UPDATE 2-Czech cbank wants no euro date, at odds with FinMin

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By Marek Petrus

The Czech central bank (CNB) has advised against setting any target date for the country to adopt the euro, setting the stage for a clash with Finance Minister Miroslav Kalousek.

"The decision of the bank board as the CNB's supreme decision-making board has been to avoid setting an entry target date at this point," CNB policymaker Mojmir Hampl told Reuters in a brief telephone interview on Monday.

The CNB and the Finance Ministry have been holding talks on a draft euro adoption strategy after abandoning an earlier 2010 target date as the fiscal gap widened beyond the EU's limit of 3 percent of gross domestic product (GDP).

Kalousek, a member of the small Christian Democrat party in office since January, has spoken in favour of anchoring reforms of public finances by setting 2012 as a new date.

The government's chief euro adoption coordinator Oldrich Dedek said the Finance Ministry would like the government to make a commitment to pursue fiscal, labour market and other reforms with an aim to prepare the economy for euro adoption on January 1, 2012, but this would not be a hard target.

"The debate is not about whether or not to set a firm target or what kind of target to set, the central bank does not want to mention any date at all," he told Reuters.

"On the other hand, the Finance Ministry wants to mobilise the government and its reform efforts so that 2012 is a realistic date on condition that the remaining bottlenecks are removed," he said.

Kalousek's view has been at odds with both CNB policymakers and several influential cabinet members from Prime Minister Mirek Topolanek's senior government party, the Civic Democrats (ODS). Topolanek has also sounded cool towards the idea of a specific euro entry goal in his recent public statements.

REFORMS FIRST

Responding to market concerns over the deficit and frequent calls for reform from the European Union and other multilateral bodies, the Czech parliament is due to take a final vote this week on the biggest fiscal overhaul in more than a decade.

A Finance Ministry spokesman said the draft euro adoption plan would be submitted to the cabinet for approval shortly after the lower house of parliament gives its expected endorsement to the fiscal reform bill.

That revamps taxation by raising sales tax and cutting income taxes and curbs an increasingly costly welfare system as part of a medium-term plan to cut the public finance deficit to 2.5 percent in 2010 from a forecast 4.0 percent 2007 shortfall.

The CNB's Hampl said his personal view was that fixing the budget was no panacea, even though an approval of the reform bill would be a step forward.

He said the country needed more time to allow prices and incomes to converge further towards higher EU average levels, as reforms to make it easier to hire and fire workers and further reforming the largely inflexible labour market.

"Aspiring to euro adoption is nothing like taking part in a horse race. The point is not to be the first to break the tape and then either suffer a collapse or fail a doping test later on," said Hampl.

"The point is to get there and be able to at least keep running the same speed, or ever better, shift up a gear. The earlier entrants have not always experienced that," he added.

The crown currency showed no reaction to Hampl's comments, trading at 27.68 to the euro , up 0.1 percent from Friday.

For story on the fiscal reform debate, click on [ID:nL19240160] For FACTBOX of proposed reforms, see............[ID:nL15325895]

[PRAGUE/Reuters/Finance.cz]