Fiala (SPD): The Czech currency strengthens against the euro by twenty percent in real terms

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Description: Vice-chairman of the SPD movement Radim Fiala in the program K veči

When shopping in the eurozone, Czechs have higher purchasing power than before the war and before covid. In real terms, the koruna has strengthened by roughly 20 percent against the euro, even though some mistakenly complain that it is weak, warns economist Lukáš Kovanda. “The arguments of supporters of the euro that the koruna is weakening are pure nonsense. The Czech currency is not weak at all, in real terms it is strengthening against the euro by 20 percent, despite covid and the war in Ukraine. Europhiles will have to find another stick,” said Kovanda. The SPD movement rejects the adoption of the euro because it would mean the end of Czech monetary, then fiscal and finally political sovereignty. We are pushing for a referendum on the euro and EU membership.

According to Kovanda, in reality, the koruna is not weakening in relation to other currencies, on the contrary, it is getting stronger. “And its volatility (another problem that supporters of the euro have with it) actually represents a desired shock absorber, thanks to whose existence the Czech economy does not have to adapt differently and elsewhere. The key reason why all countries that pay in the euro, with the small exception of Malta, show a higher unemployment rate than the Czech Republic is precisely that many of them have to adapt to circumstances “differently and elsewhere”, i.e. in the labor market. When it cannot weaken the currency, because it is necessarily fixed within the framework of sharing the euro, it weakens the labor market. Therefore, unemployment will increase,” explains Kovanda.

Kovanda points out that according to data from the Basel Bank for International Settlements, i.e. the “central bank of central banks”, it is difficult to find a currency in the world that has shown such a significant appreciation in real terms as the koruna over the past four turbulent years, from 2020 to last year . The so-called the real exchange rate differs from the simple nominal exchange rate, which we know for example from exchange offices, in that it takes inflation into account. It actually provides a more realistic picture of how the given currency is worth.

“The inflation that occurred in the Czech Republic between 2018 and 2019 and the present is almost 40 percent. In relation to the price of everything in the Czech economy, the euro is now, on average, about 40 percent cheaper than in 2018 to 2019. For one crown, a person bought an average of 0.039 euros in 2018 and 2019. And just like that right now. For one thousand kroner, we will now buy roughly 39 euros, again as in 2018 and 2019. And while for one thousand kroner we will buy the same euro as five or six years ago, certainly not for such a kilogram loaf of bread. It has become so expensive that now we only buy 22 loaves for 1,000 kroner, while in 2018 and 2019 it was some 41 pieces,” explains Kovanda.

Of course, inflation in the Eurozone must also be included. Inflation in the Eurozone between 2018 and 2019 is roughly 21 percent. All this means that today, at roughly the same nominal exchange rate as on average in 2018 and 2019, the koruna is about 19 percent (= 40% – 21%) stronger in real terms against the euro than it was then. “One of the consequences of the relatively significant real strengthening of the koruna in recent years is that Czechs have a higher purchasing power of their average wages when shopping in the eurozone than before the war and before covid,” says Kovanda.

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