CNB comments on koruna and ERM II mechanism

The CNB doesn’t see the Czech Republic entering the eurozone before 2007 since a targeted budget deficit of 4% in 2006 still exceeds the Maastricht criterion of 3%. The CNB also holds the opinion that staying in the ERM II for longer than the minimum required period of two years is not deemed desirable or beneficial to macro economic stability. The Czech National Bank therefore recommends that the Czech Republic should remain outside the ERM II for some time after its accession to the EU.

(*) The ERM II (Exchange Rate Mechanisms II) is a mechanism for fixing the participating currencies against the euro within a fluctuation band. In the event of exchange rate pressures, both the national central bank and the European Central Bank (ECB) will intervene to keep the exchange rate within the fluctuation band. To be allowed to adopt the euro, a country must stay in ERM II for two years to prove the stability of its currency, which must not deflect from the central rate by more than 15 per cent in either direction.

Steven Vranckx