Keeping the Crown (CZK) benefits banks only
The EU common market provides many benefits, including the option of rejecting the Euro, its common currency. However, prices in all EU countries, including the Czech Republic (ČR), are set primarily in euros. This is because that Czech companies not only to import and export, but even if they operate only in the ČR, they face competition from other countries as well who want to get into the ČR. In the long-term, it is impossible to offer goods and many services in the ČR at prices that would significantly differ from neighboring countries, since customers can compare prices on the Internet and buy electronics, cars, home furnishings, clothes and food, wherever it is advantageous. Though prices in CZK are based on euro prices in the EU, they also include an addition “premium” for covering the CZK/EUR exchange rate risk (manufacturers/sellers of goods increase their sale prices slightly so as to cover fluctuations in the CZK-Euro exchange rate that may affect them negatively – Ed.).
The level of the premium varies by the type of goods: It’s less for readily tradable merchandise (clothes) or easily comparable goods (cars), but it can be uncomfortably high for non-liquid assets. Recent interventions by the Czech National Bank (ČNB) have increased the uncertainty of the exchange rate and therefore the additional premiums, but the subsequent devaluation of savings hasn’t yet affected the public opinion. Though further devaluation is more likely, the Swiss scenario of revaluation cannot be ruled out.
The above shows that the rejection of the Euro as a common currency results in a willingly tolerated tax, which is to a greater or lesser extent included in all domestic prices. It is not manufacturers, but mainly financial institutions that benefit from this, as per their annual income statements. In 2013, spot foreign exchange transactions, hedging contracts for exchange rate movements, and various forms of hedging accounted for CZK 42 billion alone in just the four largest Czech banks. That’s more than 1% of the GDP. This is “taxation of all in favor of a few,” and is an interesting example of continued sacrifice just to keep the beauty of the Czech banknotes.
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