Let's be proud of the crown – News.cz

When I go around the exchange office where I can buy a dollar for 21 kronor or a euro for 26, should I be ashamed of the crown?

We can be proud of our currency. The crown is a fixed, stable currency in the time series. During our turbulent history she was very resistant to all uncertainties and confusion, traditionally belonging to and still belonging to stable currencies. Since 1993, the crown has steadily strengthened against all major currencies.

This is not common or automatic for currencies. Libra could buy for sixty crowns, and today for half, a dollar for up to forty crowns is about twenty-two. Perhaps the Swiss franc has been stable for years.

So we do not have to change it for the euro? They demand exporters and according to some politicians this would significantly strengthen the position of the Czech Republic within the European Union.

We have committed ourselves to the fact that when the time is right, we will accept the euro. But decisions must be taken by political authorities. From an economic point of view, I add: what role do we play in Europe, how the world takes us. It does not matter what kind of currency we have. We can be successful and influential with or without the euro.

Strengthening the crown will not be radical, there are no reasons for it.

The euro must look pragmatic. Access to the euro area is now more complex than before the crisis. The euro zone underwent a stress test of stability during the crisis. She survived, but with big problems. It has to change and therefore there are complex discussions about risk reduction and sharing. In this context, there is no reason to rush in the euro zone. Moving on a moving target is always complicated. Let us prepare for the reformed euro zone.

Monetary decisions by the Czech National Bank (CNB) influence not only the economy, but also the lives of citizens. Maybe by increasing their vacation or mortgages.

It is not the end of the mortgage, nothing will happen dramatically. Our decision is a certain preventive cooling of the mortgage tree, which could possibly create a problem for everyone.

CNB governor Jiří Rusnok

CNB governor Jiří Rusnok

PHOTO: Petr Hloušek, Právo

If a measure must be effective, someone must touch it. But the first estimates that they will reach 30 percent of their customers today are totally overwhelmed and this estimate has been corrected by the authors themselves. It also depends on the prices of real estate, for example if I buy overpriced real estate in Prague, but this is not related to the overall availability of mortgages. I understand, however, that the measures do not involve banks, developers and, above all, credit intermediaries.

Did not you come up with something too late? The prices of real estate are exaggerated and the expectation that everyone can also take out a mortgage on his own home.

We started with recommendations for regulations three years ago. We advised banks not to finance 100% mortgages at that time. Estimates of prices can in some cases be overestimated. At the moment that the prices of real estate begin to decline, even if only a little bit, we are in trouble. If the bank wants to sell a property for the customer's inability to sell, it loses because the sales price does not have to cover the amount of the loan provided.

That is why we advised banks to finance the purchase from 80% to 85% of the property price from 2016 onwards. Now that someone is taking out a mortgage, we say that his monthly term can not take 45 percent of his net income. The applicant must live somewhere. When his income gets worse, he will pay 70% of the debt to repay the debt, and it will be a problem. Nor may the total credit burden exceed nine-year income.

Banks say they are cautious and that they are legally required to check whether the customers are able to repay the loan.

That is all true, but again, we know that in both our country and the world, the bank is primarily interested in market share, growth and trade. Management is motivated by short-term effects instead of long-term responsibility and sustainability. If that was not the case, there is no banking crisis.

In the Czech national bank we have the right to guarantee financial stability in the country. Financial institutions, the banks that make up three quarters of this system, must be able to work reliably. Not only in times of good, but also in bad times. We protect citizens against the situation where we have to save banks from government money, that is to say, from their taxes. That is why we need to look at what banks do to create possible risks.

The Western commitment to wages is not infinite, it is a matter of generation.

Banks live on loans. And since roughly 60 percent of all loans are mortgages, we are interested in how healthy these loans are. Banks fall on unhealthy loans. If we release it, a relatively large part of the loans can become a problem for banks in worse times. These are gigantic amounts that, if they no longer bear fruit, could be a problem. That's why we say to the banks: comply with reasonable rules, do not exaggerate the risk where you are going.

What do you say about comments like those of the past few days that the CNB has not predicted that it expected a strengthening of the currency that did not happen.

