UPDATE 2-Czech FinMin gives up 2012 euro entry date

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By Jan Lopatka

The Czech Finance Ministry gave up attempts on Monday to set 2012 as the target date for joining the euro zone, yielding to opposition from the prime minister and the central bank.

A ministry spokesman said the date was removed from a draft euro adoption strategy due to be discussed by the central European country's cabinet this week or soon after.

"The date is not there," the spokesman said.

The decision confirms comments by Finance Minister Miroslav Kalousek, who told Reuters last week he was in a minority in the cabinet with his plan and might give it up.

Kalousek, from the centrist Christian Democrats, had been eager to set a target in order to focus policymakers on pushing through economic reform quickly and making the country fit for the single currency, regardless of whether it actually joins the euro zone on the given date.

But Prime Minister Mirek Topolanek and his right-wing Civic Democrats have long been opposed to setting any entry date, saying the new EU member first needed to undertake a wide range of fiscal, healthcare, pension and labour market changes and only then decide on the right timing.

Moreover, Topolanek has won the backing of the central bank which has also recommended the cabinet not to set any target at this point.

Some central bankers have spoken against any rush into the euro zone, saying the Czechs needed to allow prices and incomes to converge closer to average EU levels before they give up their currency. The convergence has partially been happening through exchange rate rise.

The country has enjoyed low inflation and interest rates below the euro zone, which has narrowed the appeal of a quick euro entry for some.

The crown showed no reaction to the news, trading 0.1 percent weaker on the day at 27.78 to the euro .

PREVIOUS TARGET ABANDONED

Like some other central and east European countries, the Czechs were forced to abandon their original 2010 target set under the previous leftist cabinet, due to yawning public deficits.

Despite economic growth topping 6 percent, the Czechs expect a 2007 budget deficit of 4 percent of gross domestic product, above the euro zone ceiling of 3 percent.

The government pushed through parliament a mixture of tax and spending cuts last week and plans further savings to squash the deficit to 3.2 percent next year and 2.5 percent in 2010.

Raiffeisenbank analyst Ales Michl said the decision not to go for a new date was no surprise given the stance of the main government party but in theory, the country could join in 2012.

"Due to the robust GDP growth, it is still possible to join the euro zone in 2012, assuming that there is the political will," he said.

[PRAGUE/Reuters/Finance.cz]