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Fitch’s downgrade of France’s credit rating on Friday underscores how much the eurozone has changed since 2004. Back then, the Czech Republic as a “four-wheeler” should have entered the “one-wheelers”, today the Czech Republic is a “two-wheeler” and should be included among the “worse three-wheelers”.

When the Czech Republic joined the EU on May 1, 2004, according to Fitch, a total of 100 percent of the eurozone member countries, including Greece, had a better rating than the Czech Republic. Today, after Friday’s downgrade of France’s rating, it is only a quarter of the countries in the eurozone. Only Germany, Austria, the Netherlands, Luxembourg and Finland have a better rating than the Czech Republic.

Germany, the Netherlands and Luxembourg are the only three countries in the eurozone whose rating, according to Fitch, has not deteriorated since May 1, 2004. It remains the same in their case, i.e. the best possible, expressed by the grade “AAA”. However, the rating of all other eurozone member countries has deteriorated since then. This mainly reflects their gradually increasing public indebtedness, which is not compensated by sufficient economic growth.

From an elite club to a club for losers

This raises the legitimate question of whether the euro is involved in this unfavorable development. According to a number of its critics, it mainly benefits Germany, one of the few countries whose rating did not deteriorate, while it harms the overwhelming majority of other eurozone countries. The highly productive German economy, especially its exporters, should benefit from the fact that the euro is slightly weaker than the mark, which makes German exports more competitive in the world. However, of course for a number of other eurozone countries, the euro is supposed to be too strong, which undermines their competitiveness. This applies in particular to the so-called southern wing of the eurozone, i.e. countries such as Italy, Greece and Portugal, but partly also to France.

When the Czech Republic joined the EU, i.e. on May 1, 2004, its debt, or ability to repay it, in the eyes of the Fitch rating agency “A-“. The Czech Republic thus showed a rating that was a full six degrees below the stated best rating of “AAA”. With the exception of Italy, Portugal, Belgium and Greece, all eurozone countries at the time had the best ‘AAA’ rating. Italy, Portugal and Belgium then showed an “AA” rating, two notches lower than “AAA”. Greece then had the worst rating in the Eurozone, “A+”, i.e. four notches below the “German” rating of “AAA”.

The Eurozone must be stubborn in its fight against inflation. The fight against inflation is not over, warns the head of the Bundesbank, Nagel

Politics

Interest rate makers in the Eurozone must be stubborn in fighting inflation and keep raising rates. The head of the German central bank, Joachim Nagel, who became the head of the Bundesbank at the beginning of last year, told the Financial Times (FT). The German central bank holds the largest stake in the ECB and thus has a large influence on its decision-making.

CTK

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The Czech Republic does not have to fear bankruptcy

If we were to convert these ratings to “grades like at school” for a more visual understanding, then eight countries out of a total of twelve that formed the Eurozone on May 1, 2004 had a “one”, three had a “two” and only one, Greece, had a “three”. . At that time, the Czech Republic was a “four player”. Entry into the eurozone, which he committed to at the time, if it were to happen at that time, would thus mean entry into an elite club for him. The average grade in the eurozone was “1-” at the time.

Today it is radically different. While the rating of the Czech Republic, according to Fitch, has improved since 2004, from a grade of “4” to “2-“, i.e. to a rating of “AA-“, as we know, the grade of the eurozone countries at the time mostly worsened, for three of them remained the same. The average grade in the eurozone is now close to “3-“. This is not a sign that would be shown by a unit that has the ambition to call itself an elite club.

Simply put, in 2004, the Czech Republic, as the then “four players” committed itself to joining the “ones” club. Today, the Czech Republic is a “two-player” and entry into the Eurozone would be an entry on average among the “worst three-players”.

Lukáš Kovanda: Is the crown’s “sleepy ride” over? It is being pushed down by the growing threat of a recession in the US

Opinions

Since last Thursday, the koruna has been weakening against the euro the most significantly since last August. This raises the question of whether the growth potential of the Czech currency has been exhausted. The “sleepy ride” of the koruna over the past twelve months against the euro strengthened it by seven percent until Thursday this week. Of the major relevant world currencies against the euro, only one, the Mexican peso, strengthened even more significantly over the same period, writes Trinity Bank chief economist Lukáš Kovanda.

Lukáš Kovanda

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Above all, don’t rest on your laurels

While the rating of the Czech Republic is still gradually improving, the rating of the eurozone as a whole is going down significantly. This is again demonstrated by the case of France, the second largest economy in the Eurozone. After Friday’s rating deterioration by Fitch, France now has the same rating as the Czech Republic for the first time in history. In other words, for the first time in history, the Czech Republic “caught up” with France in its rating. Both countries are now “twins”. But France has long been unwaveringly a “one-player”. “One-liner with an asterisk”. On the other hand, the Czech Republic is a “four-wheeler”.

Given the rate at which France’s rating has deteriorated over the last twenty years or so, and the fact that the Czech Republic’s rating has improved somewhat over the same period, it cannot be ruled out that the Czech Republic will soon surpass it in terms of rating. There can also be a “three-wheeler” from France.

Czechs should therefore not be frightened by the fact that we are headed for bankruptcy, when none of the experts in the world actually think so. On the other hand, it is necessary to gradually put public finances in order so as not to lose our still relatively improving global position. Hopefully, the consolidation package that the government will present in May will make a significant contribution to this. He has a unique opportunity to cut down on expenses.

Read more comments by economist Lukáš Kovanda here