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Why We Don’t Need QE or Euro: Czech Republic

As countries with much larger economies try to contest slowing growth by pumping more cheap money into their financial systems, the Czech Republic is planning to avoid similar actions – and may put off its euro joining date as the single currency becomes less attractive.

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Tomáš Zídek, deputy finance minister of the Czech Republic, told CNBC that while the country would "theoretically" join the euro in 2013, this was not fixed.

"We will have to think about it and ask our people and parliament to agree with it," he said.

"It's not a question of entering the euro zone, it's a question of positioning. This is a crisis of fiscal policies, not a real economic crisis, in Europe. It's really to fulfil all our mid-term fiscal strategy as we have it on paper for the stability of our economy."

The country's economy has been negatively affected by the euro zone debt crisis – it is a member of the European Union (although not the single currency) and the EU is its biggest trading partner. In the third quarter of 2012, GDP shrank by 0.3 percent – the fifth quarter of recession – heaping pressure to take action on the government.

(Read More: Is Czech Republic the Switzerland of Eastern Europe?)

The government has continued to work towards the debt goals set by the EU which would enable it to join the single currency. Its central bank cut interest rates to a record low of 0.25 percent in September, in an effort to jump-start the economy. The move prompted speculation that a liquidity injection could be next.

Miroslav Singer, governor of the Czech National Bank, told CNBC: "We have a liquid financial system already. We never had liquidity problems so we wouldn't achieve very much by putting in quantitative easing. We are in a more traditional ball game."

He conceded that there might be some additional liquidity injection in 2013.

"The relaxation of monetary conditions is due next year according to current forecasts. I'm not going to out-guess myself what I'm going to decide with my colleagues next time," he said.

Some argue that lowering the value of the Czech currency – the koruna - which is a potential consequence of liquidity injections, could help boost key exports for the country. However, a weaker currency may not be able to combat the slowdown in consumer demand elsewhere in Europe.

(Read More: How to Play Markets in Eastern Europe)

"The main issue for Czech exporters is not strong currency but insufficient demand abroad," Benda said. "A weaker currency might help to some extent but the central bank might fail its target if the market is stronger than the central bank."

Its government has come under fire after a program of austerity measures and a shrinking economy, and only just passed the most recent budget. The program has helped reduce its public deficit to an expected 3.5 percent this year, and 2.9 percent next – a level some euro zone countries would be envious of.

"The current government has made a lot of reform efforts so the public finances are fine now," Tomas Cerny, director of Debt Capital Markets Erste Group, told CNBC.

"Whatever may come as a cyclical development will be balanced by net trade surplus and very low debt levels."

Those low debt levels, ostensibly to fulfil the criteria for euro membership, could work positively for the country whether it makes the move towards the single currency or not.

"The Czechs are not really in a hurry," Vojtech Benda, senior economist at ING, told CNBC. "It would be quite costly to contribute to the programs for Greece. They are not really enthusiastic about euro membership any time soon."

Contact Europe: Economy

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