UPDATE 1-Czechs should weigh euro entry carefully -c.banker

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By Marek Petrus

The Czech Republic should carefully weigh the timing of euro adoption to avoid damaging its economy, central bank (CNB) board member Pavel Rezabek said on Wednesday, confirming the country's lukewarm stance on euro.

Rezabek said that rushing into the euro zone could cause problems for the economy, which has sustained low inflation while growing at a 6 percent annual rate for a third year running.

"It is not a question of yes or no but when (to join), and this is a question that is in the Czech Republic's discretion," he told a seminar on euro adoption.

"We should weigh the timing of entry to the euro zone very carefully. I agree we should not enter too late ... but on the other hand, overly hasty entry could cause certain problems," he said.

He spoke out against applying for euro zone membership before reforming public finances to meet the nominal entry criteria.

"Without meeting the nominal criteria, I am personally of the opinion that we should not lodge an application for (euro zone membership)," he said.

"If we are unable to fulfil the criterion for (the public) deficit, it is difficult to set any date," he said, referring to the government and central bank's decision earlier this year to refrain from setting a formal target date for euro adoption.

EU finance ministers urged Prague last week to speed up its budget deficit cuts, refusing to extend beyond 2008 a deadline to bring the shortfall below the bloc's ceiling of 3 percent of GDP. The fiscal gap is seen at 3.6 percent of GDP this year.

The Czech government approved last month a 2008 budget that generally complies with EU demands, envisaging a deficit of 2.95 percent of GDP in 2008. The government also pledged to lower the gap to 2.6 percent in 2009 and 2.3 percent in 2010.

However, Rezabek said deeper fiscal reforms, particularly of the pension system, were needed to cut the fiscal deficit in a sustainable manner and prepare for euro entry.

He also stressed the need to meet not only the nominal entry criteria for inflation, public debt, interest rates and currency stability but also achieve real convergence in prices and incomes which still lag levels in western Europe.

[PRAGUE/Reuters/Finance.cz]