year to abandon the previous entry target date of 2010.

By failing to set a date, the Czechs join regional peers Hungary and Poland in having no adoption target.

"The convergence plan has been done in such a way as to make 2012 a realistic date for euro adoption even though this is not specifically mentioned (in the plan)," Kalousek told a news conference after the cabinet approved the plan's annual update.

He reiterated the government's plan to propose austerity measures by early April, aiming to slash the fiscal shortfall below the euro zone ceiling of 3 percent of gross domestic product (GDP) around 2009 from a forecast 4 percent this year.

Economists said setting a firm schedule would help anchor the government's policies, but added markets are unlikely to be overly concerned about the lack of a target date.

"Deadlines serve as a useful tool to achieve targets but one could also argue that for credibility's sake, it might be better not to have any specific goal at all than have an unrealistic one," said Viktor Kotlan, chief economist at Ceska Sporitelna.

Ministers in the current government -- which took power early this year -- have mulled 2012-2013 as possible dates, but some of them have said the country should stop short of committing to any targets before enacting the planned reforms.

NO SANCTIONS

Most EU members outside the euro area submit annual updates to their convergence plans normally in November but the Czechs delayed theirs due to a protracted political crisis following an inconclusive election in June last year.

Kalousek said he expected the EU to criticise the Czechs for failing to lower the deficit to 3.3 percent of GDP this year as envisaged by the previous convergence programme.

But he added the cabinet's plans to reverse the trend should help allow the country to avoid any sanctions. "I do not believe there was a real threat of direct sanctions," said Kalousek.

The deficit growth will keep the Czech Republic among countries subject to the EU's excessive deficit procedures which could eventually lead to a halt of funding from the EU's Cohesion Fund, which is up to 1.4 billion euro per year.

Of the four large central European economies, only Slovakia has laid out a specific euro zone entry timetable, targeting 2009 as the adoption date.

Hungary also abandoned its 2010 euro adoption date because of a high budget deficit, and analysts say 2013 or 2014 are more likely dates for switching to the common currency.

Poland plans to meet all euro entry requirements in 2009 but the government has also not set an entry target date.

Keywords: CZECH EURO/