The reality is always more complex. The crown, however, develops as standard, and its development does not have to worry anyone. Firstly, it has increased by five to six percent after leaving the intervention regime. Since then, the exchange rate of the koruna has been stable or slightly weakened. The weakening has nothing to do with the development of the real Czech economy. Weakening is due to the situation on world financial markets.

Since the US Fed began raising interest rates and what certain geopolitical uncertainties have shown, there is a shift of financial capital from countries like us to big markets, especially to the US dollar. It currently offers a much higher rating than other currencies, including the crown. That is why the crown has stopped strengthening.

CNB governor Jiří Rusnok

CNB governor Jiří Rusnok

PHOTO: Petr Hloušek, Právo

We believe, however, that this is a temporary state. Market moods might fade in the course of several months, and the koruna could, as expected, rise somewhat again. But in the future, reinforcement is not radical, there are no reasons.

Do you mean a slight strengthening of what percentage?

If the Czech economy grows slightly faster than the economy of the main euro area countries, we are talking about a two to three percent increase per year.

Czech society now pushes higher salaries in the public sphere. But politicians and economists get out that we will not have that. What is sustainable long-term pay growth?

There is still room for wage increases in the Czech Republic. The economy in the crash of Western wages collapsed abruptly. On the contrary, we are experiencing new catch-up movements, wages after inflation have been rising for four years, even in the last two quarters even with an average of five percent. The space for their growth is not infinite.

By comparison – how much do Western European wages earn?

They hardly grow at all, growth only covers inflation. Wages even fell in a number of countries and sectors.

Do we ever get the wages of advanced countries, or should some economies be more efficient and others less?

There are, of course, differences. Further wage developments will be significantly influenced by the Czech labor market, which does not have a free labor force. This is in favor of wage growth. But we also need to maintain our competitiveness. Therefore, wages can not grow dramatically faster than the rising economic performance. However, if our economy grows by three percent and the rest of Europe around two years, there is room for wage growth.

If the gross domestic product grows by five to six percent in current prices, this is the limit for a healthy rise in nominal wages. A sustained pace is about five percent. The current faster growth is influenced by the fact that there is already room to catch up with the catch-up of the past and that there are no free employees.

Essential to the quality of life is how much the beneficiary receives in real terms and how much he can buy for wages. It is wrong to compare that in a comparable operation a worker in the Czech Republic earns 50 thousand, but in Germany the equivalent of 150 thousand crowns. Consider the actual cost of living, ie the prices of goods and services and the paid tax.

CNB governor Jiří Rusnok

CNB governor Jiří Rusnok

PHOTO: Petr Hloušek, Právo

I dare to assume that our real wage level, which is our purchasing power, is about 60-65 percent of developed Western countries. If our wages grow for another 15 years and another half a year for the West by another two or three percent, then it is a question of one generation, not infinite.

This is ten years since the fall of Lehman Brothers, which caused the global financial crisis. There are voices that can repeat the situation. Are we scared?

There is no reason to fear scary people. But we must perceive that we live in a period of uncertainty. Everyone must try to minimize the risks at his level. We are a medium-sized open economy, depending on what happens in the world. If there is a shock, he will of course hit us. But I do not think that a dramatic economic event will take place in the foreseeable future.

For almost two years the Consumer Credit Act had been in force, which was intended to reduce predatory lending. What is the practical effect?

Serious analysis is still early. Only in May of this year we have licensed entities that can provide non-bank consumer credits.

However, it was confirmed that the market would be approved with a license of less than one hundred. There is thus a certain degree of certainty for consumers who need consumer credit and do not want to go to the bank that they have a stock of nearly a hundred entities that they can borrow and know that they have undergone a certain assessment and that the risk of maladministration or deception exists. should be minimal.

So this will work well now?

Let us not create the illusion that the law on consumer credit would liquidate all usurers who had not yet been outside the official market. It is very early to make a more thorough assessment and to analyze whether this law has reduced the over-indebtedness of a certain part of the population.

The whole interview with Jiri Rusnok can be found in the Saturday edition of the daily Právo.

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