Czechs, Poles signal cautious approach to euro entry

PRAGUE/WARSAW (Reuters) - Poland and the Czech Republic eased away from any notion of quick euro adoption on Monday, approving convergence plans that looked set to delay euro zone membership until the second half of next decade.

The decisions follow a year of vanishing euro hopes for European Union newcomers after painful economic downturns caused budget deficits to balloon far beyond the level required to swap out their local currencies.

They also reflected growing calls from west European politicians for more caution in convergence plans as well as a tendency by some capitals like Prague to embrace the flexibility that a free-floating currency affords them in times of crisis.

Polish ministries approved a plan that included a scheme to cut the country's ballooning budget deficit to the EU prescribed 3 percent of GDP by 2012, although analysts panned it as too optimistic and lacking details.

It follows a rowback from Prime Minister Donald Tusk's government, which had initially planned to adopt the euro in 2012 but has since scrapped that, saying the crisis had made that date impossible.

"The requirements (for entry) have not been met for the present moment, which makes it impossible to set a new, credible date for Poland's euro adoption," the convergence plan said.

"However, swift and at the same time safe passage into the euro zone is the government's intention, as reflected in the preparation work conducted at the finance ministry."

The plan, which like the Czechs' will be submitted to Brussels, included growth forecasts of 3 percent this year, 4.5 next year, and 4.2 in 2012.

It also included a forecast that saw the public deficit fall from over 7 percent last year. Analysts have criticised the government's plan as being too ambiguous and say optimistic figures belie unwillingness for reform.

"The numbers suggest that the government is unwilling to deliver any comprehensive fiscal adjustment and that its deficit reduction schedule on paper is premised on an extremely benign and (internally inconsistent) scenario," said Michal Dybula, an economist at BNP Paribas.

"The plan should be seen as bonds and currency negative over the medium-term horizon."

CZECHS AVOID DATE

Analysts say Estonia may join the euro next year, but other countries will struggle to meet the euro zone's entry criteria, which includes meeting budget deficit, inflation, currency stability, and other requirements.

The Czech plan, which did not actually set a date for euro entry, follows a demand from Brussels for Prague to cut its fiscal gap, which hit 6.6 percent of GDP last year, to the EU-prescribed level of 3 percent of GDP by 2013.

It also comes ahead of a May general election in which parties have clashed over whether cutting costs or spending more is the best way to recover from the global economic crisis.

Finance Minister Eduard Janota said the programme assumed trimming the public sector gap to the required level in 2013 or in 2014, which he has said would allow for euro adoption three years later, after a stay in the ERM 2 currency grid.

Prime Minister Jan Fischer said the plan assumed "painful" savings of around 100 billion crowns ($5.23 billion) by 2013.

But the plan may have limited relevance because the caretaker cabinet will be replaced by a government after the election and the new administration may take a different course.

In December, the government and the central bank agreed there was no point in setting a euro entry target date now as the economic crisis worsened the country's preparedness for the adoption.

(Reporting by Michael Winfrey; Editing by Kenneth Barry)